9 MISTAKES WOMEN DO WITH FINANCES
- JWB Post
- January 16, 2014
We all make mistakes. And it is fine! However, it is better to learn on someone’s mistakes. Here are the top 9 financial mistakes professional women make:
- Letting your husband or partner manage the money without your involvement. 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.
- 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.
- 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. It’s hard to know which is the worse outcome. So please just ask the questions. It’s your right.
- 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.
- Not buying long-term care insurance. Here’s a shocker: 70% of 65 years old will need some form of long-term care. And, again, we’re around for 6-8 years longer than he is.
- 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 2/3rd of 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.
- 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 maid’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 Rupees; but we should at least make sure we are looking at the right numbers.
- Don’t necessarily judge a product by your old impression of it. People often tell they simply want to ensure a steady income during retirement. When asked ‘How about an annuity? they 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 re-look at a product, if it can accomplish an important goal.
- 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 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.
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