Some women know nothing about their finances and only find out about their situation when it is too late — after divorce or the death of a spouse. In this day and age it is important for women to understand the basics of their financial life. Close to 90 percent of women become responsible for their own finances in their lifetime.
Knowledge of the basics can mean the difference between financial security and financial distress. I would encourage women to at a minimum know these five things about their finances and reinforce the benefits of having these in place.
Here are five things women should know about their finances:
- Periodically track what you own (your assets such as home, investments, cars and cash) and what you owe (home, student, and car loans and credit card debt balances), as well as what comes in (total income) and what goes out (total expenses). I have had conversations with women who admit that they have no idea how much their husband or partner makes, and who do not even talk to their partner about the finances. Keep the communication lines open regarding you financial life and don’t delegate all things financial to your partner. Instead, you should share in the various financial responsibilities and discuss progress periodically.
- Know if you are adequately prepared in the event of a catastrophe. Women fear for their security. A typical concern is that they will outlive their money. Yet, most families are underinsured. Insurance is the foundation of your financial plan. Make sure that your household has adequate life, disability, liability and property and casualty insurance. One disaster could wipe out years of savings. Of course, you should also have an appropriate emergency fund. Six months of living expenses is a good start.
- Understand your willingness, ability and need to take on risk. Most women are conservative investors and favor cash and bonds. But exposure to cash and bonds can be more risky than exposure to the stock market. Women live longer and often have lower Social Security benefits due to taking time off from work to raise children or take care of ailing family members. They may need to invest more of their money in the stock market to ensure that they don’t outlive their funds.
- Find out how much you are paying in investment fees. Most women are unaware of their investment costs. Costs matter. Funds with lower expenses tend to have better performance than funds with high costs. You can research your investments yourself or hire a fee-only financial planner to help you.
- Make sure there is clarity not confusion upon your death or incapacitation. Roughly 50 percent of people die intestate (without a will). This can create turmoil for the best of families, which is something women do not want to happen. Have a will and update it every five years or as changes occur in your life.
If women have clear answers on the five issues above, they will feel more secure and empowered about their lives. It increases their “sleep at night” factor. Instead of viewing money as intimidating or overwhelming, they will see money as a way of enriching their lives.