The Top 10 Financial Mistakes Women Make By Sallie Krawcheck CEO and Co-Founder of Ellevest
Here are the top 10 financial mistakes professional women make:
1) Letting your husband or partner manage the money without your involvement. Very 1968… and not in the cool, mod way. Few of us think we’ll get divorced or that tragedy will strike, but look around. It does. You don’t want to be learning about your financial situation while you’re in shock.
2) Signing your joint income tax return without reading it. This is the mistake that divorce specialists often cite. If tax returns are handed to you at the last minute with a “Don’t worry. Just sign it, honey,” don’t. You’re on the hook.
3) Using your husband’s financial advisor, even if you don’t really like him / know him / can’t stand him. (And he is usually a “him.”) Here’s a test: at your next joint meeting, how much does the advisor engage you / speak to you / look at you? If “he” spends most of his time talking to “him,” find your own.
4) Not asking for jargon to be explained. Don’t let politeness or not wanting to look dumb get in the way of understanding your finances. Research shows that both men and women are shy of asking for explanations of financial terms; even so, men still invest while women more typically won’t. (I agree: it’s hard to know which is the worse outcome. So please just ask the questions. It’s your right.)
5) Not taking into account your greater longevity in your investing plan. If you’re married, you’re likely to live 6 – 8 years longer than he does. Does your financial plan take this into account, and your years without him? Even if both of you are “moderate risk” kind of investors, that means different things if you’re living longer.
6) Not buying long-term care insurance. Here’s a shocker: 70% of 65-year-olds will need some form of long-term care. And, again, we’re around for 6 – 8 years longer than he is.
7) Not taking enough risk. We women tend to be more risk averse in our investing. While this may sound counter-intuitive, our longer lives – and the fact that we retire with 2/3s the retirement savings of men – can call for somewhat greater (but still prudent) risk taking, to earn a higher return. This is something that many women have to push themselves to do.
8) Making the “keep working / stay at home” decision based on today’s salary. How often do you hear this: “If I leave the workforce, I’ll be giving up $x in salary, which barely covers the babysitter’s cost”? Rather than analyzing this based on a static point-in-time, it is more accurately thought of as a net present value calculation. That’s because once we women step out of the workforce, we average 84% of our prior compensation if we return after one year and just 50% (!) after three years. This earnings stream should be compared to the (admittedly tough-to-forecast) salary raises one is likely to receive if one stays in the workforce. This very personal decision may not be one based solely on the dollars; but we should at least make sure we are looking at the right numbers.
9) Don’t necessarily judge a product by your old impression of it. People often tell me they simply want to ensure a steady income during retirement. When I say ‘How about an annuity?”, they most often say, “Oooh, no, not an annuity!!” The reputation of the product – driven in part by its complexity – turns them off. But it can be worth spending the time to understand and relook at a product, if it can accomplish an important goal.
10) Not seeing your money as a means to express your values. Many of us express our values through the products we buy, the non-profits we support, the way we spend our time, and the companies we work for. But few of us view our investments as just such a tool. And, indeed, back in the day, values-based investing had a fringe-tree-hugging reputation. The industry has matured, and today can represent a way for individuals to have their money work at more than just earning a financial return for them.
These are the ten that I have seen. What did I miss?
(1) In The Investing Mistake Almost All of Us Make, I wrote that almost everyone fails to recognize that, for many of us, our most significant asset is the net present value of our future earnings. Thus, many of us do not take steps to protect it or hedge it. Instead we ignore it
Actionable Ideas from Dreams & Money.
This article presents many actionable ideas. Woman or man, professional or not, review your situation and take appropriate action. Few are listed below:
- Basic Money Skills are essential for everyone, even if you are living happily with your spouse and do not anticipate any potential divorce issues. Death is one aspect over which, no one has any control. When the money managing spouse dies, how the other spouse is going to manage?
- If you don’t understand something, don’t sign. As the author of this article says, “So please just ask the questions. It’s your right”
- Risks are part of everyday life. For your betterment of economic and financial situation, you may have to take risk many times and when required, do it with proper risk management strategies. It includes not only life and long term insurance but also many other aspects.
- As the author points out, the most significant asset of any person is “the net present value of our future earnings.” What are your steps to protect it or hedge it? If it is not already done, at least initiate the process right now.
Perrii Muthuraman, editor of “Dreams and Money” is an Insurance Broker and a Personal Financial Planner. If you are living in the Greater Toronto area, you can contact him for a free consultation at 416 473 6100 or email: firstname.lastname@example.org