VENTEUR spoke with Diane Bourdo, CFP®, about how to master personal finance. Bourdo is President of The Humphreys Group and a Certified Financial Planner™. She joined the Humphreys Group in 1989, became a Principal in 1993, and has been President since 2002. In these past 25-plus years, she has been extensively involved in all aspects of work with clients, tackling investment and financial planning issues. Bourdo is particularly passionate about helping women get smarter about money, and seeing how they already have money competence. She believes in continuous learning in terms of investment strategies, new financial planning opportunities, and team-strengthening practices. As a member of the Financial Planning Association, Bourdo participates on the pro bono committee that provides financial planning to underserved communities.
There are two components to financial literacy: expertise and empathy.
First is the expertise side of the equation, this is what we all think of, the stuff behind all the headlines in the financial press. Financial literacy is a combination of all the knowledge that is necessary for us to make intelligent, informed, responsible financial choices. While there is much more to financial literacy than knowing what specific acronyms stand for, having a grasp on financial terminology is an excellent place to start.Â
Some examples of these terms include ROI, ETFs, Stocks, Bonds, Net Worth, and plenty more. Brushing up on this important terminology and researching economic trends and current events is helpful in gaining the right tools for thinking and talking about money.Â
But why do people struggle with financial literacy?Â
Part of the answer is the culture within the financial services industry to keep it unnecessarily complicated. Using jargon and overly complex approaches, the male-dominated world of investing creates obstacles for women (and men, too) who are convinced it's just too complicated. As a result, it's hard to know where to start.
Second is the empathy side of the equation, which is just as important as expertise in building financial literacy. What do I mean by empathy? Before starting down the path of financial planning and investing, think about what motivates you and your values.Â
Financial advisors often warn that money and emotion should not mix. We disagree. Emotions inform financial decisions–subconsciously or consciously.Â
Figure out the "why" of your financial questions. Unfortunately, money is still a taboo subject in our culture. Still, if we can find ways to talk about our money lives with confidentiality, we would all benefit, make better decisions, and experience better financial outcomes.
There are many aspects to working money confidently, but some general outlooks to cultivate are patience, long-term thinking, and an understanding of the value of money. On a practical level, budgeting is an integral component of money management. Creating a budget is an excellent way for women to ensure that they are aware of their financial situation, especially the relationship between their income and outgoing expenses. While creating a budget is essential, having the discipline to abide by it will help set women up for long-term financial success. When spending aligns with our values, the necessary discipline and motivation are easier to sustain over time.
Investing is another important goal for women working to improve their money management. Investing at a young age allows women to take on a riskier portfolio, as higher risks equal higher rewards. Keeping debt low can be challenging as taking on debt isn't always avoidable, but it is important to be diligent about any debt and pay it off promptly. This can contribute to overall confidence for women managing their money. Working with professional financial planners provides a second opinion. It helps women feel supported through this guidance in the process of managing money, which leads to a boost in confidence as well.Â
We have seen that the best way for women to build financial confidence is to talk about it with other women and find ways to learn together–whether tackling the technical stuff or talking about the emotions that underlie our financial decisions.
You often hear "pay yourself first," so it's become a clichĂ©. But one of the best strategies for women looking to save more is saving consistently from monthly paychecks, a continuous practice with automatic deposits making the process even easier. It may also be helpful to have multiple "buckets" of savings where funds can be reserved for specific purposes. For example, a rainy-day fund is a highly recommended savings account that you set aside expressly for unexpected expenses. That way, if something comes up, you'll have the money you need to cover it without putting it on a credit card or taking out a loan.Â
Maintaining various accounts and naming them for each purpose (for example, a retirement fund, car fund, vacation fund, etc.) can motivate women because of the alignment of their goals and resources–their "why." Seeing your goals spelled out in front of you will reinforce your long-term saving goals.Â
Another tip to help women save more is reviewing recurring payments. Re-evaluate monthly subscriptions, memberships, or any other bills that might be higher than needed. These recurring payments add up quickly, but for women who opt to save instead, they could stack up nicely to supplement other savings.Â
Be sure to take advantage of any employer-sponsored retirement account. And if money is tight, be sure to contribute enough to take full advantage of any employer match.
Lastly, we often have a financial obligation that stops; for example, a loan is paid off, or an expense is terminated. In such cases, decide how those freed-up funds will be allocated ahead of time. For example, consider whether you could assign them to a goal or a particular spending category rather than letting the freed-up funds "float" through your accounts once that car payment goes away.
A classic debt reduction mistake is the urge to close a credit card once the balance has been paid off. The ratio of debt to the amount of credit available affects a consumer's FICO score, the score that calculates how likely debtors are to pay back lenders.Â
Another area to observe caution is when taking out loans. Loan approval means you can borrow money–it does not mean you should. Make sure that any loans you take on stay on the side of "good" debt, borrowing to pay for something that will increase in value more than the cost of the loan.Â
Finally, please don't get caught in the balance transfer game regarding credit. Read the fine print closely: even if it says the rate will be only 0 percent or 1.99 percent, credit card companies charge a fee and interest (as much as 4 percent) on the entire balance upfront.
Years ago, we dispelled the myth that men are better investors than women. The data shows that women consistently earn better investment results. As women, we usually conduct more research before investing, maintain a long-term perspective more often, and tend to view investing less as a game to be won and more as a means to accomplish our goals.Â
One tip that might seem counterintuitive is to avoid monitoring your investments too closely. Instead, you should set it and (kind of) forget it. For example, check your account quarterly to see how much you've saved, but don't check it regularly, especially during market swings. That will lead to unnecessary anxiety and might prompt you to feel like you have to sell your investments when you should simply be riding out volatility in the market.
Invest in mutual funds or ETFs, not individual stocks. While once popular, the days of old-fashioned stock-picking are long gone—mutual funds (and ETFs) offer diversification and professional expertise, two vital components of investing.Â
Taking it a step further, consider values alignment with your investing. The world of ESG, or impact investing, has grown dramatically in recent years for a good reason. Investors want to make money and do good in the world simultaneously. If this interests you, work with an advisor to clarify what matters most to you, and then find investments that dovetail with those concerns.Â
We have seen that aligning your investments and values will lead to more intrinsic motivation to stay invested over the long term – leading to better financial outcomes.
Another tip that might seem out of the box is to avoid (literally) buying into the latest trend. Don't be seduced by financial sensationalism. The sooner we as women learn that intelligent financial decisions are usually not very exciting, the better, as it motivates us to keep a long-term perspective.Â
ESG/Impact Investing is a multifaceted way for women to invest based on their values. While enabling us to proactively use our money to support what we want to thrive, this strategy also leverages research, financial support, shareholder activism, and policy development to pressure the private sector to become more equitable and sustainable. And it happens to be at an inflection point. According to Morningstar, the first half of 2020 saw a record $20.9 billion flow into ESG funds—almost as much as the $21.4 billion in ESG flows in 2019. As ESG investing evolves, we've grown more excited about its potential.
In any marriage or partnership, having two earning partners can contribute significantly to the household's current and future financial stability. Furthermore, when a woman is the higher earner, she will likely be more engaged in the household's financial management, will probably have and give more input into the financial decision-making, and as a result, will feel more empowered.
Unfortunately, many cultural norms stubbornly expect (and even want) the man to be the primary breadwinner, leading some men in this position to feel judged or emasculated. Likewise, women in this position might feel complicated about being the primary breadwinner. Maybe they feel disconnected and isolated from friends, like they are taken for granted by family at times or might feel unsure about how to handle changing dynamics in their household with their family and partner.
One way to combat potential challenges for female breadwinners is strong communication and very explicit and intentional recognition by each partner as to the value that each spouse brings to the household beyond the numbers. To maintain a healthy relationship, the spouses must find common ground, identify shared values, and find financial solutions that meet both spouses' needs. Finding common ground requires genuinely understanding what is important to each partner, including their values and what gives their life meaning. Discovering these shared values gives couples a sturdy foundation and can help to block out the noise and pressure from external factors like status, societal expectations, or quantitative measurements.
At The Humphreys Group, we don't just address the technical side of wealth management. We also discuss the emotional side. For example, in our work with clients, in the case of the wife having more income or assets than the husband, a lot of time is spent on what it means for the husband, how to navigate the emotional and psychological challenges, and what strategies could be helpful. So, having the support of financial planning professionals can help women navigate their part in this societal progress.
