The holidays can be cruel in terms of exposing you to the reality of your financial situation. Trips, parties and gift exchanges can be a source of joy, but they can also illuminate or exacerbate a lack of resources. To stop you from experiencing a January 1 hangover-induced panic about your liquidity situation, we enlisted the expertise of Ellevest founder Sallie Krawcheck.
Below, she alerts us to the common mistakes she sees women make with respect to their finances—faux pas worth noting as you head into this big-spend season. Keep reading for her best advice on how to avoid these pitfalls before it’s too late.
Mistake #1: Maintaining Credit Card Debt
“Women spend too much money they don’t know they’re spending on paying for credit card debt,” Sallie says. “If you’ve got, say, $10K outstanding in debt and your interest rate is 15%, the interest alone is costing you $1,500 a year.”
She offers tough love when it comes to cutting out this expense. “If you have $10K in savings and $5K in credit card debt, you should pay the bill off.” She suggest doing so immediately, even if it’s at the expense of your rainy day fund. “If you have debt, you don’t have true savings,” she explains. “You can always borrow again if times get tough.”
Those who don’t have money to put toward their credit card debt at all should look to cut their monthly expenses wherever possible and put the money saved toward bigger credit card payments. We suggest trying our 21-day money-saving challenge to start. If your credit is good, you can also open a new credit card that allows for 0% interest on balance transfers for some specified period of time. You can then move your debt over to that card in order to avoid those hefty interest payments as you work to pay off the balance.
Mistake #2: Not Negotiating Your Income
When you think about money mistakes, you most likely think about the ones you make once the money has been added to your account; however, Sallie advises one of the biggest issues women have is that they don’t negotiate their salaries. “The best time to negotiate a raise is when you get offered a new job,” she says. “Automatically, you’ll be negotiating for 10% more.”
If that ship has sailed for you, however, worry not. Sallie says it’s important to remember you can renegotiate at any time. To her prior point, bargaining won’t be as easy as it would have been before you signed your current employment agreement, but it’s worth a try regardless. “Men negotiate everything,” says Sallie. “Women, not so much.”
Mistake #3: Giving Away Financial Control
“A lot of women cede control of their finances to their partners, which is a real problem because half of marriages end in divorce, and women tend to live six to eight years longer than men,” says Sallie. “So, 90% of women will end up managing their money on their own at some point in their lives.” She advises women to involve themselves in this realm of domestic life from the outset so they’re not blindsided by surprising or complicated financial realities down the line.
Mistake #4: Not Saving For Retirement
“Because retirement is so far off into the future, it’s easy to postpone investing for it,” Sallie says. “Many people make the mental miscalculation that they’ll be making more money in the future, so it’s easy to say, ‘I’m in my 20s, I’ll do it in my 30s. I’m in my 30s, I’ll do it in my 40s,’ and so on. And then it’s too late. A dollar invested today is worth a ton more than a dollar invested 15 to 20 years from now.”
A good rule of thumb, she says, is to use 50% of your take-home pay for your needs (e.g. rent), 30% for fun and 20% for “future you.” If 10% is all you can do, she says, it’s far better than nothing. (Note: She advises you pay off your credit card debt before investing, so instead of putting 20% toward your future, put it toward your debt and then tackle your future—just don’t wait too long to do either!)
As for how you should invest and into what, Sallie points us to the Ellevest website as well as to this segment by John Oliver. “It isn’t so difficult,” she says. “Many of us get daunted, but you don’t need to know a thousand things before you invest.”