9 Financial Mistakes Women Should Avoid to Ensure Financial Security
Financial mistakes happen to everyone, but some can cause serious financial troubles that lead to daily struggle and a less than comfortable retirement. Here are 9 financial mistakes women should avoid to ensure financial security…
#1 Not Thinking of Retirement Sooner
Saving for retirement is a long game. The sooner you start, the better chance you have of ending ahead, or at least on track.
However, when you’re busy with kids, work, and taking care of the household, it’s probably the last thing on your mind.
Not having a plan for retirement and saving as early as possible is one of the top financial mistakes women should avoid.
If you don’t have enough money during retirement, do you really want to depend on your children or family to support you?
Chances are, the answer is NO!
Here’s what you can do today to turn things around: Sit down and create a plan for retirement. If you created a plan years ago, but haven’t followed it, then hit the reset button and start planning.
Ask yourself at what age you want to retire. And how much money you will need, not to just scrape by, but have a fulfilling, comfortable retirement.
The important thing is to get clear on when you will retire and how much you’ll need for the lifestyle you desire.
We recommend getting third-party advice to help you plan for and maximize your retirement savings.
A recent Morningstar report shows that participants who received expert guidance had as much as 40% more income during retirement versus those who received no help at all.¹
How would an additional 40% more income at retirement change your retirement lifestyle? Really give that some thought, and then take action and contact a financial advisor for help.
#2 Not Being a Part of Household Investment Decisions
Many women are involved in paying household bills and managing the budget.
However, not enough women are involved in larger financial decisions.
Relying too heavily on your spouse to make investment and retirement savings decisions is a financial mistake women should avoid.
After all, it’s your future, too.
Considering women outlive men, and 50% of marriages in the US end in divorce or separation, it’s important you are involved.²
Should something happen to your spouse or partner, you’ll have to handle finances on your own at some point, so why not start now?
If you don’t understand, discuss it with your partner, educate yourself on your own, or seek third-party advice.
Also, you need to know what assets you have, what they are worth, and where to find important financial and life insurance paperwork in the event something happens.
#3 Waiting Too Long to Change Lifestyle after Divorce
Going from a dual-income household to a single income means lifestyle changes must be made.
If you’re going through a divorce, it’s advisable to reevaluate your lifestyle and budget as soon as possible.
Do not wait until after the divorce.
We recommend calculating your expenses, and make sure your new income is able to support your current lifestyle. You may find expenses that you are not able to support or you may find you are better off than you think.
#4 Not Having an Emergency Fund
No one wants to expect the worse, but it’s important you plan for whatever life throws at you so unforeseen events don’t negatively impact your finances.
If you aren’t funding a rainy-day account, you should start now.
Experts advise people should save 10-15% of their income.
If you’re putting 8% of your income into your 401(k) or other workplace retirement account, take the remaining 2-7% and fund a savings account for emergencies until the account is funded.
If you’re already saving 15% of your income, then we recommend making an expense report to see what you can cut in order to find an additional 1-5% to put into your cash reserves.
#5 Spending Your Tax Refund instead of Investing It
Instead of splurging when your tax refund arrives, invest in your future.
Sure, having that new wardrobe would be great. And, yes, we know that jacuzzi in your backyard would make the neighbors jealous.
Before you run out and make that dream purchase, really think about your future retirement income.
Take your tax refund and invest it into your 401(k) or workplace retirement account. Or, if you have an IRA or government Thrift Savings Plan, put it in there.
Or, fund your emergency savings account.
If you take care of your money now, your money will take care of you in the future.
#6 Spending Too Much on Kids / Grandkids instead of Saving
It’s hard not to give your children or grandchildren gifts and experiences. We get it.
But when gifting large sums of money or expensive gifts to your children or grandchildren comes at the expense of your own retirement savings, you’re setting yourself up for financial hardship later in life.
This includes helping your family pay for college.
A recent survey by T. Rowe Price showed that 69% of parents want to put money toward college first, and more than three-quarters say they are willing to delay retirement to pay for kids’ schooling.³
This sort of thinking may leave you unable to have the retirement lifestyle you desire and could possibly make you a burden to your family later in life.
#7 Living beyond Your Means
Another financial mistake women should avoid: overspending and living paycheck to paycheck.
When this happens, it prevents you from maximizing your emergency and retirement savings.
Our best advice is to create a budget and stick to it.
Before you make a purchase, ask yourself if you need it or if you just want it.
If you don’t have cash to pay for items you want, then don’t put it on a credit card. Do not charge something unless it’s an emergency or you can cover your spending.
#8 Not Paying Yourself First
When you get paid, before you do anything else (pay bills, buy groceries, or buy anything), pay yourself first.
Meaning, you pay into your savings and investments first.
If you have a 401(k), your savings are automatically taken out of each paycheck. If you have an Individual Retirement Account (IRA), you should be paying into this first as well.
Same goes for savings for your emergency fund. Pay into this before you pay any of your bills. Once you’ve paid yourself, then pay your bills.
Whatever is left over is yours to spend however you want.
#9 Not Making Debt a Priority
Debt not only prevents you from maximizing your retirement savings, but it may also affect your retirement lifestyle should you carry that debt into retirement.
Staying out of debt is one of the keys to reaching your financial goals for retirement, as well as building wealth.
The key to eliminating your debts starting today is to come up with a plan that will allow you to pay it off while saving for retirement, and being able to cover all your monthly expenses.
Sit down and rethink your spending habits, and then cut back.
Make the best decision for your financial future. Download our no-cost guide on how to understand The Different Types of Licenses Financial Advisors Have and What They Mean to You.
- David Blanchet, Head of Retirement, CFP, CFA, Morningstar 2014, “The Impact of Expert Guidance on Participant Savings and Investment Behaviors”