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momdaughteringarden

Money Smarts for the Real World

May 7, 2011

Wishing all Moms a Happy Mother's Day

This issue celebrates the women who hold the family together:  Mothers.  In the world of personal finance, mothers have a lot of power whether they work outside of the home or not (this is doubly true when mom is also the only head of the household).  Moms control how and where household money is spent and saved, making them very influential consumers.  Yet, women are also the most vulnerable.  According to the US Department of Labor, in 2009 the average median weekly salary for a full-time employed woman was 80% of the median salary for their male counterparts. Of the 62 million female workforce (ages 21-64) only 45% participated in a retirement plan.  Of the elderly population, women are more likely to live in poverty because they tend to have less saved for retirement (lower pay or fewer years spent in the workforce are contributing factors) and are more likely to be a surviving spouse.  Moms always make their family the priority, and often put the needs of others ahead of their own. This Mother's Day spread the word to the moms you know: their financial health needs to be a priority, too. 
moneyguiltMotherhood, Money and Guilt

I had a dilemma.  My husband's birthday was fast approaching and I had no idea what to get him; the kids were just 12 months old and were too young to make something cute for him.   Worse yet, he told me not to get him anything.  He didn't need anything.  Seeing how I was no longer earning any money of my own, should I really run out and buy him something he didn't want, and that he would end up paying for?

 

Times like these made me miss my paycheck.  I had adjusted to shedding my professional skin, but losing the independence my paycheck provided took more getting used to than I had thought it would.

 

"It's your money, too," my older sister, a stay-at-home mom, reminded me.

 

I knew that, and my husband certainly never made me feel any differently, but there it was: Money Guilt (added to all that Mommy Guilt).  Never mind that my salary had helped us buy our house, or that my salary (saved and invested well) contributed greatly so that I was able to stay home with our boys.  So, where was this guilt coming from? 

  

We're a guilty species, us women.  When we're doing our best, we feel like we're not giving our all.  When we need help, we feel weak.  Add money into the mix and it gets even uglier.  If we earn more than our men, we feel pressured; and if we're not bringing in "enough" (or any at all, for that matter), we feel less than.  Click here to read more. 

 

Finding Financial Strength 

If you need inspiration to make changes to your family finances, these 5 Financial Dos and 5 Financial Don'ts are a great place to start:

 

 

5 Financial Dos

  1. Do treat investing as a vital, non-negotiable budget item.  If you make it a priority, it becomes one. 
  2. Do aim to save at least 10% of your gross income across all your accounts.  If you can do more than 10%, that's even better.
  3. Do reduce your debt from consumer purchases (credit cards), which can trap you in a vicious cycle.
  4. If it's a choice between saving for retirement or college, do save for your retirement first.  Loans and scholarships can always help finance college.  You can't borrow to pay for your retirement.
  5. Do make sure you have wills and adequate life insurance for both you and your spouse.

 

5 Financial Don'ts

  1. Don't wait until you think you have a "stash" of money to invest.  Invest to create a stash.
  2. Don't waste money on lottery tickets.  Your chances of being hit by a bus are greater than winning.  Take that money and put it into savings (emergency fund) or invest it. 
  3. Don't listen to what everyone else is doing.  Focus on your goals and your situation.  Most people aren't honest about their situation anyway, so don't apply their strategies to your situation.
  4. Don't forget that if you are financially irresponsible, your children will feel the effects - today and tomorrow.  Do you really want your children to have to kick in to pay your bills when you're retired, at the expense of their families?
  5. Don't buy an investment if you can't understand how it works, and how the person who sold it to you is compensated.

401k$mart Question

My employer offers a 401k plan and will match a percentage.  Does it make more sense to do this or an IRA?

 

If you can only choose one, absolutely do the 401k - for three reasons.  First, your contribution made to a 401k reduces your taxable income.  For example, if you earn $45,000 and contribute $5,000 to your 401k, the income reported on your income taxes will be $40,000.  Second, any time someone is matching a contribution, it is free money.  Never turn down free money.  Lastly, the money in a 401k will grow free of taxes (same as an IRA) until you withdraw it.  If you leave your employer, you can roll these contributions into an IRA.  Be aware that employer contributions usually are 100% yours over a period of time (based on how long you stay with the company).  401ks follow the same rules as an IRA when it comes to withdrawing - you'll need to begin taking withdrawals after age 59 and no later than when you reach 70 .  If you withdraw it sooner, you will be taxed at your income tax rate, plus a 10% penalty. If you are able to fund both a 401k and an IRA, my advice would be to do so. Increasing the amount you invest plus increasing the length of time invested plus the effects of tax-free compounding equals a valuable strategy in growing your nest egg. 

  
In This Issue
Motherhood, Money and Guilt
Finding Financial Strength
$mart Question
$mart Move
$mart Move:
Calculate Your Mom Salary
rshead

Mothers:  Ever wonder what you would earn for all that you do?  To calculate a personalized paycheck based on  the number of children you have; their ages; whether you work outside of the home or work at home; and all the different roles you perform, click here.  Based on that "salary" shouldn't you treat yourself as well as a good employer would?  Fund your retirement savings with the maximum you are able to.

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Thank you for subscribing to our newsletter.  We hope you found it informative.  Our mission is to provide you with timely information that you can put to use.  We want to address your needs and hope you will provide us with your questions, comments, and feedback so we can make this publication and our website a meaningful resource for you and your family.   

Dina Isola, President

dina@realsmartica.com
631.675.1420
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