by Manisha ThakorDo you ever worry that you'll end up old and poor? Do you ever feel like you are not making enough money? Is there a dream stuck inside you because you literally and figuratively can't afford to let it out? If you, so you are not alone.
After 15 years working in the financial services industry as an analyst, portfolio manager, and client relations executive I've met many people who feel the same - women and men. I've chosen to focus my work, however, on women because we have some extra headwinds to fight in the form of pay inequality, longer life spans, and a propensity to spend 11 more years out of the paid workforce than men raising children or caring for elderly parents. In other words, while the basics of personal finance are the same for both genders, it's extra important for us women to get them right.
Here are three classic mistakes that I've seen women make with their money:
1. Not Asking For Raises At Work. According to groundbreaking research by noted Carnegie Mellon professor and critically acclaimed author Linda Babcock, women don't ask for raises nearly as often as men - and we pay dearly for that. Academic studies show that men negotiate their initial salaries four times more often than women. As a result of lower starting salaries, over the course of their careers women earn $500,000 less than men. Additionally, women who consistently negotiate their salaries throughout their careers earn roughly $1 million more over the course of their careers than women who don't.
2. Not Saving For Retirement Soon Enough. According to a recent study by Transamerica's Center for Retirement Studies, men start saving for their retirements on average two years earlier than women. Specifically at age 28 versus age 30 for women. That may not sound like a big deal... until you run the numbers. A man who starts saving $5,000 a year at age 28 and earns an average annual return of 7% will have a nest egg of $801,687 at age 65. A woman who wait until age 30 to start saving $5,000 a year - and earns that same average annual return of 7% - will have a nest egg of just $691,184. That's a whopping 15% less due to simply a two year delayed start. If you subtract out another 11 years for time spent out of the work force you end up with closer to $300,000 at age 65!
3. Not Expecting To Be In The Financial Driver's Seat. The personal finance landscape has grown so complex over the past twenty to thirty years it can make your head spin. Whether it's trying to figure out how to finance a home or send your children to college, the array of options is dizzying. As such, it's tempting to hope that some how, some way, someone else is going to sort this all out for you. And I'm not talking simply about "a man is not a financial plan" (although that is true - increasingly these days women are the primary or co-breadwinners in their households). I'm talking about the hope that there is some magic financial guru who can tell you "The Financial Secret." The truth is while there are a many incredible financial advisors - CPAs, CPFs, etc. if you are not an informed client you will likely not maximize your relationship with them. Being informed doesn't mean you have to master all the technical nuances, but it does mean accepting that just as when you consult with a doctor you know you ultimately are responsible for your health the same goes for your money.
If you can avoid these three common pitfalls, you'll be putting yourself solidly on the path to financial freedom, financial security, and financial nirvana. For as I like to say, when you "own your finances you own your life!"
Want more financial love? You can follow Women's Financial Literacy Initiative founder, Manisha Thakor, on Twitter at @ManishaThakor, sign up to get her email updates delivered right to your inbox here, and enroll in her innovative new online personal finance course for women called "Money Rules."
