The following content features excerpts from my book, Flourish Financially: Values, Transitions, and Big Conversations.
Several years ago, I was at an industry conference listening to Sallie Krawcheck when the challenges that women face in building their wealth became painfully obvious to me. During her keynote speech, which was specifically about women and their financial planning needs, Sallie asked the audience, comprised of financial professionals, “What’s a woman’s greatest asset?” Immediately, several members of the audience murmured, “A man.”
My reaction to the audience’s answer was, Oh my gosh! This is really sad.
Sallie was actually asking about a woman’s ability to create earning power and save for the future, and about the opportunities she has to maximize the possibility of building a successful long-term plan with an effective wealth management relationship. But the audience immediately deferred to “a man” as a woman’s greatest asset.
As sad as it is, though, this response speaks to two significant and ongoing issues within financial services: First, many women don’t feel heard or part of the financial conversation. And second, the majority of financial planners don’t engage in the bigger picture purpose money plays in our lives.
In Case You Need a Reminder: A Man is Not a Plan
The audience that Sallie Krawcheck was speaking to was about 80% male, which is representative of the financial services industry. Only 27% of financial planners are women, and this statistic has been stubbornly consistent for decades. I have seen time and again that the financial advice industry as a whole doesn’t know how to speak to women or seem committed to learning what they want. In some circles, there is a lingering feeling that women take a backseat when it comes to finance and, instead, let their spouses manage their accounts. However, I also know from personal experience that this couldn’t be further from the truth.
Women and Money
Women’s wealth and their ability to make money are growing faster than ever. Currently, women control more than $10 trillion of personal wealth or about 33 percent of the wealth. In the next three to five years, this is expected to increase to $30 trillion. Now, more than ever, women have larger incomes and a greater desire to take control of their financial futures. Unfortunately, their experiences with financial planners are often lacking.
Many women have told me that, when meeting with a financial planner in the past, they either didn’t have a comfortable conversation about their finances or goals, were presented with options that were too laden with jargon for them to ask important follow-up questions, or they were made to feel they didn’t have a voice.
While some women are comfortable with relying on their husbands to make financial decisions, as Sallie Krawcheck said when she responded to the murmurs about men being a woman’s best asset, a man is not a plan. In fact, the majority of women will be responsible for their own finances at some point in life whether they like it or not. This might happen when they first leave school, when they go through a divorce, or after their spouse dies.
What’s a Woman to Do? Confidence is Key
If you’re likely to be managing your finances alone at some point, you’ve got to prepare. However, this can be a challenge, especially because many women find it stressful to talk about money or feel uncomfortable seeing help. In my experience, this is due in large part to a lack of confidence. To increase your confidence in making financial decisions, I suggest three initial steps:
Step 1: Understand Your Spending
Forty-one percent of Americans spend less money than they make, meaning the majority of us are spending about what we make or more than we make. Understanding your spending habits is the first step toward building financial confidence.
All spending can be divided into two categories:
Critical spending includes everything you need to live. It includes things like your rent or mortgage payment, health insurance, and utility bills to name a few. These expenses are critical to your day-to-day existence.
Nice-to-haves, on the other hand, aren’t necessary for day-to-day living. They are just that: nice to have. These expenses might include this season’s jacket, a vacation, or a phone upgrade.
Understanding the difference between these two kinds of expenses will help you budget and know which expenses to cut back on when needed.
Step 2: Understand Your Debt
Debt can be a little tricky because there’s good debt and bad debt. Generally, good debt facilitates a goal. Buying a house or taking out student loans can lead to good debt. The house might be a long-term investment and the student loan debt might help you pursue that career you know you’ll thrive in. Of course, you don’t want to get in a situation where you can’t pay off the student loan or the house debt.
Bad debt, on the other hand, is debt that includes a high-interest rate and doesn’t necessarily support a life goal. The most common bad debt in the US is credit card debt. Most people fail to understand that making the minimum payment each month means the payment goes right toward interest and doesn’t make a dent in how much they owe. The amount they’re paying interest on increases as they add new charges, but many people think small purchases don’t matter because they don’t fully understand the importance of reducing debt.
Step 3: Build an Emergency Fund
Life brings many ups, downs, and surprises. These are inevitable. What you can control is how you handle financial surprises as they come along. What if family members become sick and you have to take a leave of absence from work or absorb the costs associated with caring for them? What happens if you or your spouse lose a job?
Job loss can have a drastic effect on your finances. If the labor market is tight, if you have a very specialized skill, or if you get paid very well, finding a new job can take months. Having an emergency fund can help you through the transition period after a job loss.
I recommend having three to six months of living expenses stored away as your emergency fund. This will go a long way toward paying for any unexpected expenses such as a car repair bill, an unexpected medical bill, or costs of living during a job loss when life hands you one of its many surprises.
Financial Planning for Women
The three steps above are foundational for your financial future. However, I believe strongly that a woman also needs a trusted financial planner in her corner to help her achieve her financial and life aspirations and to live a life where she can flourish.
If you want to be more intentional and proactive with your financial planning, we can help! At Flourish Wealth Management, we help women clarify their financial and life goals and build smart strategies to achieve them. Schedule a conversation with us today to learn more about our services.