News, Spring 2017
Finding Financial Safety in Economically Insecure Times
BY MARY LEE HARVEY DIRCKS
All the experts agree: The most powerful approach for women to find economic security is to take responsibility for their own financial health and take action on their own behalf. In the midst of living paycheck to paycheck, planning and investing for the future, and seeking career advancement and pay equity, women possess the power to initiate change.
A recent study indicates that 56 percent of Nebraska households live paycheck to paycheck, with 43 percent barely breaking even to cover monthly expenses and 13 percent exceeding their monthly income to cover basic necessities. And people in the U.S. who carry credit card debt month to month are averaging a balance of more than $16,000. So, if you find yourself struggling, find some solace in knowing that you’re not alone and there is a solution.
“There’s a big taboo in America where we’re not supposed to talk about income and we’re not supposed to talk about our money and how we’re spending it and how we are in debt,” says Nicole McDonald, blogger at momsavesmoney.net, instructor and author. “I’m not sure where that comes from but I think it’s a dialogue that is important.”
McDonald initiates that conversation and provides comprehensive solutions to balance almost any budget. She teaches classes at Metropolitan Community College, Iowa Western Community College, Omaha Public Libraries and area businesses on topics ranging from budgeting, couponing and claiming freebies to meal planning, starting your own blog and blogging for money. McDonald holds undergraduate degrees in business management and Russian language studies and a Master’s degree in Business Administration, but she teaches primarily from her own personal experience.
In 2006, McDonald made a decision to conquer more than $10,000 worth of credit card debt she and her husband racked up making repairs to their newly purchased house. They were also adjusting to a single income after both serving in the Navy and moving back home to Nebraska with their young daughter. “We bit off a little more than we could chew,” McDonald says. “Before we knew it, we were in debt, and we were already living paycheck to paycheck.” She wanted to stay home with her daughter, so she had a decision to make. “There are two things you can do to fix your budget and have more cash-flow,” she says. “You can either cut your expenses or increase your income. We kind of combined both to really just get out of that debt.” They cut out all of the extras to trim the budget and she started couponing and entering sweepstakes on the internet. “I got a lot of free stuff,” she says with a laugh. “The UPS guy was at my house every other day!”
Before long, McDonald devised a system that saves her family (now a family of five) more than $120 each week for groceries, not to mention the free samples and hundreds of dollars in gift cards from special offers, programs and sweepstakes she enters. The three to five hours a week she spends on this pays off. “I save about $30 to $50 per hour invested in couponing,” she estimates. “It’s more than just clipping coupons. There’s a whole system to it.” She only grocery shops once a week and hits CVS once or twice a month for personal care items. She does all the heavy lifting to find the best weekly deals in Omaha and shares them with her followers.
In 2008, McDonald started the blog, momsavesmoney.net to share her system for saving with others. Then in 2013 she self-published a book, “The Extraordinary Art of Couponing.” She also manages a Facebook group called Mom Saves Money Omaha Coupons Swaps & Deals. She has established more than 45,000 social media followers and says she earns more than a traditional part-time job would provide, but less than a corporate job. “Because of the nature of what I do, my income can vary $20,000 per year.” Fortunately, her husband’s salary covers the bills, so variations in her income don’t devastate the budget. “I do want people to learn these things that I have learned because it has made my life better and more fulfilling. I don’t feel trapped like you do when you’re heavy in debt or just barely getting by. It’s a sense of almost freedom and I feel like I can teach people how I did it and give them tools that hopefully get them to the same position.” The McDonalds are now credit card debt-free, only a few years away from paying off their home, comfortably saving for retirement and have college savings plans for their kids.
“Budgeting gets a scary rap but it’s really just telling your money where you want it to go instead of your money just flying out of your pocket every month,” McDonald explains. “You’re just setting up an intentional plan for how you spend your money; that’s it.” In her budgeting class, she goes over the basics on how to do a budget. “But it’s easy and kind of boring,” she says. “Budgeting is not a hard concept. I talk more about motivation and discipline.”
One suggestion that McDonald gives to help balance the budget, whether people use coupons or not, is to plan meals ahead of time. “Meal planning will save you money, I guarantee. It just does,” she says. “Meal planning saves in three ways: less wasted food, eliminates impulse trips to the store and you have a plan for dinner so you eat out less often.” Again, McDonald does the heavy lifting and posts monthly meal plans with recipes on her blog.
Investing for the Future
Tracey Halvorson, certified financial planner for Ameriprise Financial Services, says fear is the greatest deterrent to women getting their own financial health under control. “Sometimes women cope with that by advocating the power to someone else, and that’s a shame,” she says. “Women are incredibly good at managing their own finances.” Generally, women make 75 percent or more of the financial decisions in a household—spending on children, groceries and household goods. “You can’t tell me women aren’t capable of doing it; they are wildly capable!” she says. “In some cases, they’ve just allowed themselves to be intimidated by the enormity of retirement planning or education planning to hold them back from being involved and have advocated those decisions.”
Halvorson works with clients in a three-step process before making investment decisions. “You can’t start talking about investing until you have a solid foundation; otherwise you’re just shaky every month,” she says.
Step one is to define personal goals and priorities. Step two: Track every dollar spent the previous year by going through bank statements, credit card statements, pay stubs, taxes, 401(k) or 403(b) deductions, insurance, housing costs, utilities, food, entertainment, vacations and more. “If you made $180,000 last year, I want you to account for every single one,” Halvorson says. “Track every single dollar so you get a good overall picture of what your spending pattern looked like.” Predictably, step three is to compare No. 1 with No. 2 and then make a budgeting plan that reflects the personal goals and priorities determined initially.
“People may say their priority is to send their kids to college but they are not saving any money toward that end and they haven’t done any active research on how to make that a reality in their family,” Halvorson says. “People may say that saving for retirement is a priority but they are not actively engaged in their employer retirement plan or if they are, it’s only up to the amount that is matched but not beyond that.” She strongly encourages people to define what their priorities and goals are and to talk that through with someone who can help quantify those intentions with action.
Halvorson encourages clients to find additional discretionary income by listing all expenses on a balance sheet with wants on one side and needs on the other. If people feel like they are living paycheck to paycheck, decreasing or eliminating wants is the place to start. “That’s completely subjective. One person’s need might be another person’s want,” she says. The key is to be brutally honest with yourself and align the budget to “live below your means now so that you can live at your means in retirement,” she adds. For families with lower income, where discretionary funds are harder to come by, she suggests comparison shopping for necessities like insurance premiums and maybe even downsizing by moving to a smaller apartment or house. In extreme cases, people sell their car and commit to taking the bus for a year to pay down debt, build up a cash reserve or emergency fund, and squeak out at least a minimal amount of discretionary income to put toward retirement.
“If you can only free up $5 a week, begin to deposit that $5 into a savings account that you have automatically transferred out of your checking so that you don’t have to physically do it yourself. It’s just done for you,” Halvorson says. That $5 a week adds up to $20 a month, which can grow incrementally as savings becomes more of a habit, like each month increasing weekly savings by a dollar. “Ten dollars a week is $520 that you weren’t saving last year,” she says. Halvorson suggests the same incremental steps in paying off debt. “You prioritize the debt by paying off smaller bills first or the one with the highest interest rate,” she says, because this frees up the most amount of money. “It needs to be both; you can’t pay down your debt and not build up your emergency fund or you will still be living paycheck to paycheck,” she cautions. “If you don’t have an emergency fund or a cash reserve then a $500 car repair puts you into even more debt.” Three months of expenses is the common recommendation.
Having a plan is the most important thing you can do for yourself, Halvorson says. “It brings you peace of mind. You have to build your own paycheck because you don’t have an employer sending you one at retirement. You have to send yourself a pay check. The only way to do that is to make the commitment to save now so you can pay yourself later. Pay yourself first and fund the goals that are important to you.”
According to Halvorson, a solid financial foundation contains four basic elements:
•A cash reserve or emergency fund and a way to replenish it when used.
• Risk management in place—car insurance, health insurance, life insurance.
• Retirement funding—401(k), 403(b), IRA.
• Savings for other goals such as college for kids, paying cash for a car, vacations, upgrading house, etc.
“You have two opposite ends of the spectrum,” Halvorson says. “You have short-term goals that are your cash reserve or emergency fund. Then you have your long-term goals that are your retirement, and then you have everything in between.” When talking about investing, Halvorson says you match the goal with the risk factor and liquidity of the investment. “One of the first conversations I have with people is about risk,” she says. “And I have that conversation every single time we meet.” In her experience, the idea of risk in terms of investing is greatly misunderstood. “People think they are either all in or all out but that really doesn’t have anything to do with the big picture of investing. It has to do with finding the investments that fit your risk profile that you are comfortable with so you can sleep at night, that won’t bring you angst,” Halvorson explains.
“I really see a difference when women take control of their own destiny,” Halvorson says. “That doesn’t mean that they take that control away if they are in a relationship. It should be a mutual project between partners. Having a voice and knowing what’s going on is empowering.”
Moving Ahead and Making More Money
It’s 2017, 54 years after The Equal Pay Act of 1963 was adopted, and women are still earning less than white males: about 80 cents per dollar for white women, 62 cents for black women, and 54 cents for Hispanic women, according to the U.S Bureau of Labor Statistics. And while women hold almost 52 percent of all professional level jobs, the Center for American Progress reports that women only hold 14.6 percent of executive officer positions. What can women do to impact their own advancement and earning potential?
“Always negotiate for higher pay and don’t be afraid to ask for a raise,” says Susan Henricks, president and CEO of Institute for Career Advancement Needs (ICAN). “Also, as you move up, don’t be afraid to ask for stock options and ask when you will be eligible for bonuses.”
Additionally, it’s important to understand the company culture and how to identify opportunities. “In many companies there aren’t all those levels anymore. They’ve created a more lean organization,” Henricks says. “The opportunities might not be that obvious. It used to be obvious that you went from a supervisor to a team leader, and from a team leader to a manager and then from a manager to a director.” Now the structure of advancement has shifted from a corporate ladder to more of a corporate lattice, she explains. “Now in most companies you take a step up and then a step sideways, and then another step up over multiple years,” Henricks says. Lateral moves are learning opportunities that lead to advancement.
When you’ve been in a position for awhile, and you’re doing a good job and you feel that it’s time for a raise, Henricks says it’s on the individual to own her career and ask for it. First, know how often raises are given and the performance objectives required to receive raises or promotions. Then go to your manager and talk about it. “The right way is to sit down with your manager and have a conversation about your career,” Henricks says. If you’re not getting the right support, the next stop is the human resources department. “I’m a big believer that if you feel like you’ve done a good job and you’re still not getting the raise, you need to try and understand why not, but it might just be time to look for another role either within the company or outside of the company,” she says.
“Three of the biggest drivers for why women’s compensation is less than men’s is that we don’t ask for the raise, we don’t negotiate salary and we don’t apply for the next bigger job if we don’t have 100 percent of the requirements,” Henricks says, adding that there are many other drivers that have been in place for decades. She recommends the book, The Confidence Code: The Science and Art of Self-Assurance—What Women Should Know, by Katty Kay and Claire Shipman. “One of their big topics is about when somebody is applying for a promotion with eight requirements listed. A man will look at that and say, ‘I’ve got two, I’m good to go’ and he’ll apply. But a woman won’t apply unless she has 100 percent of the requirements,” Henricks says. “That’s the difference.”
When a woman is starting a career fresh out of college or moving from one company to another, Henricks stresses the need to ask questions about the company culture, vacation time and flexibility to work from home as she interviews with different organizations. “After she gets an offer, or multiple offers, I would encourage her to negotiate,” Henricks says. “The research shows that generally speaking, women don’t negotiate, but men negotiate 95 percent of the time,” she says. “So, understand the offer and understand what the components are—health insurance, life insurance, 401(k) and match, future stock options, bonus opportunities—and what the future growth opportunities are,” Henricks says. “And negotiate.”
Her advice is the same for women without college degrees with one added suggestion: Ask if the company has tuition reimbursement for education and technical certifications. “It’s always important, whether you have a college degree or not, to keep your skills up to date,” Henricks says. “If you are given opportunities for education and training, take them.”
“If you don’t do a good job and exceed the results that are expected then all of this is a moot point,” Henricks adds. “You have to be doing a really good job and you have to exceed expectations to earn more money and get promoted.”
“My belief is that if you do all these things, you can overcome the pay gap,” Henricks says. “I overcame the pay gap. It was through a lot of hard work and many, many hours, and it was great.” W
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