The 5 Biggest Money Mistakes Women Make (And How to Avoid Them)
“An investment in knowledge pays the best interest." - Benjamin Franklin
What if: every dollar that comes in goes right back out. Sound familiar? You're not alone.
According to an article in “CNBC Women & Wealth”, a staggering 93% of women feel stressed about money, and many find it mysterious or downright frustrating.
As a money mindset coach, I've seen countless successful women fall into the same financial traps, leading to unnecessary stress and setbacks. But here's the good news: by being aware of the top 5 money mistakes women make, you can turn things around and regain control of your financial future.
Whether you're an entrepreneur facing business challenges or simply trying to get a better handle on your finances, avoiding these pitfalls can be life changing.
So, let’s check out these common mistakes and discover how to avoid them, so you can regain momentum and peace.
Mistake #1: Not Having a Clear Vision
You can't hit a target you can't see, am I right? Without a clear vision and specific goals for your money, it's way too easy to just spend aimlessly. That's why step one is getting crystal clear on your "why" - what really matters to you and what you want to achieve with your money, whether that's financial freedom, retiring early, starting a business, or just feeling more in control.
Once you have a compelling vision pulling you forward, the little decisions get easier because you know exactly what you're working towards. Research shows that women often lack confidence in their financial decision-making, which can be mitigated by having a clear financial vision and goals.
Mistake #2: Spending More Than You Make
This one seems obvious, but so many of us do it without even realizing! We think we're doing okay because the bills get paid...until they don't. The truth is, if you aren't paying yourself first and living below your means, you're just treading water.
The fix? Go through your spending line by line and get brutally honest about what's a want vs a need. Then, prioritize directing any "extra" towards your goals, not random spending. According to a TIAA Institute survey, women are more likely than men to struggle with managing debt and saving for emergencies, which underscores the importance of living within your means.
Mistake #3: Deferring Money Decisions
I totally get it - dealing with money stuff can feel confusing and overwhelming, especially if you weren't taught healthy money habits growing up, which sadly most of us weren’t. But avoiding it or blindly deferring to someone else like your partner or advisor, can be a recipe for disaster.
My advice? Start educating yourself on the basics of money management, investing, etc. You don't need to become an expert overnight, but being an active participant in your own financial life is huge. Studies have shown that women often defer financial decisions to their partners, which can lead to a lack of financial independence and increased vulnerability.
Mistake #4: Not Getting Comprehensive Professional Advice
While general money tips are helpful, they'll only get you so far. The truth is, your specific money situation is unique - your income, goals, risk tolerance, and life situation. That's why personalized, expert guidance from someone who understands both your investments and your life goals, like saving for retirement, is invaluable.
A good financial advisor can help you implement strategies tailored just for you. Understanding the power of compound interest is key. For example, if you invested $100,000 for 20 years at a 5% annual return, you'd have $265,000 at the end.
However, beware of commission-based advisors who might push products that benefit them more than you. Instead, opt for fee-only advisors who charge a flat fee for their services and are bound by a fiduciary duty to act in your best interest.
The true value of a good financial advisor lies in their ability to guide your decision-making and keep you on track to achieve your goals. But, you still must understand and be involved in the decisions about your money. Again, don’t defer this to anyone.
Mistake #5: Putting All Your Eggs in One Basket
As the saying goes, don't put all your eggs in one basket! Diversification is key when it comes to protecting your wealth over the long-term. If all your investments are in one place like the stock market and it takes a nosedive, you could lose it all.
The fix is creating a diversified portfolio split across different asset classes like stocks, bonds, real estate, etc. That way, if one area struggles, you have buffers in place. The 2008 financial crisis highlighted the importance of diversification, as those with diversified portfolios fared much better than those heavily invested in a single sector.
There you have it - the top 5 money mistakes women make and how to start correcting course today. Money is just one piece of the puzzle, but getting it handled frees up so much mental bandwidth to go after your biggest goals and dreams.
To get started, here are two quick and easy action steps:
1.Set a Financial Vision: Take 15 minutes today to write down your top three financial goals. Whether it's saving for a dream vacation, paying off debt, or building an emergency fund, having clear goals will give you direction and motivation.
2.Track Your Spending: For the next week, jot down every expense, no matter how small. This simple habit can reveal spending patterns and help you identify areas where you can cut back and save more.
Navigating the financial landscape can be daunting, but being aware of and actively avoiding these five common money mistakes can be empowering and set us up to a journey toward money independence and security.
Remember, your financial well-being is not just about the numbers in your bank account; it's about creating a life that aligns with your deepest values and aspirations.
So, which of these areas do you feel you need to focus on? Start your path towards a future where your financial dreams are not just possible, but inevitable. Let’s go!
Sources:
"What Explains the Gender Gap in Financial Literacy? The Role of..." - NCBI
"Financial literacy and wellness among U.S. women: The gender gap" - TIAA Institute
"Financial literacy and wellness among U.S. women" - TIAA Institute
"Building Financial Independence For Women Through..." - Bankrate
"Common Mistakes Women Make in Personal Finance and How to Avoid Them" - Investopedia
"Women as the next wave of growth in US wealth management" - McKinsey
"Improving Financial Literacy and Supporting Financial Decisions" - Springer
"The Impact of Diversification on Portfolio Performance: A Case Study" - Cowrywise
"Portfolio diversification benefits before and during the times of..." - Springer
"What Is Diversification? Definition as Investing Strategy" - Investopedia
Legal Disclaimer: This content is not financial advice and is for informational purposes only. Always consult with a qualified financial professional before making any financial decisions.
