“Remember that the more your money works for you, the less you have to work for money. You need not be a miser; you just need to be wiser.” ~ Dorothea Kelly
Gone are the days when a woman’s spouse was her retirement plan. Gone are the days when doing the laundry, cooking, mopping the floors, and raising the kids were exclusively delegated to the woman in the household. In the era of empowered women and more domestically involved husbands, the landscape of financial power and influence is slowly shifting to what once was considered the weaker gender.
Statistics confirm that shift. Women currently control 27 percent of the world’s wealth, and a third of the wealth in the U.S. and Canada. Over half of all investable assets in the U.S. are held by women – and that share is only expected to grow, according to “Women in the Labor Force: A Databook,” by the U.S. Bureau of Labor Statistics, 2012.
Yet women are reticent to discuss their knowledge – or lack thereof – about managing the money they work hard for. A good 60 percent still worry about outliving their income.
Unfortunately, when it comes to finances, ignorance is not bliss. What you don’t know will hurt you.
Here are the key accounts every woman needs to have to take her financial confidence to the next level:
1. The Cushion Account
There is absolutely no excuse for a businesswoman not to have a rainy-day fund. A car or appliance breakdown should not force her to slake the usurious appetites of credit card companies. A disciplined and consistent setting aside of funds on a monthly basis, known as “dollar cost averaging,” will create a substantial liquid cushion to be used for unexpected expenses.
2. The Retirement Account
There is absolutely no excuse for a businesswoman not to have a retirement account. IRAs are available for all life scenarios, whether you are employed, self-employed, or married but not employed. Dr. Seuss would have a field day rhyming everything out there: There’s the “trade” and the Roth, the SEP IRA, the Simple, the Solo, the 401(k). An index fund or a target date fund may be a good place to start. These funds allow you invest in a broad swath of the market. They don’t require stock-picking knowledge but do give you a way to get your feet wet.
Some businesswomen are so busy investing in their business they forget to invest in their retirement. By waiting too long, they inadvertently miss the opportunity to experience what Albert Einstein called the most powerful force in the universe – compound interest. In his words, “Compound interest is the eighth wonder of the world. He who understands it . . . earns it. He who doesn’t . . . pays it.” Never pay it!
3. The Protection Account
There is absolutely no excuse for a businesswoman not to prepare for the inevitable. Mortality rates are still at 100 percent. There are only two ways for us to go: quickly or lingeringly. There is no point in successfully amassing wealth only to lose it to a disability or a chronic, critical, or terminal illness.
Life insurance is the only thing out there addressing all three of life’s certainties: Death, taxes, and inflation. It is the best leverage there is. The industry even took it up a notch by providing living benefits. Have you heard of life insurance you don’t have to die to use? You can access the death benefit while you are still alive but suffering from a qualified illness. Wouldn’t that be better than depleting your hard-earned assets?
So for all young, single, and seemingly self-sufficient women out there who believe life insurance has no place in their financial plan, ask yourself this question: Whom do you want to burden should you become chronically ill or survive a debilitating accident? Chances are, we all know someone experiencing that scenario, and she’s not necessarily a nonagenarian.
Let me stop here before I say too much. Because the more I talk about the intricacies of financial and protection planning, the more you will want to concentrate on what you do best – your job or your business. Don’t cross your fingers that you will not outlive your income. Leave it to a financial professional to take stock of your current situation, align your finances with your goals and values, and help you go the distance with ongoing evaluations and adjustments as your needs evolve.
About Your Columnist
Cookie Walden is a featured columnist for Women Taking Charge, the official blog of Connected Women of Influence, where she covers ways for women to take charge of their financial future. The founder of Walden Wealth Management, she specializes in financial planning for women.