On average, women live longer than men live, earn less money than their male counterparts earn and take breaks from the workplace to have children. Therefore, even though women have the financial knowledge to manage their own finances they may still have less money for retirement. However, the good news is that women are becoming more financially savvy and smart when investing for their retirement. Men move over because women are taking up residence on Wall Street as their home and building a luxury retirement mansion for themselves.
To build a good retirement, use these pearls as the foundation:
1. Always pay yourself first. Of course, you deserve it because you work hard. Savings and retirement accounts will never grow if you only use funds that are “left over” each week. Begin each week by paying your savings account first as if it was a regular bill before you are tempted to splurge on that pair of Jimmy Choos. Always have retirement funds deducted from your payroll, pre-tax, and deposited into a retirement account. This lowers your taxable income and builds your retirement account.
2. Diversify. I have several styles of pearls because I have different outfits. Your foundation “pearls” should also be different because your needs are different. Individual Retirement Accounts and 401k accounts are great for retirement; however, women should have an emergency fund that they can access for unexpected expenses. If your employer offers direct deposit, open a savings account or money market account and deposit a fixed amount each week directly to that account. WARNING: only use funds for emergencies (a sale at Bloomingdale’s does not qualify as an emergency).
3. Do not panic over a dip in the stock market. Women who invest using dollar-cost averaging are not as nervous about the ups and downs that are so normal these days with the stock market. Dollar-cost averaging is the regular purchase of stocks at set amounts to reduce the market risk of investing in the stock market. Because you invest the same amount of money each week or month, when the stock market falls you buy more stocks for less per stock but when the market rises, you buy fewer stocks at higher prices. I utilize the option of automatic withdrawal that my broker offers to treat the investment as a bill to decrease the temptation to skip a deposit for a pair of designer skinny jeans.
4. Live below your income. Trying to keep up with the women on Wisteria Lane will leave you living with your kids during retirement. It is tempting to use credit cards for wants while justifying the purchase as a ‘need’; however, those bills must be paid, plus interest, so be careful when using plastic. Every time you pull out the plastic for a purchase, you decrease your future income by that amount plus interest on that purchase.
5. Ask the experts. Even the experts ask other experts because financial management is one subject we should never stop educating ourselves about. There are courses, books, online material and groups specifically designed for women managing their finances. The advice and materials offered by these sources will increase your knowledge about finances and give you practical advice about how to increase your savings for retirement. LearnVest is an online site that offers practical financial advice and tools for women. Shoo Jimmy Choo by Catey Hill is a great read and gives women real advice about overspending and saving. But most important, find a financial advisor you can trust that has a good reputation to help you chose the building blocks for a solid retirement foundation.
Read more from Sophie Walton:
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