One of the leading fears among women is the fear of poverty. Unfortunately, this fear isn’t unrealistic. According to the US Census data, the number of older women living in poverty is 50 percent higher than older men living in poverty. Throughout history, women have relied on someone else, such as a husband or boyfriend, for their financial needs. However, at some point in their lives, the majority of women will be solely responsible for their finances due to divorce or because most women outlive men by 7 years. It’s time to overcome this fear by taking charge of your finances and avoiding some common mistakes.
Mistake #1 – Not having savings set aside for emergencies
An emergency savings account is your security blanket, but don't get overwhelmed by the large numbers recommended by the financial service industry. Start small and set goals you can easily reach, like having $1,000 in the next 12 months. Open a savings account that you won’t be able to easily access, and set up an automatic transfer of $25-$100 per month. As you get used to the new level of saving, increase the amount. You will be amazed at how much you accumulate in a short amount of time. Remember, this money is for emergencies like car repairs, insurance deductibles or other unexpected events. When you need to access this money, make it a priority to build the balance back up again.
Mistake #2 – Not saving enough for retirement
Women often put the needs of others ahead of themselves. We focus so much on the money we need today to care for our families that we forget about the money we’ll need in retirement. Just remember, saving more now will keep you from being a burden on others as you age. According to a study by Aon Hewitt, women contribute a smaller percentage of their income to their retirement plans than men do, and one third of women fail to take advantage of the employer matches in their retirement plans. Yet women live longer and will need more savings at retirement. Taking full advantage of the employer match should be your number one goal. If you don’t have access to a retirement plan through work, open an IRA on your own or through the help of a trusted advisor.
Mistake #3 – Being fearful of investing
While some women don’t have an emergency savings, there are others who keep too much in low interest savings accounts. Many women lack confidence in their ability to invest. Some lack the time to educate themselves and feel overwhelmed by all the information out there. Others are held back by fear of losing money. However, studies have shown that female investors outperform male investors over the long term. Higher testosterone levels lead to higher risk, often resulting in the euphoric investing found during economic bubbles. Female investors tend to take fewer risks and trade less often, leading to higher long term returns. Make it a priority to educate yourself on the basics. If you don’t have the time, find an advisor you feel comfortable with who will help you and hold you accountable so you can meet your financial goals.
All investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.