Growing up, I was taught that money isn’t a “polite” subject — which means it took me a long, long time to get comfortable with negotiating a salary or tackling financial decisions in a straightforward way. I waited way too long to start contributing to a 401K, and in times of financial crisis was guilty of letting my bank statements molder unopened in the corner. Not until I hired a financial advisor in my forties did I start feeling a sense of purpose and control about the money I was earning.
Behavioral economics has taught us that people don’t really make rational decisions about money. We all have beliefs and fears that affect how we spend and save. I know lots of successful women who, like me, are haunted by the idea that they will run out of money in retirement — a fear that can be paralyzing rather than motivating. (One reason, perhaps, that women hold 71 percent of their assets in cash versus 60 percent for men, when they could earn higher returns elsewhere.) I’ve also talked to younger women who find the prospect of investing so daunting that they opt out completely. At the extreme end, a young woman confessed to me recently that she had stopped contributing to her 401K during the pandemic because “I figured we’d all be dead”! Getting vaccinated cured her of that fear, but she lost valuable investing time.
There is plenty of good news about women and money. Women already own more than half of the personal wealth in the U.S., and that number is projected to go higher in the next 3–5 years — an unprecedented wealth transfer. Numerous studies have shown that while we tend to start later as investors, women are actually better at it than men, and we’re more likely to focus on investments that benefit society and the planet. But women also tend to suffer from a lack of money confidence. Couple that with a persistent wage gap and the continuing effects of the pandemic-fueled “she-cession,” and we have plenty of catching up to do.
We asked Sharon Epperson, CNBC’s personal finance correspondent, to join us recently to talk about taking control of our financial wellness in this uncertain time.
Her top three takeaways:
Use the “60 percent solution.” Nothing like a simple framework to give you clarity. Sharon’s goes like this: Sixty percent of your gross income should be for your recurring expenses — including taxes, mortgage or rent, loans, car payments and the like. Twenty percent should be invested long term, that is, you won’t need to access it for 10 years or more. Ten percent should be in short term investments, which might just mean a high-yield checking account — the key is to make sure you have instant access to cash. “And ten percent should be for fun. We have to enjoy what we earn!”
Forgive yourself for your money mistakes, and then make a plan. Sharon ruefully recalled taking out a HELOC in order to furnish her new home. “I cared too much about what other people thought,” she admits. We all make money mistakes (I’m thinking of my closet full of shoes for a life I don’t have and don’t want). The cure: Have an overall plan. What are your priorities? What do you value? Is your spending truly aligned with what you care about?
“If you’re spending to make yourself feel better, find something — anything — else,” Sharon says. “Put things in your internet shopping cart and wait a day to see if you want it tomorrow. Also, my children know they can’t ask me to buy them anything unless they’ve found a coupon for it!”
Coupons may make you crazy — but it doesn’t matter what strategy you find, as long as it works for you. One of the participants in our session used this mantra: “I can have anything, but I can’t have everything.” That worked so well that she was able to build her dream house ahead of schedule.
Enlist help. “Women are planners and team leaders,” Epperson says. “You are the CEO of your financial life, and you need a team to help you.” She recommends interviewing at least three certified financial planners (try the Financial Planning Association and the National Association of Personal Financial Advisors). “You also need an attorney,” she continues. “Some people think that estate planning is morbid. But this is a key part of your financial plan.” You need a will, a power of attorney, and clear directives, especially if you have children. Revisit your plan as your circumstances change.
There are plenty of resources out there for women who want to be more in control of their financial lives (and you can see more of Sharon on CNBC’s “Invest in You” site). My big takeaway from the session with Sharon was to Keep It Simple. Most of this stuff isn’t complicated, and I can get help for the complexities. There’s no shame in making mistakes, or in asking for help. Know what you want and go for it. Focus, clarity, confidence. We’ve got this.
