Eight of the biggest financial mistakes women over 40 make
OPINION: For a woman, your forties can be the most defining and lucrative decade – especially when it comes to finances. Taking the right steps can improve your financial standing and set yourself up for the years ahead.
However, working with Kiwi women as a financial adviser, there are dubious money moves I see women consistently make. My experience is that these often come from an uncomfortable attitude towards wealth, or wanting to please others at their own expense. Many women, without realising it, can run the risk of making themselves financially vulnerable.
According to recent research by ANZ bank, New Zealand women on average live four years longer but retire with $80,000 less than men. This makes it vital for women – even more urgently in their forties – to become single-minded in prioritising their financial health.
Here are eight common mistakes to avoid.
Prioritising children over your retirement needs
It might sound cruel, but kids can be kryptonite – even to financially savvy women. I see smart women undermine their ability to support themselves in their later years by spending excessively on grown children instead. While it’s great to be able to help children in their times of need, it shouldn’t come at the cost of your own financial peace of mind. Establish what you need to retire comfortably and, as the old adage goes, pay yourself first. A financially strong parent with wealth building skills can teach their offspring a great deal more by example.
Not taking enough – or any – control over finances
All too often I’ve seen Kiwi women hand over the financial reins to their male partners. While it may seem easier to put your financial health in someone else’s hands, it could come back to bite you in the long-term. It’s important to exercise control over your financial portfolio – not just your day-to-day bank account or savings, investments and insurance policies. Invest in your financial literacy by reading personal finance books and websites, or take a short course to tackle the specific areas you need to know more about.
Taking on high-interest debt
Another critical mistake I see is successful women in their forties signing up for liabilities such as expensive new cars, gadgets and new wardrobes. Increasing your expenses when your income rises isn’t the wisest move, as at this point in your life, it’s in your best interest to be more focussed on growing your assets and planning ahead. Instead of taking on debt, work towards creating ‘rolling capital’ – a cash lump sum accumulated from tax rebates, work bonuses, monthly grocery savings, and any extra bits of cash – for you to spend on those little extras throughout the year. You’ll save on interest and have peace of mind knowing you’re spending money you already have.
Not protecting yourself against break-ups
Over my 17 years in the financial industry, I’ve seen a rapid rise in instances where long-term relationships or marriages dissolve and the woman’s asset base has consequently halved. For this to happen at a vulnerable age such as your forties and fifties can be financially devastating, as you may not necessarily be in the fortunate position to make up that lost value. In these circumstances, your greatest asset is your earning capacity – so it’s important for you to invest in your career development and maintain your career path. For that reason your income is worth protecting fiercely – even if your partner earns enough to cover all your expenses. It’s not the most romantic thing to do, but this is the most essential. Go into every new relationship with your financial future intact, whatever the outcome.
Delay setting up an emergency fund
As financially rewarding as your job may be, setting up an emergency fund with three months’ salary is always a good idea. It protects you in the event of potential bumps in the road such as losing your current position, or if you need to reduce your hours due to a health or family concern. If you’re not in the position to save three months’ salary, taking out an income protection plan to safeguard your income is another way to protect yourself and continue to maintain your financial wellbeing. The reality of being in your forties means your risk of illness and required career breaks increase dramatically.
Asking the ‘dumb’ questions
The pay gap may be slowly closing and there are more women on boards than before, but still I see women are not being assertive enough when it comes to their finances. Many are afraid to ask the necessary questions when making major decisions such buying a home. It’s important to break down figures and to fully understand the terms you’re signing to – and arm yourself with as much knowledge as you can. The financial adviser managing your portfolio, the bank consultant preparing your home loan, the accountant doing your taxes - you need to ask these service providers all the questions that will give you greater financial clarity.
Spending more than you earn
Emotional buying can be a tough money mistake for women to overcome. In your forties, retail therapy can be particularly comforting: your skin starting to show signs of aging, your children don’t need you as much as they once did, and that $800 pair of designer shoes can really appear to fill the hole. Until your credit card bill arrives, that is. Spending more than you earn can slowly build towards devastating effects; use tools such as budgeting apps to help you set realistic budgets and complete end-of-month reconcilliations to help you see where your money went. Place a small monthly reward into your budget such as a pedicure or a massage to help settle into the habit of spending less than you earn.
Not finding and accepting the right support
The best advice I received was to surround myself with the right people – and this is particularly true when it comes to your finances. Don’t be afraid to enlist strong support to help achieve your financial vision. Is building wealth important to you? Meet with a few financial advisers until you find one you’re comfortable with and who understand your vision. Is buying investment property your key action for the year? Find a mortgage broker you want to give your business to. It’s all about building your financial ‘A-team’, one that empowers you to achieve your financial goals.
Karen Essex-Mooney is a Lifetime adviser with over 17 years’ experience in mortgage finance. She is based in Blenheim.
New Zealand’s gender pay gap is unlikely to be going anywhere anytime soon and the impact of earning less over a lifetime has an enormous effect on a woman’s immediate and future financial security. This is compounded by a lower level of workplace participation, a tendency to seek part-time casual work and bear the bulk of caring responsibilities for children and other family members. So how can women bridge the gap? Here are some tips on how to build wealth and make positive steps towards pay equity and financial independence despite and in spite of the hurdles women face.