Moms are busy people, whether they are full-time caregivers, work-at-home mamas, or employees outside of the home.
With always one (or five!) more things on the to-do list, it can sometimes feel like you’re barely able to finish everything.
Is investing your money on that to-do list, though?
If you want to be a rich mommy, it should be.
Women And Investing: Why Should I Invest?
Investing for women should be just as common as investing is for men, but it isn’t.
Data shows that women are more likely to keep their money in traditionally safer locations, like a checking or bank savings account, and there are a few reasons this is bad.
Women tend to make less money over the course of their lives than men.
The first reason for this is that our salaries tend to peak earlier than those of our male counterparts, meaning that while our salaries stagnate, theirs continue to rise.
Unfortunately, women also tend to have longer and more frequent breaks in employment than men.
This can stall forward motion, delay promotion, and result in lower earnings overall.
Earning less means that women will have less money available to set aside for retirement.
If women are already making less money than men, it might seem like the more conservative saving approach, like a fixed-yield savings account at your local brick-and-mortar bank, is the safest way to handle your money.
While your money may grow slightly in a traditional savings account, most savings or money market accounts are not paying enough in interest to offset inflation.
Unfortunately, if this is your main approach to savings then I have some bad news: you’re actually losing money.
If your money is growing at a slower pace than inflation, you will need to do much more with much less come retirement.
Fortunately, there’s something you can do. Invest!
Investing gives your money the best chance to grow at a rate equal to or greater than inflation.
Women And Investing: How To Get Started
So, what should you do before joining the many women in stocks?
Getting started investing is straightforward if you follow these 3 steps.
#1. Know Your Current Financial Situation
If you’re one of the many women who has changed careers, it’s possible you have some money sitting in an old retirement account.
Or maybe you keep all your money in a high-yield online savings account.
Either way, it’s time to get everything together in one place so you can visualize your financial health.
Taking stock of your financial assets and liabilities is crucial for getting ready for women who want to invest.
Using a free budgeting app like Mint is a good start if you want to track your spending habits or daily budget, but to be a rich mommy you need to take it up a notch.
A retirement calculator, like this free (and powerful!) retirement calculator, is the best way to see the full picture of your financial health.
Personal Capital lets you enter data from all of your accounts, plus your savings goal (retirement, a wedding, or school expenses, and so on), the amount you can save each year, and your target date.
From there, the software calculates your potential for success according to these numbers.
#2. Find Out What Investing Opportunities Are Available To You
If you are currently employed, familiarize yourself with your employer’s retirement fund options.
If you have an employer-matched 401(k) available, you should be maxing it out!
A 401(k) works by investing pre-tax money into an investment account. This also means that you are taxed on less money in your final paycheck.
For example, if your gross pay is $500 each week, and you opt to contribute 5% of your earnings to your 401(k), $25 will be put into your 401(k) each week.
You will then be taxed on $475 instead of $500.
The benefit to an employer-matched 401(k) is that your employer will match your contribution each week up to a certain dollar amount.
If your employer in the above example matches contributions up to 5%, for instance, they would also put $25 into your 401(k) each week.
Not taking advantage of employer-matched 401(k)s is essentially throwing away free money and no future rich mommy should do that!
If a 401(k) with employer matching is not available to you, an Individual Retirement Account (IRA) or Roth IRA might be a better retirement account.
Before opening an IRA, you will need to decide between a Traditional IRA or a Roth IRA.
Traditional IRA contributions, like those to 401(k)s, are made with pre-tax money.
Just like a 401(k), your overall income will be “reduced” by the amount of your contribution, so you will be taxed on less money.
This does mean, however, that your withdrawals will be taxed once you begin making distributions.
Roth IRA contributions are after-tax contributions.
Although this means you will be paying taxes on money you cannot touch for a few years, it does have one big benefit.
Distributions in retirement tend to be tax-free, since you paid in your taxes already.
And, there’s no additional tax on the growth of the money within the account.
There are a few limitations to be aware of, of course.
- Age limits: You must be younger than 70 1/2 to contribute to a Traditional IRA.
- Income limits: These numbers change yearly. In 2020, singles needed to earn less than $139,000 in gross income in order to contribute to a Roth IRA. That number is $206,000 for married couples.
- Distribution requirements: You must begin making withdrawals from your Traditional IRA once you reach 70 1/2. There are no requirements for distributions on Roth IRAs.
- Pre-retirement withdrawals: You will be taxed on any withdrawals you make from your Traditional IRA before age 59 1/2. You may also be charged a fee unless the funds are used for qualified expenses. On the other hand, Roth IRA investors can withdraw up to the amount that they have contributed without fees or taxes. That being said, Roth IRA investors cannot withdraw earnings before age59 1/2 without a penalty.
#3. Join Other Women Investing
If you want to be a rich mommy, join the club, literally! There are a host of investing tools made for and by women.
One such tool is Ellevest, a robo-advisor tailored specifically for women.
Robo-advisors are automated investment tools.
They work just like a financial planner would. They analyze your investments, help you rebalance your portfolio, and buy and sell stocks on your behalf.
The difference between a robo-advisor and a human, however, tends to be in the cost.
Robo-advisors are available for a fraction of the amount you would pay “the investment guy” at your local bank.
Ellevest’s algorithms are specifically tuned toward the unique financial needs of women.
The founders kept the gender pay gap in mind as they created their product, and designed their robo-advisor to avoid “gender neutral” investing suggestions that ignore the very real challenges women face.
Another option is to start or join an investment club.
This is a group of women who pool their money and research specific investments.
They learn about investing together and might bring in speakers to teach the members about investment topics. With their pooled money, they invest.
An investment club is fun, wealth-building, and educational.
Investing can be intimidating, but it doesn’t have to be. Following these three tips will get you started in no time!
Again, investing is a crucial part of a healthy financial future.
Between the pay gap, breaks in employment, and the rate of inflation, women are up against many challenges that threaten their retirement.
In order to secure a solid retirement, or even save for a home or child’s college expenses, women should consider investing.
Fortunately, there are tools created by other women investors who can guide them along the way.
Author Bio: Barbara A. Friedberg, MBA is CEO of RoboAdvisorPros.com and BarbaraFriedbergPersonalFinance.com.