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1-Page Summary of Smart Women Finish Rich
It All Started with Grandma
Rose Bach was the chief wig buyer at Gimbel’s department store in New York City. She was poor but decided that investing would help her become successful, so she bought stocks and bonds without any advice. This inspired her grandson to buy stock when he was seven years old. The author of this book also advised women about finances after being inspired by his grandmother’s example. Women are increasingly taking charge of their families’ finances, signing checks and earning most of the household income in many cases.
Step One: “The Financial Facts of Life”
Women are disadvantaged in today’s society. They live longer, earn less than men and have a harder time finding a job. However, they also collect their pension only about 20% of the time. Women must plan more carefully because of these disadvantages; however, many don’t understand basic financial realities such as the fact that they will likely work fewer years than men and thus can expect to receive less money from Social Security over their lifetime. Three myths get women into trouble:
People who earn more money are not necessarily rich. They spend less and invest a lot of their earnings. One study says that millionaires (people with an actual net worth of about $3.5 million) earned an average income of $131,000 per year, drove old cars, lived in relatively inexpensive homes and spent little on clothing. However, they invested 20% of their income every year.
“My husband will take care of me” – This myth is particularly insidious. Husbands die, and when women divorce, they often have a decrease in income while men’s increases.
Inflation is currently low, but if you’re living on a fixed income of savings, pension or Social Security, it will have an effect.
Step Two: Examine Your Values
It’s important to have a financial plan, but you need to start with your values. Start by constructing a “values ladder” of your responses to the question, “What’s important about money?”
Jessica said she wanted money to feel secure. She wanted more time with her friends, family and daughter. This would make her happier and calmer, but it would also give back to the community by helping others. However, when Jessica added up all of her monthly expenses for things like clothing, a car lease and restaurant meals, she saw that much of what she was doing had little or nothing to do with who she is as a person. The value ladder helped her realize this so that now she can focus on achieving those values rather than wasting money on things that don’t matter in the long run.
You should include at least six rungs on your “values ladder.” You can list values, such as freedom or fun, and not goals, like buying a house or paying for college.
Step Three: Show Me the Money
Before you can set financial goals, you need to know where you stand financially. Set up a filing system with folders for: tax returns, retirement accounts, Social Security, investment accounts and savings/checking accounts. List your liabilities (debt) in capital letters to make them stand out. Use this information to build a detailed inventory of your finances so that you can see your net worth (assets minus liabilities).
Some women might be worried that their husbands or partners won’t want to cooperate in financial matters. However, a tactful approach can overcome most resistance. Couples who love each other should share the responsibility for managing money together.
To set financial goals, you should first define your targets for the next three years. You might run into some challenges during that period of time. For example, you might spend too much money and need to cut back on expenses. In order to overcome this challenge, you could stop using credit cards and pay with cash instead. Once you’ve defined your long-term goals, follow these seven rules when setting short-term financial targets:
