New Year, New Money
Money Feature: Do women handle money differently?
MN Women's Press
December 13 and 26, 2006
by Kelly Westhoff and
Michele St. Martin
"Money
is designed to be spent," said Anne Rutledge, owner of Money
Counseling, a financial counseling service. That may seem
like an odd comment from someone who's been helping women
get their pocketbooks in order for the past 20 years-but
it's something Rutledge believes, with a caveat: "The
question is," she asked, "are you spending your money now or
are you spending it tomorrow? Saving money is really future
spending. You are choosing to set money aside so that you
can spend it in the future." The clients Rutledge sees have
often already spent-or overspent-theirs: She teaches
budgeting, account balancing and savings skills to clients
struggling with debt.
Gender spending
"Women, much more so than men, tend to have emotional
responses to money," Rutledge said. "Many women use money
almost like an addiction. They spend money to try and
fulfill some other need and this creates a continual source
of conflict in their lives," she explained.
Jody Anderson of Lutheran Social
Service Financial Counseling, a nonprofit that's been
helping consumers with money and debt for more than 40
years, agrees that women spend emotionally. In her
experience, women often equate money with two things: love
and security. Anderson sees lots of women spending money not
only on themselves, but also on those they love. This is
particularly true if we're mothers, she said. It's not just
over-spending on younger kids; even if we have an empty
nest, we may be helping our adult children feather theirs.
"You will see single moms whose kids have left home, go out
on a financial limb for their kids, long after the kids
[should have been self-supporting]. It's how they
acknowledge caring," Anderson explained.
Women and men spend
"discretionary money" differently, Anderson said. While men
with money issues often overspend on "big toys-things with
wheels and motors," women dribble away their money on a
variety of recurring expenses.
Rutledge sees this too. "Many of
my clients don't allocate their money in ways that will
please them later. They load up their lives with cell-phone
bills, cable bills, credit-card bills, car payments and
suddenly their monthly salary is gone and they haven't had
any fun yet." And, she pointed out, they haven't saved any
money either. Sooner or later, this will become a problem.
Eventually the car will break down, the dog will need to go
to the vet, co-workers will organize a Secret Santa gift
exchange, or a child will need money for a school field
trip. If there isn't a reserve stash of money somewhere,
then credit cards arrive to save the day-or to dig the debt
hole deeper.
Paying the piper
Those big bills from Visa are something many of us will be
facing next month after the surge of holiday shopping is
done. Since women can equate spending with love, holiday
spending can be a quicksand trap for us. And it's a hard
habit to break. "Most women are OK with something like
making a change in their cable bill, versus changing what
they spend at Christmas time," Anderson said.
|
RED FLAGS
Four signs you need help managing your money If you
experience any of the following, you should run, not
walk, to a reputable debt-counseling firm.
-
You're
unable to make any more than the minimum payments on
your credit cards
-
You're
using credit to pay even if you have cash in your
pocket
-
Money is
causing fights at home
-
You're
maxed out on more than one credit card
|
And that spending has a huge
impact on family finances. According to the Business and
Professional Women's Foundation, 56 percent of women are in
charge of the day-to-day finances of their families. The
organization also says that 83 percent of all consumer
purchases are made by women. So come January and the arrival
of inflated credit-card bills, many women will be wondering
how to get themselves and their families out of the
financial hole they've dug. In many cases, the credit-card
offers keep coming-many with the tempting combination of a
period with no interest and the suggestion that you transfer
your other card balances. Is it a good idea to take
advantage of them? Anderson says it depends. If you can
switch your debt to a lower-interest card and have the
discipline to not charge it up again, this can be a viable
option. Read the fine print: What are the card's fees and
terms? How long is the monthly grace period, and how long
does the no-interest offer last?
Sometimes you get credit card
offers even when you can't make payments on the ones you
have. Look at the terms you're offered-these higher-interest
cards tend to charge high fees and low credit limits to
offset the risk the lender takes in offering credit to
someone who's more of a repayment risk. There truly is a
credit card for just about everybody-but if you're offered
one of these "sub prime" cards, there's almost no reason to
say yes.
In fact, if you are offered one
of these cards, it's a sign that you're having problems with
credit and debt, and you may want to consider seeking help.
There's lots of help available, but do your homework and
choose wisely: Some so-called "credit counseling" firms that
make big promises can land you in even bigger trouble. See
"The money pros" section of this story for more on this.
Don't delay taking the first
steps-checking out credit counselors and making an
appointment-because you're afraid of what you might face.
"Women feel a lot of guilt, a lot of shame about debt,"
Anderson said. "They ask, 'Am I the worst one?'
"They almost never are."
New Year, New Money
by Kelly
Westhoff
Want to start the new year on
sound financial footing? Overwhelmed before you start? Here
are six manageable steps you can take now:
1. Know where it's going.
The first budgeting step, according to financial
counselor Anne Rutledge, is to figure out where your money
is currently being spent. "The women who are really
struggling to make ends meet are the ones who know exactly
where their money is going," she said. "They are tracking
every cent. On the other hand, it's the women who have a
little more money in the bank, the women who don't have to
watch every penny, that are the ones that don't know where
their money goes. They take $40 out of the cash machine and
it just disappears."
There are several ways to track
weekly spending habits. Some people carry an index card for
a week and write down every transaction. "Other people,"
Rutledge said, "operate really well with cash. They take out
$100 and tell themselves it has to last for a week." Visual
and tactile learners tend to relate to the cash method
because they can watch and feel the pile of money shrink.
"Once you know where your money is going," Rutledge said,
"then you can focus on identifying what gives you the most
value." For some people, a daily trip to the coffee shop
holds value, and that's fine, she stressed, but then look
for another one of your spending habits to trim.
Ruth Hayden, a St. Paul
financial consultant and author of four financial how-to
books including "How To Turn Your Money Life Around: The
Money Book for Women," said that simply filing financial
paperwork can help many women feel like they are getting
their money organized. Three-ring binders, expandable
folders or portable filing boxes can all work. "An organized
system of filing doesn't have to be complicated," Hayden
said. "It just has to be clear."
2. Find ways to lower your
recurring expenses.
Can you make do with fewer cell-phone minutes? Do you need
both satellite TV and a Netflix account? Is your
long-distance plan the best, have you shopped for car
insurance lately? "The lower you can make your monthly
commitments," Rutledge said, "the more money you'll have to
divvy up for other things, like putting aside money for
savings, for vacation or for Christmas gifts."
3. Save money on taxes.
If you have a flexible health savings account through your
employer, spend it down by the end of your plan year or lose
those funds. This might be a good time to buy a new pair of
glasses or load up on contact lenses for the coming year. If
you need to, you can stock up on nonprescription
medications. Scrambling for ways to spend that cash? Hayden
says it's a clear sign that you need to readjust your flex
savings in the new year. "Being forced to spend money when
you don't have anything to buy is never a good idea," she
said. If you don't have a flex savings account, Hayden
advises you to consider one for 2007.
4. Save for your retirement.
Hayden also suggested women who haven't started saving make
a start in 2007, even if the savings are small. "The biggest
mistake women make is not putting any money away for
themselves. Women have college funds for their children
before they start retirement funds for themselves," she
said.
Working women who are
contributing to a 401k or 403b investment plan and haven't
hit their maximum should contact their mutual fund company
in January and raise their funding amount. "This is really
the easiest thing to do," Hayden said. "Just up your
contribution by one percentage point. You won't even miss
that money. Then call back in six months and up it again."
Women small-business owners
should open a Simplified Employee Pension Plan, more
commonly called a SEP-IRA, through a mutual fund company or
with the help of a financial planner. This allows a
small-business owner to contribute funds from her business
account, not her personal account. "This type of account is
ideal for a small-business owner," Hayden said, "as you
deduct from your business' year-end taxable income, plus in
the end you get to keep the money anyway."
Homemakers should invest in
retirement accounts as well. "If a woman steps out of the
working world to care for her children, then she isn't
earning any money towards a 401k and she isn't contributing
any funds towards her future social security checks either,"
Hayden noted. "She should set up a spousal IRA. She can
contribute $4,000 a year or $5,000 if she's over 50. If she
doesn't want to do that, there's nothing wrong with just
investing in a mutual fund on her own."
5. Get professional help.
No matter what shape your finances are in, there's a
professional who'd like to help you improve them. If the
thought of mutual funds and IRAs is intimidating or new,
find a certified financial planner. Hayden suggested women
read planner profiles online, seek recommendations from
friends, and speak to a handful of planners before deciding
with which person they would like to invest. "There is
nothing wrong with getting professional help," she said.
If your problem is making ends
meet, there are a variety of options. See "The money pros"
story to learn the difference between the kinds of money
professionals-and to learn which you should steer clear of.
6. Set financial goals.
A financial planner is a great help in figuring out
long-term goals like how much you need to retire, and even
short-term goals like how much you should set aside for
unexpected expenses, but what about saving for fun? It's
easier to put a vacation on Visa, but ultimately more
satisfying-not to mention smarter-to save the money in
advance. Be specific: If you want to spend a long weekend on
the north shore, or a week in Mexico, figure out what it
will cost, and how you can save for it. If you have a
family, get everyone involved; saving for a goal is a great
way to teach kids about money. If you know that holiday
spending is important to you, set a budget and stick to it,
saving throughout the year so you don't end up with a debt
hangover in January 2008.
The money pro
They're not all created equal
What kind of help do you need to make your money work for
you? There are many different kinds of advice available, but
to get started, determine whether you need a financial
planner or a credit counselor.
Financial planners
There's no one-size-fits-all solution. The nonprofit agency
that helped your sister restructure her credit-card debt is
probably not the right source to help you decide what to do
with your tidy end-of-the-year bonus-or help you figure out
how much you should be saving for retirement. If you're more
concerned about maximizing your assets, consider seeing a
financial planner who charges an upfront fee or hourly rate
for her services. Some will offer advice about investment
vehicles, others will help you educate yourself to make the
decisions. It's all about what you're most comfortable with.
Credit counselors
As consumer debt has mounted to all-time highs, helping us
handle it has become a growth industry. Not all of those who
offer help are as ethical as the women quoted in this
article. If an organization offers to "help you get out of
debt quickly," consider it a scam. Some of these
services-even the nonprofit ones-operate using questionable
tactics. If a company doesn't offer education about how to
manage your money, it is probably not one you want to work
with. Other red flags: charging large fees. If you pay the
company monthly, it often pays itself first and then
creditors. Among the worst: those who hold on to your money,
letting your credit take a nosedive until the primary
creditor has sold your account to a collection agency for
pennies on the dollar. The collection agencies are then
willing to settle the debt for less than you owe. But by
this time, your credit is in tatters. And to add insult to
injury, you'll have to pay taxes on the difference between
what you originally owed and the amount the debt is settled
for.
Most reputable agencies offer a
low or no-cost initial consultation. They are also likely
members of the National Foundation for Credit Counseling.
For ongoing help, they generally put together a plan and
charge you a small percentage of your monthly debt payment
to administer it. They'll help you think about how to manage
both your income and outflow differently. Common suggestions
are checking out some overtime at work and, if you generally
get a big tax refund check, changing your withholdings so
your money is working to pay down your debt.
FFI
For general information about personal finances and
credit:
The Minnesota Attorney General's office,
www.ag.state.mn.us/
select "personal finance."
The National Center on Women and Aging,
http://iasp.brandeis.edu/womenandaging/finances/CreditDebt.html
The Federal Trade Commission,
www.ftc.gov/ftc/consumer.htm Select "credit."
Check out credit counselors:
Better Business Bureau,
www.bbb.org/reports.asp Check out both "company reports"
and "charity reports" since unscrupulous agencies sometimes
masquerade as nonprofits.
MN State Dept. of Commerce,
www.state.mn.us/portal/mn/jsp/home.do?agency=Commerce
Copyright 2007 MN Women's
Press
