Are you knowledgeable enough to manage your money so it lasts a lifetime?
If you didn’t answer with a resounding “YES,” it’s time to focus on your financial education.
This is especially important if you’re a woman. Too many women aren’t proactive about knowing the ins and outs of personal finance. We need to learn to act now, rather than just reacting to what happens.
Our families and households can benefit from our proactivity, too. Women are often better money managers than men, and that’s not just a statistic: I’ve seen it play out with my own clients time and time again.
Not to mention, as a woman, you deserve to know exactly what’s going on with the money you work hard to manage and use responsibly. That’s true whether you have a partner or you’re forging your own path.
The good news? You can do something about it if you feel you don’t know enough about money. Knowledge really is power, and understanding some important financial facts will give you both peace of mind and a deep understanding about how to make good financial decisions.
Let’s get started on the road to wealth — both in knowledge and in your bank account — right here, with these 5 financial facts to know if you want to feel confident, empowered, and in control of your money situation.
Financial Fact #1: You’re Not “Bad with Money” Because You’re Bad at Math
Let’s put both these myths to bed right now. First of all, women don’t have some sort of inherited, inevitable disadvantage when it comes to math.
Stanford researchers found reasons boys tend to perform better than girls on standardized math tests have little to do with actual ability and more with environmental factors. We believe and even say, “boys are better at math” and it becomes a self-fulfilling prophecy.
Some humans are good at math. Some humans, not so much. It has nothing to do with your gender.
Second, we know some people aren’t as good at math as others. If you identify with that for whatever reason, know that it has no bearing on your ability to earn a financial education and become really, really good with money.
Cognitive biases lead us to make bad money decisions, not a struggle with numbers and figures. If you feel like you’re bad at money, we need to focus on behavior change to make improvements. And that’s a good thing, because it’s something you can control.
Financial Fact #2: Investing Strategically Is Not the Same Thing as Gambling
The stock market can feel like a scary, unpredictable place — and it can be if you don’t know what you’re investing in, or if you fail to create a strategic investment plan that aligns with your needs, time horizon, goals, and ability to handle risk.
Here’s what you need to think about when it comes to the financial markets:
Market volatility just means change. It could mean a big drop, or it could just as easily talk about a swing in a positive direction. Either way, it’s part of how the market works. We can’t avoid it, but we can plan for it.
Planning for it means:
- Diversifying appropriately.
- Avoiding over-exposure in any one segment or industry.
- Taking an educated, evidence-based approach to investments (and tuning out current events).
- Creating the right mix of stocks and bonds in your portfolio.
Which brings us to the next point…
You need stocks in your portfolio. Unless you have more money than you could ever spend in the rest of your lifetime, wisely holding the right baskets of stocks and funds will help you grow your wealth responsibly. Holding all your assets in bonds won’t allow you to enjoy the growth you need to meet your goals.
You can’t time the market. Well, you could try. But it probably won’t end well. The fact is no one knows when the market is going to experience a downturn. And no one knows when it will recover.
What we do know is that these fluctuations happen, but over time the market has always provided a positive return. Timing the market tends to lead to buying high and selling low, the exact opposite of what smart investors want to do.
Take a long-term approach, rebalance your asset allocation as necessary, and know that the market does move up and down. But over decades, it always trends upward.
Financial Fact #3: Your Kids Can Borrow Money for College, But You Can’t Borrow Money for Retirement
You would do anything for your kids — including drain every last cent out of your bank accounts to give them what they needed to succeed in life, including an expensive college education.
If you’re toying with that idea, let’s take a moment to consider this from a different perspective.
What if your retirement and financial security came before paying for your kids’ college education? It might sound harsh, but ensuring your financial future is well-funded does not mean you don’t love your children or family.
It’s just a financial fact: You can’t borrow money to pay for your own retirement. Your kids, on the other hand, have plenty of options to pay for college.
They can earn athletic or academic scholarships. You can help them choose a reasonably-priced school based on a program they’re interested in (not based on national brand recognition).
Your kids can work part-time — or even full-time — while in school to pay for tuition and fees. They can take out student loans if they must.
You can help by providing a small amount each semester to help with other costs if you can reasonably afford it. With a little ingenuity and creativity and a specific goal to pay for a certain amount of your child’s college, you can make it happen without taking away from your retirement.
It doesn’t have to be an either/or situation. Consider, and then helping pay for the cost of college.
Still not convinced? Think about it this way. If you give everything you have to put your kids through college, you put them at risk for being financially responsible for you in your old age. Don’t put that burden on your kids. You should probably fund your own retirement first.
Financial Fact #4: Everyone Needs an Estate Plan. Yes, That Includes You!
It doesn’t matter where you live, how old you are, or how much money you have (or don’t have) in the bank. You need an estate plan! If you have a partner, they need one, too.
Creating an estate plan today can give you so much more peace of mind now — and even greater financial security down the road.
The fact is, women have a good chance of outliving our spouses. It’s not fun to think about and undoubtedly you’d rather do other things with your time rather than plan for what happens if that becomes your reality.
But it’s the financially responsible thing to do, and it’s a critical step to take to ensure you’re protected and cared for as long as you’re here.
You contribute to the household, whether that’s by earning money that translates into savings and wealth or by managing that household and performing work your partner would have to hire someone else to do if you no longer did.
An estate plan is a way to make sure you play a highly active role in determining what the future of your household looks like, from best case to worse. Don’t skip this important part of your comprehensive financial planning process.
Financial Fact #5: You Don’t Have to Go It Alone
Ever wonder why professional athletes have coaches, even though they’re at the height of their game? Or why talented, smart people hire experts to help with their problems and challenges?
It’s because it’s tough to go it alone. Doing everything yourself makes it really hard to reach the pinnacle of success.
Will you be okay if you try and figure out and manage your personal finances all on your own? Probably. But you also leave yourself open to big mistakes and missed opportunities.
Even worse, you’re vulnerable to blind spots. It’s one thing to understand you don’t know certain things. But it’s hard to catch yourself when you don’t know you don’t know something.
Most financially successful people carry a lot of financial knowledge with them — but they’re also wise enough to understand they need more than just the facts. They need advice from objective third-party experts. They need guidance and accountability.
Build a team of trusted professionals who work in your best interest at all times. That includes a tax advisor to help you minimize your tax burden, a family attorney, and a fee-only, fiduciary financial advisor.
Want to talk about whether I might be the right financial advisor for you? Let’s Chat!
If you’re not quite ready to talk yet, but want to stay connected, you’ll love the Profit Boss® Weekly newsletter! When you subscribe below, once a week or so, I’ll give you the straight truth on what you need to know in the world of personal finance.