Lessons From "Smart Women Finish Rich" by David Bach
On August 29, 2022, 17 extraordinary women gathered for the inaugural Wisdom with Women over Wine Financial "Book" Club. We discussed insights from "Smart Women Finish Rich" by David Bach. See those lessons below.
Lessons from Step 1:
- Women make better investors than men because they make a plan and stick with it.
- Women need to do more financial planning than men because they live longer, typically earn less than men, and on average accumulate 34% less money in their retirement accounts than men.
- You can't assume your partner will take care of you in retirement due to life circumstances and the unknowns. Take responsibility for your own finances.
ACTION: Take the "Smart Women Finish Rich" Financial Knowledge Quiz (link)
Lessons from Step 2:
- Values-based financial planning can help you make your life better.
- Money is important to women because it affects their values, whereas men respect money because it affects things.
- Answering the question, "what's important about money?" can help you discover your values as they relate to money.
ACTION: Create a Values Ladder (link)
Lessons from Step 3:
First, figure out where you stand financially. Second, figure out where you want to go. Organizing your financial life is not easy, but you'll feel better once you know where your accounts are and what you own. The book’s author advises using a file cabinet for copies of retirement plans, investment and bank accounts, insurance policies, estate plans, social security statements, and liabilities. Here are a few other options:
- Binder: Get a large 3-ring binder with tabs for the sections similar to the above.
- Digital copies: Create a folder on your computer for all your account statements. Once you've saved the files, secure them (password protected) and back up the folder.
- The CFO Center: Clients of Hurlow Wealth Management Group have their own Personal Financial Website where they can see all their accounts in one place online. Linked accounts update in real-time, so net-worth statements are updated regularly.
- Know what you want.
- Set goals, create plans, focus on making your plans happen.
- Share your goals with someone you love and trust.
- ACTION: Use the goals chart (link) to set and review your goals at least once every 12 months.
Lessons from Step 4:
- Aim to save at least 12% of your gross (before taxes) earnings into a retirement account and don't touch it until retirement.
- If you need help getting your spending under control so you can save more:
- Know what you earn: I currently earn $___ a month before taxes and $___ after taxes
- Estimate what you spend: I currently spend $___ a month
- Take the Seven Day Challenge: Track what you really spend for seven days
- Pay cash for everything: This will help reduce your spending; makes you more conscious of your spending
- Credit card haircut: Cut up one of your credit cards to reduce excess spending
- Take a pause: Never spend more than $100 on anything without taking 48 hours to think about it.
Lessons from Step 5:
Use three baskets for savings.
- Savings Basket 1: Security basket
- Save 3 to 24 months of living expenses in case of an emergency
- Have an up-to-date will and living trust
- Research and get insurance coverage (as appropriate for your situation)
- Savings Basket 2: Your retirement basket
- Leverage employer match programs
- Max out your retirement plan
- Invest for growth. Determine your asset allocation
- Savings Basket 3: Your dream basket
- Ask yourself: If you could have - or be - anything you wanted, what would you wish for? What dreams of yours are unfulfilled, e.g. travel, quit your job, start a business, etc.?
Lessons from Step 6: Learn the 10 biggest mistakes investors make and how to avoid them.
- Mistake 1: Becoming an investor before you are organized and have specific goals in mind. Write your goals down on paper and get your finances organized.
- Mistake 2: Not taking credit-card debt seriously. Find out your credit rating.
- Mistake 3: Having a 30-year home mortgage and not paying it off early.
- Mistake 4: Waiting to buy a house. If you have good credit or cash, buy now to build equity.
- Mistake 5: Putting off saving for retirement. Setup automatic contributions or transfers from your paycheck to your retirement account.
- Mistake 6: Speculating with your investment money. That’s just gambling.
- Mistake 7: Building a portfolio that's not diversified.
- Mistake 8: Paying too much in taxes.
- Mistake 9: Buying an illiquid investment.
- Mistake 10: Giving up. It takes time to learn, and investments build slowly at first. It will take time to see results.
Lessons from Step 7:
- Most kids don’t learn about money in school. Parents can take a proactive approach in teaching personal finance in a positive way. Teach them:
- The miracle of compound interest.
- Through their allowance: An allowance (like employment) comes as a result of work; teach kids to value an allowance by saving at least 10%; teach kids to use an allowance to help others by giving 10% to charity.
- About retirement accounts as soon as they start working.
- To think like owners instead of shoppers.
- To use credit cards responsibly.
- To go for their dreams.
Lessons from Step 8:
Take ownership of your life and personal finances by following these 12 commandments:
- Don't accept less than you are worth.
- Ask for a raise.
- If you don't like your job, quit. Find something better where you're valued and paid what you're worth.
- Start your own business.
- Build your personal brand and an online professional presence.
- Live within your means.
- Work each day as if you were going on vacation tomorrow.
- Focus on what makes you unique by answering these questions.
- Delegate what’s economically feasible, like hiring a cleaning service, handyman, errand runner, Instacart, or personal assistant.
- Wake up early to find more time and get more done.
- Find a purpose beyond yourself. Give back.
- Practice gratitude. Make a list of 50 things for which you are thankful.
If you would be interested in participating in a future financial book club, click here to email Theresa Claire for more information.