Building financial power is a skill everyone needs to learn, but it is vitally important that women do so because, according to McKinsey & Company, “… female-controlled financial assets will nearly double, growing from roughly $18 trillion to $34 trillion by 2030.”
How money works for women is very different than it is for men and if we want to build wealth, we need to understand why and use that knowledge to our advantage.
Three common money mistakes women make (and how to avoid them).
One of the biggest mistakes women make is following financial advice that works for men.
In Think and Grow Rich for Women, I talk about the fact that while the steps for financial success are the same for everyone, women approach the principles around wealth-building differently than men do.
This is why each woman must come to understand her personal approach to finance and money management, and based on that, take aligned steps to build her wealth.
Another mistake that women tend to make is undervaluing their time and skills. Men typically get paid more for the same work, but women can close that wage-gap by advocating for themselves and by supporting other women in the workplace to do so as well.
Avoiding investing or a lack of investment diversity also has a detrimental financial impact for women.
This happens primarily because we are not taught about financial management in school. But a little bit of information goes a long way! Improving your financial literacy will always be an excellent step to take on the journey toward financial empowerment for women.
There are many areas of study in finance, investing and wealth-building, and a lot to know in each one, which is why I always suggest working with a financial advisor or Master Mentor to maximize your financial planning and investment strategies.
It is an excellent way to grow your money faster and build a long-term financial strategy that works specifically for you.
Why women need a different financial strategy.
Women face different life challenges than men and that means they need different financial strategies.
Women:
- Live longer than men, so their retirement funds need to stretch further
- Take maternity leave creating income gaps
- Are more likely to take time off to care for sick children or ailing parents, affecting income
- Are generally paid less than men
- Typically have lower rates of promotion in their careers
Because of these factors, women tend to be more stressed about money than men.
HIGH EMOTION = LOW INTELLIGENCE.
When we are stressed, we cannot make good decisions because the part of the brain that is used for critical thinking gets shut down. This negatively affects women and their personal finance decisions.
But when we increase our financial literacy, it is easier to take confident steps to build wealth, which will reduce the stress and let us focus on the things that really matter to us.
Breaking down the basics of wealth-building and saving vs. investing.
Saving money is a great thing—especially when it comes to your spending plan. We all have areas where we can choose to reduce our expenses and that becomes a lot easier when you have a financial plan that you are working consistently.
But when it comes to building real wealth, saving money is not enough to substantially increase your financial worth- particularly when factoring inflation into the equation. Savings accounts typically have very low interest rates and that means the compound interest you make from them accumulates very slowly, which is why looking for investments with higher interest rates is so important.
Compound interest snowballs over time, as you start making interest on your investments, and then interest on the interest.
To explain it simply, if you invested $100 (and nothing else) in an investment that yields 10% interest each year, after the first year you would have $110. Year two, you would make interest on the whole amount, bringing you to $121. In year three, that becomes, $133.10, and so on.
While it starts slowly, as the money starts to compound, the wealth it generates becomes substantial.
There are many other ways you can make your money work for you and create more streams of income, like:
- Investing in stocks, bonds, REITs, etc.
- Buying and selling real estate
- Short-term, long-term and/or commercial rentals
- Creating your own assets like a book, online course or other intellectual property
The greater the diversity you have in the kinds of investments you choose or create, the more streams of income you generate. That makes it easier to weather any uncertainty in the market because all your assets are not all in one place.
From earning to impact: redefining wealth.
Wealth means different things to each of us and trying to build your wealth based on someone else’s opinion of what they think you should do, can take you in a direction that doesn’t feel good or help you make the impact you want.
Wealth building for women really must start with understanding what wealth means to you and how it can support your:
- Personal values
- Goals
- Bigger vision
- Purpose
- The way you want to serve and support others to make an impact
- How you want to give back to your community
- The legacy you want to leave for future generations
When we fully align ourselves with the things that matter to us, money flows much more easily because we feel good about what we are doing and how we are making our money.
This is why it’s important explore each and every one of the things above and ensure that the choices you are making align with the way you want to expand your wealth. When you have that in place, you can then build a spending plan (see how to do it below) and an investment strategy that aligns perfectly with the bigger picture you want for your life.
This builds a straightforward structure that gives you a quick way to say yes or no in the moment that an expense or an opportunity appears, and know exactly why it works for you or it doesn’t.
That kind of mindfulness and intention to actively support the bigger picture you want to accomplish in your life and with your money, will help keep you on track toward building your legacy.
Tools for building your personal wealth system and your legacy.
To build the legacy that deeply matters to you, with the kind of wealth that supports it, everything must align with it, including the tools that you use.
For example, I prefer to develop spending plans with my clients because it feels like a much more supportive experience than creating a budget, which tends to feel more restrictive.
We set up the spending plan based on the things that are necessary and truly important to you including:
- Regular monthly expenses (rent, groceries, insurance, etc.)
- Reducing debt
- Investing in assets and in yourself (you are always your best asset!)
- Setting up an emergency fund
When you know what is important to you, it’s easier to stay on track with the things you want to do.
When setting up a spending plan, we also look closely at the places where you are needlessly spending money, which reduces the amount of money you have to invest at the end of the month or pay down debt.
Small expenses add up fast. They can include:
- Impulse buys
- Restaurant purchases
- Convenience services like food delivery, online shopping and subscriptions
- Bank and Credit Card fees and/or ATM charges
When you remove the unnecessary expenses, you can maximize the amount of money you have at the end of the month, which gives you greater opportunities to decide how you will invest your money and put it to work for you, creating more streams of income.
Other wealth building tools you can use are:
- Automation for paying bills and investing
- 401K contributions (especially if you have employer matching)
- Health Savings Accounts (HSA)
- Setting up a retirement account
- Working with a financial advisor or Master Money Mentor
When you start using tools like these and you align your spending and investing with the legacy you want to create, you can speed up the time it takes to build your financial power and make your money work for you, instead of the other way around.
One of the things my clients find very helpful in this whole process of wealth building, legacy creation and financial empowerment is defining their Personal Success Equation.
It’s a free guide that will help you develop the future you want in alignment with the things that matter deeply to you.
It is a simple formula that helps you expand your impact and create a powerful legacy—achieving more than you ever dreamed possible.