By Katherine L. Moss

“Oh, my husband handles all of the money issues.”

“I don’t have time to learn about finances.”

“It’s just so overwhelming.”

If you’ve ever thought these things, then you’re not alone.  I’ve been in the financial services industry for more than 20 years and unfortunately, these are very common responses from women that come in to meet with me.   The reality is that women should be involved in decisions about money and finances because history shows that women will need to be involved.

Statistics tell us that 20% of all women never marry, 47% of marriages end in divorce, and 75% of married women are eventually widowed. But, the news isn’t all bad. Women are making a huge impact on our economy as entrepreneurs.  They own 9.2 million businesses, and together employ more people than the entire Fortune 100. Forty-two percent of households with assets greater than $600,000 are headed by women. Women earn more than one trillion dollars a year and studies show that women make better investors than men.*

So, let me share with you what I think are the Top 5 things that women should know to secure their financial future.

1.    Spend Less Than You Earn.

Despite popular belief, our ability to secure our financial future is more about our ability to save and less about our ability to earn. If you make $40,000 and spend $44,000 — you are in debt. If you make $100,000 a year and spend $110,000 — you are in debt. You need to establish the discipline of spending less than you earn.

The best way to accomplish this is to keep a budget. There are a variety of tools and resources — from software programs to pen and paper. No matter what system you use, statistics say your ability to save will increase by 20% if you keep a disciplined budget.

I worked with a client who took on the challenge of putting together a budget and after many hours of going through records and receipts still couldn’t figure out where all of her money was being spent. So, I encouraged her to keep a “Refrigerator List” — a blank piece of paper on the refrigerator where every day, she could write down every penny she had spent. She did that for about two months and realized that she had been spending about $6.00 a day on either lunch or snacks from the vending machine at work. She decided to take that $6.00 and put it in her retirement plan at work. That decision enabled her to retire five years earlier. The added bonus is that she lost 10 pounds after cutting out those unhealthy snacks!

You are the gatekeeper. My experience is no matter whom the income earner in the family is, the vast majority of the time the wife is the gatekeeper of the spending. Take the time to make and keep a budget. If done properly, you will put yourself in a position of accomplishing the financial goals that are most important to you.

2.    Stay out of Debt

President J. Reuben Clark of the First Presidency said “Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you” (Conference Report, Apr. 1938, 103).

Let me give you an example. You need (want) new furniture and you don’t have an extra $2,000. You decide to purchase it on a credit card with an 18.5% interest rate and begin making the minimum payment. It will take you more than 11 years to pay it off and you will have paid a total of $4,000 for your now 11-year-old $2,000 couch.

Here are some simple suggestions for staying out of debt:

·         Keep a budget!

·         Cut up the credit cards. Keep only one card and use it only for what are truly emergencies.

·         Learn to separate your needs from your wants.

·         Stop impulse buying. Always shop with a list. If you find something that isn’t on the list, give yourself two or three days to consider it before you purchase it.

·         Build an Emergency Reserve. Keep 4-6 months of bare minimum living expenses in a savings account or money market fund. Then, when unexpected things happen (car accident, lose your job, etc.), you have a “cushion” and you don’t have to go into debt simply to get by.

3.    Have a Disaster Management Plan

Do you have adequate insurance in place in case of premature death or disability? Women outlive men! The average age of widowhood is 56, and 25% of widows go through their husband’s life insurance death benefit in two months.*

You need to start by taking an inventory of the life insurance that you have on yourself and/or your spouse. You need to educate yourself on terminology like, “whole life,” “universal life,” and “term insurance.” Deciding how much life insurance you should have is a fairly complicated process. However, the “rule of thumb” is 5 times earnings, plus 2 times earnings for every dependent. For example: We have a household with a husband, wife and 4 children. He is the income earner making $100,000 a year. Under the “rule of thumb” his life insurance need would be $1,500,000.

·         5 X’s $100,000  = $  500,000

·         2 X’s $100,000 X’s 5 dependents  = $1,000,000

·         Total = $1,500,000

Remember, the average age of widowhood is 56 and 25% of widows go through their husbands life insurance death benefit in two months. Make sure that you have an adequate Disaster Management Plan.

Disability insurance is another consideration especially if you are in a single income household. A good starting place is to assess how much disability insurance you have. Many employers offer at least 60% of your salary with options to purchase more.

4.    Build for the Future

One of the best ways to “build for the future” is by taking advantage of your company’s 401k plan. A 401(k) plan is a qualified defined contribution retirement plan that is employee-funded and company-sponsored. In some cases, employers can opt to match the employees' contribution. For example, you work for a company that offers a match of 50 cents on the dollar up to 6% of your contribution. You make $50,000. Six percent of that is $3,000 (your contribution).  They will match an additional $1,500. It’s “free” money — take advantage of it.

Here are the key points to keep in mind when investing in a 401k Plan:

·         Always contribute enough to at least get the full match offered by your company.

·         Whenever you leave an employer, roll your 401k into an IRA or into your new company’s 401k — do not cash it out.

·         Each year, increase the % that you are contributing by 1% until you are at the maximum allowed ($14,000 in 2005, plus a $4,000 catch-up if you are over 50).

·         Each year review your investments to make sure that they are still suitable for your goals and objectives.

1.    Pass it on.

Pass on your knowledge of money and finance to someone younger; whether it is a child, a grandchild, a friend, or a student. The sooner someone learns and applies sound principles of money management and investing the more secure their financial future will be. Let’s just look at one example.

Albert Einstein once described compound interest as one of the most powerful forces in the universe. The following, illustrates why:

Karen invested 1/5 the amount that Rachel but has 25% more to show for it – compound interest, “one of the most powerful forces in the universe.”

When investing, keep in mind that it is time in the market, not timing the market that is most important. Since we can’t turn back the clock and be 19 again, pass it on. Share this information with someone who can benefit from years and years of compound interest.

One final thought. Women generally think about money in terms of values. “I value knowledge, so I want to provide for my children’s education.” “I value security, so I want to invest to insure that my retirement is sound.” “I value family, so I want to budget to take family vacations together.” This focus on values puts women in a unique position to be committed when it comes to money management. That commitment will bring success. I would challenge you to take the time to become more knowledgeable, not because you are afraid that one day you might need to be; but, because you want to be.

*taken from VanKampen Seminar “Smart Women Finish Rich”