What Every Woman Should Know About Financial Security
by Emily Sanders
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Women tend to have a longer life expectancy than men, which means they spend more time in retirement and often do so with less savings, given their lower average lifetime earnings. The reason for this is demographics: women interrupt their careers for child bearing and rearing, as well as taking time off to care for an elderly parent. They are also more likely to live alone due to widowhood or divorce. The average age of widowhood is a surprising 59 years old. Due to the expansion of economic opportunities for women today, it is key for CPA’s to regard female clients with the same intensity as we do males. By gaining a better understanding of our female client base, we’ll improve chances of cultivating a gender-diverse client base. There are ten basic pointers I’d like to share in which we can help women prepare for a life of financial security and feeling in control of their futures by understanding their dreams and life goals.
First, know your money style. Are you motivated by fear, commitment or happiness when it comes to making money and planning decisions? There is no right or wrong style, and not all women are alike. If you’re in a relationship, it is important to be aware of the other person’s money style and biases, in order to avoid conflict. A Fast Company survey of 1.7 million people showed that a salary of $60-75K can bring day-to-day feelings of happiness, and $95K/year is the magic figure for achieving fulfillment. Earning way about those amounts may not necessarily boost emotional well-being. Money halps us feel secure and provides protection, do the things that make us happy and look after the people we love. Typically, parents spend more time talking about money with boys than with girls; we can change that.
Know your Net Worth. For most of us who are CPA’s, this is ingrained: Assets minus Liabilities equal Net Worth. However, it behooves us to share this simple formula with our female clients. Recently Forbes compiled a list of 2,043 billionaires worldwide, and only 227 were women, mostly via inheritance or divorce. In order for women to build their wealth (not to be billionaires), a good start is knowing where we stand currently in terms of what we have and what we owe.
Third, inflation hurts. Our firm’s financial planning software projects an annual overall rate of 3.5% inflation. There have been periods in US history where this figure is more or less. Inflation erodes purchasing power. In the past 20 years, the items inflating fastest are healthcare, college tuition, textbooks and childcare. What is becoming more affordable are TV’s, software, toys, cell service, clothing and new cars. Particularly when planning for children’s or grandchildren’s education, we build in a higher rate of inflation such as 7.5% per year! No wonder there is so much concern about student debt.
If you are employed by a company, know your options and your benefits such as 401K and matching for retirement, stock options, insurance benefits such as health, dental and vision, reimbursements for gym memberships (a nice perk in some parts of the country!), allotment for vacation and sick days and medical leave. Many companies have Statements of Benefits that you should review carefully annually.
There are 9.4 million women-owned businesses in the US, and growing fast! Women are opening new businesses at twice the rate of men, and Georgia is a leading state. If you are an entrepreneur, know your self-employed benefits to save for retirement such as a 401K, i401K or SEP-IRA. There are many deductions available for business expenses, and income and cash flow tracking is crucial. Foremost, with the help of your CPA or attorney, choose a business entity. Most popular are LLC’s and S-corporations, and C-corporations are less frequently used by start-up businesses.
In this day and age of cyber-hacking, know your credit score and how to improve it! Typically, the FICO score is the measure used by banks and lenders. The higher your score (max is 850), the lower your interest rate on borrowing such as a mortgage, car loan or credit cards. A lower or less desirable credit score will cost you more over the life of the loan in terms of higher interest rates. Look up your score periodically online, such as with the free service CreditKarma.com. Looking at your own scores online won’t hurt your score, and get in the habit of paying off your balances in full monthly if cash flow allows.
Sixth, yet vitally important, know your budget and cash flow. Practice honesty with your spouse or significant other, and avoid financial infidelity which would include secret purchases, hidden accounts and surreptitious withdrawn savings. Utilize a budget/expense tracking software such as Mint.com or Quicken.com which have easy apps for your smart phone.
It is imperative for women to understand their expenses and create a new budget when experiencing divorce. One household has to instantly support two households. Do you keep or sell the house? Give up other discretionary items such as travel or private schools? Aim to hang on to your retirement savings if at all possible, as women live longer than men. The new 2018 tax law changed alimony to be non-tax deductible for the giver and the recipient, opposite of the law for pre-2018 divorces. Since 1990, the “graying divorce” rate has doubled for Americans over 50 and more than doubled over age 65. This presents unique financial challenges as long-married couples have grown apart when faced with increasing longevity.
Women also need to plan for the unexpected: family illness, divorce, tree falling on the house, an elderly relative needing care, death of a loved one. This is where assessing the proper level of insurance comes in for financial security of one’s family. Not only life insurance, but disability, umbrella, long-term care. It is also important to have estate planning documents that mesh with your state of residence and status in life (whether married, single, divorced, kids or no kids). About 50% of US adults are intestate, meaning they have no will, so it is key to advise clients that this is a necessary protective step.
Teach others about financial literacy and the benefits of saving early. Get involved as a mentor for others and be a role model of good financial stewardship. Fidelity Investments found that women are better investors than men over the long term by 0.4% per annum, because women don’t churn investments as much and don’t see investing as a competition or a game. Having a new baby is a great time to start saving, or if you have a daughter, open a Roth IRA for her and set aside up to $5,500/year for tax-advantaged retirement if she earns that much in W-2 income. This Roth can supplement what’s left of social security for the younger generation! It’s not too late to get involved in the GSCPA’s Financial Literacy Committee, which does great work in the community.
Advocate for others and yourself. Be willing to operate as a mentor to promising young women in your firm or company, and when applicable, sponsor them for expanded roles or promotion. One’s key control factors come not from what you earn but what you do with what you earn. The first step in taking control of your finances is to be transparent and to speak with a trusted advisor, spouse or parents. What can be controlled is saving vs. spending and portfolio risk. Employment duration and longevity is somewhat controllable, while market returns and geopolitical events and risks are not predictable. Help your clients be prepared for the trade-offs: now vs. later and need vs. want when planning a secure financial future.
Lastly, make use of resources available online and elsewhere to build basic knowledge of finances such as CreditKarma.com, KhanAcademy.org. I also highly recommend a book written by a friend and colleague, “The Money Queen’s Guide for Women who Want to Build Wealth and Banish Fear”, by Cary Carbonaro. This is a great quick read that made it to the top of Amazon business book charts. Enjoy the adventure of female financial literacy, and bringing your female clients along on the educational spectrum! By doing so, you will build loyalty for life.
Emily Sanders is responsible for helping clients with their financial life goals and co-manages the Atlanta office of Goldman Sachs Personal Financial Management, within the Consumer and Investment Management Division of Goldman Sachs. Before launching Sanders Financial Management, Emily served as Assistant Treasurer at BellSouth Corporation, where she managed their investments, as well as mergers and acquisitions and global banking. Emily was employed in various financial management roles by The Coca-Cola Company and Charter Publishing Company in New York City and was a financial consultant to Home Depot. Emily graduated Magna Cum Laude from the University of Pennsylvania with a Bachelor of Arts in International Economics and New York University with a Master’s of Business Administration in Accounting. Emily received a Juris Master (JM) degree from Emory University School of Law.