As a wealth adviser for over 25 years and co-founder of Bridgewater Wealth’s Her Wealth™ it was the subtitle that really caught my eye. It made me think about the “lessons learned” from the many mistakes I’ve seen over my career, and how we can prevent these mistakes in the future.
Below is my list of the top 10 money mistakes that I see women make all too often. As you go through the list, you will probably find that you knew the right solution all along. However, for various reasons tied to fear, lack of confidence, preconceived notions of money from childhood and exhaustion from over-scheduled days doing things for everyone else, women often neglect to prioritize their own financial wellness and assert themselves.
It’s never too late to be more focused and intentional about your money. Quite simply, what are you waiting for?
1. Putting your finances last on your list: As women, we make time and take care of the needs of our children, spouse, partner, parents, friends and co-workers at the expense of taking care of ourselves. We excel at doing for others with very little time for our own priorities. I hear this all the time from the women we advise.
But, when we put our finances last, we miss out on opportunities to grow our wealth and secure our own financial future. Be conscious about how you spend your time, and make your financial well-being a priority right now. Time is money. Set aside time each month to review your finances and goal. Are you on track?
Money gives you choices and allows you to be financially independent, all of which leads to a happier and more secure life. If you’re not sure what you need to know, take our Financial Fitness Checkup quiz. It’s quick (12 questions) and will confirm what you already know and what may be missing in your plan.
2. Failing to become financially literate: Being financially illiterate is a choice, just growing your wealth is a choice. You can’t control your financial future if you don’t know some basic “Finance 101” information, such as:
The importance of having an emergency cash fund;
differences between good and bad debt;
what your employee benefits are;
why you need different types of insurance to protect you and your family;
and how growing your savings through investing and compounding works.
You may think you don’t have the time to learn, or that investing is too complicated or scary. These are just excuses that prevent you from being financially independent. There are many ways to become financially knowledgeable with a small time commitment, such as reading articles on money and investing (even if it’s just scanning headlines at first); listening to CNBC, radio shows and/or podcasts such as “So Money with Farnoosh Torabi” as you drive; reading our Her Wealth blog; attending free investment and insurance seminars; and talking to financial professionals and friends.
Remember, the goal is to learn about your finances and gain knowledge to benefit you, not to succumb to sales pitches.
3. Being financially unprepared: This happens one of two ways: by not having regular conversations about your net worth, spending and everything else involving your finances with your spouse or partner, or by suddenly being faced with an unexpected life event, such as death or divorce, and not being ready to take over the financial reins.
Your net worth is the sum of all your assets (savings, retirement funds, house, etc.) minus your total debt (all loans, including credit card balances). Your spending budget gives you a month-to-month picture of your income and expenses so you know how much is left over to invest and grow your wealth. It’s a big mistake not to have these ongoing conversations, or assume your spouse or partner is handling all of this, because life can take a dramatic wrong turn.
The current statistics show that 50 percent of marriages end in divorce and the average age of a widow is 55. By age 75, 75 percent of married women are widowed. These are sobering numbers and a major reason that women should be prepared to take care of themselves or their family financially.
Have regular conversations about your current financial situation so you are well informed, and make sure to have the difficult conversations too, such as those dealing with adequate life insurance and your will and estate plan. By the way, it’s not enough to just talk about all of this — you also need to have access to your financial records and know passwords for all accounts.
4. Not paying attention to your money: This goes hand-in-hand with being financially illiterate and unprepared. Review your monthly bank and brokerage statements. This is the best way to truly understand your personal financial status, catch any errors and keep you on track toward your goals.
While you’re at it, you should also make sure to do a quick review of your annual tax return before signing it. You don’t have to be a tax expert, but look at it for reasonableness. There is a lot of valuable financial information contained here. Dawn Doebler, CPA and CFP®, explains why you should never sign a tax return you haven’t read. Don’t be afraid to ask questions, do online research and meet regularly with your financial adviser — this is your money, so we encourage you to pay attention to it.
5. Not talking about your money and investments: More often than not, it is the wife who pays the monthly household bills and the husband who takes care of the investment decisions and management of a family’s wealth. There seems to be an imaginary line drawn between these designated duties, but it’s time to cross that line and be an active partner in your financial planning and investment management decisions.
This can be tough if your spouse feels you may be questioning his decisions. Let him know that you want to be comfortable with what you both have put away and how it’s invested for your future security. Make sure to attend meetings with your husband and wealth management team, and review your financial and investment statements regularly and ask questions. We all know of stories where women blindly trusted their investment portfolios and inheritances to their husband or partner for years, only to be “surprised” when their wealth was a lot less or non-existent. Stay informed and be engaged.
6. Saving instead of investing: There is a difference: Saving typically relates to putting money in a bank accounts to earn a fixed rate of interest, while investing involves strategically growing your money through compounding, diversification (more on this in No. 7 below) and yes, taking some risk.
Perhaps out of fear or lack of knowledge, women in general tend to be more risk-averse than men. By being too cautious, afraid of the stock market or not investing regularly or early enough, you will miss out on compounding. Compounding is having your money continuously grow based on reinvesting all the earnings. Albert Einstein said, “Compound interest is the greatest mathematical discovery of all time.”
The more time you give your investments, the more your original investment and reinvested earnings grow, since money compounds on itself. Earnings includes interest, dividends and capital appreciation.
Make every effort to invest regularly and maximize your annual retirement contributions in your 401K and IRA plans so that you combine long-term compounding and tax deferral (as well as any employer matching). Your investments should match your risk tolerance and time horizon, but don’t fear every stock market downturn. Accept the stock market ups and downs as a normal part of investing, and stay invested for the long term.
Based on the time value of money tools like MSN’s Time Value of Money Calculator, it’s easy to compare saving at 2 percent versus investing at 6 percent. For instance, if you invested $1,000 a month for 30 years, or $360,000 in total, with annual compounding at 6 percent per year, the future value of your portfolio would be $949,000 in 30 years. Compare that with saving at 2 percent for the same 30 years — your future value would be $487,000.
7. Over-analyzing your decisions: This follows closely on the above mistake. It is important for women to get in the game and take control of their financial future. For all those women who are perfectionists and want to get everything right before investing, give yourself a break and understand there is no perfect investment strategy. You want to be informed, but not to the point of gathering so much information that you are overwhelmed and paralyzed from ever investing.
Invest in a well-diversified portfolio that combines different types of stocks, bonds, real estate and multi-strategy investments to allow for more consistent returns with less risk. The asset mix you choose will determine the risk and expected return of your portfolio. There are plenty of good mutual funds and exchange-traded funds that are passively managed to mirror a market index, as well as actively managed investments. Both vehicles offer professional management, diversification, liquidity and low transaction costs.
If you don’t want to make these investment decisions on your own, then hire a financial adviser to manage your portfolio and be an active learner. Bottom line: Stay diversified, don’t try to time the market and remain invested for the long term. Your investments will grow through compounding. If you’re not sure how to get started, read my investing primer “A recipe for financial success.”
8. Not having investments in your name and properly titled joint assets: With roughly 50 percent of marriages ending in divorce, every woman should have assets in her name. This includes at least one bank or investment account and one credit card in your name alone. This is in addition to a joint bank account to pay household expenses.
Make sure your name is listed on all joint investment accounts and property — period. You should have equal access, signature authority and title to these joint marital assets. Even if your partner gives you several good reasons why it should be held in his name only, don’t do it — the risks far outweigh any potential advantage should there be a death or divorce.
This is not to say that you cannot own assets in the name of a trust, but make sure you are fully knowledgeable when you title assets in trusts by consulting with a good attorney. Let me add one caveat here: If you have a prenuptial agreement whereby your premarital assets are to be maintained in your individual name, then you should absolutely make sure you keep this money in your separate and individual name. Do not commingle or put these accounts in joint name.
9. Not protecting your inheritance: Getting an inheritance is often the last chance to receive a large sum of money, so women need to protect it legally and invest it wisely.
First, always keep inherited wealth in your own name, separately, directly upon receipt of your inheritance. We recommend that you do not commingle or put your inheritance in a joint account. If you are buying real estate with your inherited money, make sure that property is titled in your name only — ditto for any investments or accounts that you open with this wealth. Unfortunately, separately (inherited) property has a way of becoming marital or joint property if commingled with joint assets, so we strongly advise working with an attorney to ensure this does not happen to you.
When it comes to investing this money, determine a careful investment plan and hire a financial professional as needed. Bottom line: Stay in control of your inheritance, don’t feel guilty about keeping it in your name only and be very intentional about any money you spend or give to other family members or friends.
10. Not seeking financial advice: While this may seem like a shameless plug, there is much value in having a trusted relationship with a financial adviser. Like having a personal trainer or a therapist, your adviser works to keep you on track to accomplish your goals and achieve peak financial performance. Assess what your financial needs are, whether it’s investing, financial planning, tax work, estate planning — maybe all of them — and create your wealth management team by asking people you trust for references or check online resources.
Interview a few advisers and get a good understanding of their services, the types of clients they serve, experience, areas of expertise, compensation, frequency and style of communication, sample reports, etc. Your adviser will have access to your personal financial information so trust and confidentiality are critical. Make sure you are comfortable with this person both professionally and personally.
Take time to check out the firm’s credentials, as well as the professional designations of your advisory team. Remember, this adviser works for you and is paid by you, so make sure this person is objective, puts your best interests first, listens and helps educate you, and most importantly, you feel comfortable with them.
Make a commitment to yourself to avoid these money mistakes and take control of your financial future. Your enrichment will go far beyond your finances!