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Robert Warner

Strategies for Financially Smart Women

A recent survey of women professionals with income above $250,000 [i] revealed that many have legitimate financial concerns related to aging parents, the ramifications of government gridlock and catastrophic health care planning. Volatile stock markets are a concern, and many also identified the importance of finding an advisor to review diversification and long-term goal planning.

Making smart choices about money should be a priority, but for many busy professional women, financial matters are pushed to the back burner. This isn’t a surprise. Talking about money isn’t always comfortable; many families don’t discuss money issues – good or bad. Furthermore, investing and personal finance skills were traditionally passed on to sons, not daughters. If women start late, save too little, and invest too cautiously, they will not be as successful in building wealth as they could be.

But some financially savvy women have picked up important skills on their own. They got jobs at a young age to earn spending money. Many worked to help pay their way through school. They embraced financial planning skills like having an emergency fund and avoiding high-cost credit card debt. They recognized the need to make their money work for them by taking appropriate risks. Importantly, they thought about the long term, realizing they’re more likely to live longer than their spouses.

There are indeed gender differences between men and women when it comes to money. Men tend to take more risk. Women tend to invest more conservatively.[ii] But financially astute individuals – men and women alike – embrace some core money-related strategies.

Knowing the Basics and Setting Goals

Among the earliest skills financially savvy women learn is to save and pay themselves first. This starts with evaluating income and expenses and keeping spending within their means. They set up a financial safety net or emergency savings to have an adequate cushion. They prioritize savings early and enjoy seeing their savings balance grow. They pay bills early and don’t carry a balance on their credit cards. Ultimately, they take steps to build a reserve that allows them to invest and put their money to work for them instead of working simply to pay their bills.

Financially savvy women identify money goals in the same way they set professional or work goals, targeting realistic and measurable financial outcomes. These goals may include saving for a home, setting aside money for education or travel, and determining what they will need to retire comfortably.

Maximizing Earnings and Benefits

Savvy professionals know what they are worth, they negotiate for appropriate compensation, and ask for raises. Traditionally, women have felt less comfortable negotiating salary while men regularly negotiate. In the book Women Don’t Ask, a study found 7% of women attempted to negotiate their salary while 57% of men did.[iii] The cost of not negotiating can be years of earning less for the same job.

While maximizing earnings starts with salaries, making the most of company benefits is also critical to long-term wealth creation. Many employers match employee contributions to retirement plans and smart professionals save at least up to the match. Participating up to the annual maximum in company-sponsored retirement plans is also a smart practice; setting aside money pre-tax for retirement means your money grows tax-deferred year over year.

Company benefits can also include disability or life insurance, deferred compensation or stock options and other perks. It is important to understand and make the most of these benefits.

Building Wealth

Money smart women think about building wealth. This means not only working with a professional to create an appropriate investment plan, but regularly investing for the future.

This starts by asking questions and developing curiosity about how to build wealth. They read and learn about investing. They understand the trade-off between risk and potential return and understand their own “risk tolerance.” Over time, they learn to take appropriate risks by investing in stocks or other investments that can lead to a higher return over time.

They also understand the value of diversification. By combining investments and diversifying a portfolio among stocks, bonds, and other investments, financially savvy women identify an appropriate mix for their own goals and risk tolerance. They develop an asset allocation that will increase the probability of reaching their goals over time.

Most importantly, successful women investors are patient. They know to be calm and remain invested during periods of market upheaval. They understand that markets will vary from year to year and they are poised to participate when markets go up and reduce their losses when markets go down.

Sticking to a Plan

Success comes from working with an advisor to create a financial road map and sticking to it. This means evaluating the plan regularly and adjusting it as jobs or family situations change. It means following the plan in good times and bad by regularly investing. The practice of dollar cost averaging – buying more shares when prices are down and fewer shares when prices are high – can actually help improve results over time.

Financially savvy women keep their emotions in check and are knowledgeable about behavioral finance. Studies show that people regularly undermine their own financial success by succumbing to emotion, often selling at the wrong time or failing to admit mistakes. Savvy women stay on track with their advisor, maintaining their plan, rebalancing investments regularly to align with their target asset allocation, and keeping emotion out of their decision making.

Letting Reason Prevail

Financially smart women understand that although nothing is guaranteed, taking positive, proactive steps can improve their likelihood of success. Wealth is created by sticking to tried and true rules – and smart women embrace these rules to build wealth over time.

[i] “A Spetrum Group Whitepaper, “High Net Worth Men vs. Women”

[ii] Kristof, Kathy. Kiplinger, “The Secrets of Women Investors”

[iii] Slavina, Vicki. The Muse, “Why Women Must Ask (The Right Way): Negotiation Advice From Stanford’s Margaret A. Neale”

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Views and comments expressed in this blog are those of the author and do not necessarily represent the positions of Cleary Gull or fellow Cleary Gull associates.