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Recent articles by MP Dunleavey: • How teens get sucked into credit-card debt, 9/4/2005 • Make your next raise really pay off, 8/21/2005 • 14 tips for living through a layoff, 7/24/2005 More... |
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| Uncommon Sense | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Why so many women cant save | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Its training, habits and old attitudes -- not genetics -- that keep us from controlling our cash flow. Its time we understood that saving is not dieting. By MP Dunleavey Editor's note: Columnist MP Dunleavey and eight other women have come together online to strip away the myths surrounding money, lay bare their assets and liberate themselves from debt. Follow the quest for financial fabulousness of these "Women in Red" every second Monday in Dunleavey's column on MSN Money. Every single member of the Women in Red wishes she had more money saved. Even for those of us who are setting aside some money each month, it never seems like enough. And far too often, our meager savings get swallowed up by some emergency or obligation. And, of course, there's the inevitable retail casualty (but we needed those new jeans, yes, we did). Thing is: We're all struggling to work with the 60% Solution -- which includes setting aside 20% of your gross income for life's inevitabilities and 10% for fun. So, in theory, unexpected expenses should be covered, with money left over for true, blue, can't-touch-that savings.
So what's the problem? We are not alone I hate studies that deliver bad news about women's financial state -- like recent research on bankruptcy -- but here's some insight on women and savings. A recent Consumer Federation of America survey found that:
Why women dont save The scientific conclusion I've reached, after observing the Women in Red for a year now, is that savers are made, not born. Anna, for example, was trained by her cost-conscious parents from an early age to save for whatever was most important and not spend on the junk in between. More 'Women in Red' on MSN Money Alas, this is not the case for most of the rest of us. Saving is an acquired habit many of us are still struggling to acquire. And when I looked around the group I identified three classic anti-saving attitudes that prevent the savings habit from taking hold.
Even people with steady paychecks know this feeling. But despite all financial pressure to the contrary, it is possible to save -- if you take two important steps:
Brice's committed expenses are a little less than 60% of her gross this month (thanks, in large part, to a tiny tax bill and the deductibility of the freelance life). So even after setting aside 5% each for retirement and long-term savings, and saving 10% for both fun and irregular expenses, she will have $300 for debt repayment (and $267 left over that she can put toward irregular expenses, additional savings or taking a bigger bite out of her debt). The important thing I emphasized to Brice is that even if a check goes missing and she only gets $4,000 this month, she can adjust the percentages -- and still save. Could she sock away more? Technically yes, but I say no -- for now. It's more important to start small and keep at it than to overreach.
The remainder of $943 was money that wasn't in her budget but wasn't in her bank account, either. Stephanie was taken aback by this number. "Where is all that money going?" she asked. I explained that the crystal ball function on my calculator was down, but the evidence indicated she and her husband were spending it, most likely on irregular expenses, which are barely accounted for in her budget. Stephanie resolved to track their spending more closely and to try to put another $50 toward saving for irregular expenses and $50 toward debt. That would have them setting aside $150 each month to cover irregular (often unexpected) expenses like car repairs or a colleague's wedding gift, which is 3% of their gross, and $885 toward various debts, which is almost 14% of their gross.
When she first joined the group, Lyndsey's main concern was paying back her debt, toward which she's putting a whopping 17% of her income. She thought that putting more money toward saving would only cut back her lifestyle. But here's the good news: Lyndsey is setting aside $100 per month for irregular expenses, and she doubled her retirement contribution from 2% to 4% of her income. Here's her situation:
In addition to her fun money, Lyndsey has an extra $532 a month, which sounds like a lot for a single woman with few major expenses. Clearly, she could shave another $100 or more off that for long-term savings, if she wanted to, and still enjoy a swingin' single life. But to me, it's more important that she's developing a savings habit she can stick with for now. The cash-flow way of thinking The misconception that underscores all three of these anti-saving attitudes is the notion that savings is a subtraction. Women, especially I think, tend to equate savings with being on a diet: I have to cut back, deprive myself, do without. In fact, what research by the Consumer Federation of America showed is that you need savings not only for peace of mind but to spend on all the various things that crop up. So rather than think of it as savings, think of it as future spending money. This requires embracing more of a cash-flow mentality, almost as if you were a corporation and had to plan ahead for unseen operating expenses, employee raises, material price increases and so on. It's taken me a loooooong time to get this concept through my thick skull and into my brain and my bank account. Even though this year I've been saving only about 4% of my gross (not including what I put toward debt, about 13%, and retirement, 6%), I have seen a huge payoff. Things like brake repairs and my husband's upcoming trip to California are covered, thanks to that little 4% savings cushion. Translation: Less debt, more control. And in the long run: More money in your pocket and, therefore, more choices. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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