Today, many women are taking the lead in making financial decisions — for themselves and for their families. However, they’re also making a fair amount of money mistakes. According to a study by Ameriprise Financial, 41 percent of women ages 25-70 with at least $25,000 in investable assets surveyed are making their own financial decisions. While a majority of these women are either unmarried or divorced, the rest are in long-term relationships and are making financial decisions for the household.
It’s a fact that women tend to live longer than men. Which means that women need to be aware of some of the major pitfalls in investing. An Administration on Aging study notes that most older women today will live out their lives as widows. Their primary source of income will be Social Security. Additionally, three out of four persons over 65 on Supplemental Security Income are women.
Here are some tips for avoiding key money mistakes throughout your lifetime.
1. Remaining ignorant about finances
In the past, many women would leave the financial affairs up to their husbands or significant others to manage. Gone are those days. Whether you are single or have a partner, you need to understand savings, credit, debt, budgeting, investments, retirement, insurance, and college and estate planning. There’s simply too much at stake if you don’t fully participate in your financial life.
If you don’t know the first thing about the subject, that’s OK. Just like you’d call in the plumber to fix a leaking pipe, consult with a qualified financial planner. He or she can review your current situation and your goals, and provide education and guidance.
2. Based on your current salary, keep working or stay at home?
It’s often called the “mommy wars” — women who have full-time jobs vs. women who stay at home to raise the kids. If you have young and school-age children, or parents who need care, only you know what works best for your family’s economic health.
However, it’s important to run the numbers before making a decision one way or the other. Statistics have shown that if a woman returns to the workplace within a year of being off, she’ll average 84 percent of her prior compensation; and 50 percent after three years.
Maybe daycare does eat into the household budget or having to take time to care for a parent or spouse will sap a woman’s finances. The fact is, lower earnings impact Social Security payments. Older women generally receive lower Social Security benefits than for their male counterparts, due to lower wages and time spent out of the workforce to care for their families.
3. You don’t know how to say no
It’s difficult for many people to set boundaries with the ones they love. A child, relative or friend falls into tough times and asks you for some financial help or to co-sign a loan. You don’t want to hurt their feelings so instead you put your financial state at risk.
Instead, refer your loved ones and friends to a reputable credit counseling agency or financial planner. Just be honest and let the other person know if you aren’t in a position to help them.
4. Saving for college over retirement
Kids can always get scholarships, loans and work to fund their higher educations. There’s no such thing as a loan for retirement. Women need to save for retirement throughout their working lives — whether they have kids or not. The point is to be able to sustain your level of living when you’re older to not become a burden on your kids or to others later on.
5. Not purchasing the right types of insurance
Many women are advised by insurance agents looking to make commissions to pay very high premiums for whole life or universal life insurance. These policies feature an investment component that you may be able to borrow against or cash out.
However, all you really need is relatively inexpensive term insurance. If you have children, this type of coverage is a necessity. It should be about three times your annual salary. Rather than spend more than you need to for whole or universal life insurance, invest the difference between those policy premiums and a term life premium. You could grow several hundred dollars a month in a tax-advantaged retirement account instead.
Often employer-provided insurance combined with supplemental term life, short- and long-term disability will be sufficient to protect a family for years.
And according to the Genworth Financial 2014 Cost of Care Survey, at least 70 percent of people over 65 will need long-term care services. Which means that long-term care is an absolute necessity to ensure that you and your family members are covered for the skyrocketing costs of heath care if and when you need it.
6. Not reviewing your beneficiaries
In talking about insurance and 401(k)s, your investment beneficiaries may change over time. If your beneficiary spouse passes away and either of you have remarried and don’t change your life insurance beneficiaries, that can create estate problems.
Also, if you name beneficiaries under the age of 18 on your life insurance policy, then they will not be able to receive the proceeds if you die before they come of age. Estate planners recommend creating a trust that names it as the beneficiary, and then within the trust you can designate your specific beneficiaries.
7. Not taking enough investment risk
Again, this is a subject best left to a professional financial consultation. Typically, women tend to be more risk averse in their investing. When you’re younger and have more time, looking into higher risk investments can be worthwhile. In the middle years and later years, your earnings capabilities and finances are expected to significantly shift.
Gather all your financial documents, research online and then meet with a qualified financial professional to either create or amend a financial game plan.
8. Not reading the fine print
Whether it’s your joint tax return, the fine print on your mortgage refinance documents or the changes to the fees charged by your mutual fund, it’s important for women to understand what it all means. Far too often women (as well as men), tend to gloss over the details of the things they don’t fully understand. Instead, ask questions and take the time to understand financial concepts to help protect your hard-earned investments.
It’s a fact that women live up to eight years longer than men. Does your financial plan take this into account? By avoiding and overcoming some of these most common money mistakes, you can help safeguard your funds for years to come.