Seventy percent of Americans live paycheck to paycheck. Sound like anyone you know? Not to worry. My personal finance heroes, Manisha Thakor and Sharon Kedar, authors of On My Own Two Feet: A Modern Girl’s Guide to Personal Finance, are here to answer a few questions about how we can all get our financial rears in gear in the new year, especially those of us who work for ourselves (or aspire to do so).
This is part 1 of my interview with Manisha and Sharon; I’ll post part 2 tomorrow. And if any of you have a personal finance question for Manisha and Sharon, feel free to post it in the comments. They’ll pick five questions to answer on this blog next week.
Q. Many people reading this are likely smarting from their holiday shopping bills. Do you have any suggestions for avoiding a holiday financial hangover in 2008?
A. When you are trying to lose weight, the basic recipe is “eat less, exercise more.” When it comes to staying financially fit in the new year, the same formula applies: spend less, earn more. The best way to avoid a holiday financial hangover in 2008 is to attack both sides of this equation.
In terms of spending less, the obvious place to start is to look through your daily expenses and see where you can cut back. Some not-so-obvious ways to spend less include going shopping in your closet. See if there’s anything you aren’t using that you could sell on eBay. Another idea to spend less is to make sure you actually use those frequent flyer miles or reward points you accumulate; if you don’t have enough for a flight, you can trade them in for merchandise ranging from fluffy bath towels to gardening supplies.
As for earning more, as next year’s holiday season approaches, consider taking on some temporary extra work — retailers, delivery companies (FedEx, UPS, etc.), and catering companies are frequently looking for a little extra help. The combination of the one-two punch of spending less and earning more can have an incredible impact on your overall financial state of mind.
Q. Let’s talk small business. What are your top three personal finance tips for self-employed women?
A. Make sure you have health insurance. One slip on an icy sidewalk and a broken bone could easily set you back $5,000 or more. If money is tight, shop for a high-deductible catastrophic health insurance plan. You can start your search on your own using an aggregator like eHealthInsurance or you can work with a local health insurance broker in your area (you can find one at NAHU.org).
Make sure you have at least a starter $2,000 emergency fund. According to the Consumer Federation of America, the average woman in her twenties and thirties has about $2,000 a year of unexpected expenses yet only $500 in savings. That’s a recipe for stress like you wouldn’t believe. Being self-employed involves enough uncertainty; you don’t also need to be worrying about how you’d pay for a last minute ticket to see a sick relative or a midnight call to the plumber. Our favorite place to stash that fund — savings accounts at online banks like HSBC.com and INGDirect.com.
Know that Money Is the Pink Elephant in the Room. According to the American Payroll Association, 70% of Americans are living paycheck to paycheck. Shockingly, this statistic cuts across income spectrums. As financial guru Dave Ramsey famously says: Act Your Wage! Don’t succumb to peer pressure to live beyond your means. If you feel like money is tight, as often it is when you are starting up a new venture, be honest with your friends and ask them to support your decision to live within your means.
Q. What are the biggest mistakes you see self-employed women making with their personal stash of cash?
A. The biggest mistake we see self-employed women making is not knowing when they should “protect” their cash and when they should “invest” their cash. Our rough rule of thumb is that money you know you need to spend in the next 1 to 5 years should be “protected,” by parking it in an account that generates sufficient interest to offset inflation but doesn’t put your savings at risk. Examples include online savings accounts, money market funds/accounts, and certificates of deposits (CDs).
For money you don’t need to touch for at least 5 years — which for most of us means our retirement money — this is the money you are free to “invest” in riskier options like stocks and bonds. A great keep-it-simple option for this longer term money is target date retirement funds. These are the financial version of the chicken rotisserie “set it and forget it” machine. They have names like “target date 2040″ and “target date 2045,” and the dates correspond to the year in which you will turn 65. The way they work is that a mutual fund company will shift your money between stocks (most aggressive), bonds (moderate risk), and cash (conservative) as you get closer to retirement — so you literally only have to make one decision, to invest your money in the funds. You can get these funds at all the major discount brokerage firms — Vanguard, Fidelity, and Charles Schwab.
Q. Roth, SEP, WTF? Do you have a favorite type of retirement account that you recommend self-employed women open?
A. For the disciplined self-employed woman, our favorite retirement account is the SEP IRA as it enables you to contribute more money than in a simple ROTH. While you don’t get the tax-free status on withdrawals that you would with a ROTH, the ability to set aside a significantly larger chunk of change makes it a classic. However, when it comes to retirement savings, the most important thing is to do it early and often — no matter what type of account you choose!
Q. If a newly self-employed gal isn’t yet bringing home enough bacon to open a retirement fund (let alone pay herself her target salary), should she maybe eat a bit more Ramen and open the fund anyway? Or wait a year or so till she’s more solvent?
A. Eat the Ramen. The money you save early on is the most valuable. Quick quiz: Who has more money at age 65 — the woman who invests $500 a year starting at age 25, or the woman who invest $1,000 a year starting at age 35? Assuming both women’s investments go up 10% a year, the woman who started at age 25 will have $221,000 at age 65 while the woman who started at age 35 (even though she saved more!) will only have $165,000. It’s so important, we’ll say it again: START SAVING NOW are the three most powerful words in personal finance!
Come back tomorrow for part 2 of the Q&A with Manisha and Sharon. And if you have a personal finance question you’d like Manisha and Sharon to answer next week, post it in the comments.
January 3rd, 2008
If you’ve spent any amount of time on this blog, you know that I’m a champion of unmarried singles and couples being treated the same as their married counterparts. Sometimes I even publish some writing on the topic. That’s why I was thrilled when Bella DePaulo wrote an entire book on the subject: Singled Out: How Singles Are Stereotyped, Stigmatized, and Ignored, and Still Live Happily Ever After, which is essentially a myth-busting, consciousness-raising, totally unapologetic take on singlehood. In honor of the book’s recent paperback release, I asked Bella a few questions about the unbalanced treatment of single people in the workforce. Here’s what she had to say.
Q. Can you give us some stats on how single workers are treated differently by their employers and colleagues?
A. The most important differences are in salary and benefits. Single men are paid less than married men — probably about 26 percent less — even when the single and married men have done the same job at the same level of competence for the same number of years. Now consider health care plans. In many workplaces, a married worker can put a spouse on a health care plan at a discounted rate. That can amount to a very substantial financial benefit. But the single worker cannot add someone important in their life, such as a parent, sibling, or friend, and no other worker can add the single person to their plan.
Readers of Singled Out e-mail me all the time with their workplace woes. What singles complain about most often are the expectations that they should be able to cover the holidays and the travel that no one else wants and to stay late when others go home — the assumption is that since they are single, they don’t have a life, so why shouldn’t they cover for everyone else? The other part of that issue is that when single people explain why they need to take time off, their reasons are dismissed as not good enough. So, for example, a single person can get “the look” for wanting to take some time to help an ailing friend, but their married colleague gets a pass to leave early to meet their spouse for dinner.
Q. What do you think are the biggest myths about single women in the workplace, both childfree and moms?
A. I think that childfree single women are seen as having nothing important in their lives — no important people and no important pursuits. Single mothers are seen as “at risk” for leaving the workplace on short notice to tend to their child, or not showing up on days when their child is sick. In some workplaces, colleagues and bosses look askance at single mothers, and maybe even their children. Fortunately, though, not all workplaces are like that.
Q. Do you see a difference in how single men vs. single women are treated at work by management and their co-workers?
A. In terms of salary, the data show that single men have it worse — most studies show they are paid less than comparable married male colleagues. For women, there is not much consistency from study to study.
In the culture at large, single women seem to be targets of what I call “matrimania” more than men are. Matrimania is the over-the-top hype about marriage and weddings and brides that saturates our culture. You can see it coming down especially forcefully on women by the number of bridal magazines on the shelves, unmatched by an equal number of guides for grooms. You can see it on the “reality” TV shows, in which dozens of bachelorettes vie for the attention of just one bachelor far more often that a truckload of bachelors all compete for the one bachelorette.
I think some of that special pressure on single women seeps into the workplace. I have been taken, though, by the number of single men who have told me their stories of being belittled and dismissed by colleagues. Some of the teasing they describe sounds especially nasty. One man told me about his colleagues who would bring in stories about social science findings showing that married people live longer or are happier (all grossly exaggerated or just plain wrong, as I show in Singled Out), and taunt him with them.
Q. What can singles do about those “lost” workplace rights or benefits?
A. I do think that singles should do what they can to get their issues on the table. Laws and policies can be changed, and awareness can be raised about insensitive and inappropriate workplace behaviors. I have to add a warning about this, though: Colleagues and bosses often react very badly to these topics and the people who raise them. That’s true even (or maybe especially) when the single person is clearly on the side of the angels. Lots of people in today’s society like to think of themselves as open-minded, fair, and non-prejudicial. When a single colleague points out a way in which the workplace has been unfair to singles, the people perpetrating that unfairness can suddenly feel very defensive. Their first reaction can be to lash out at the single person, rather than standing back and saying, “Wow, I never thought of that. I’m sorry. I won’t do that again.”
So another way singles can get these issues addressed is by supporting relevant advocacy groups. For example, the Alternatives to Marriage Project is very good at taking on issues involving all unmarried people (coupled and single).
When singles contact me with their workplace stories of cloddish colleagues or bosses, I often offer to send those clods a copy of Singled Out from Amazon, with no note attached. I think the insensitive ones would reconsider their behavior if they would read it. But I also warn the single worker that this is risky, because if the recipient of the book suspects that the single worker was involved, it will only make the colleagues or bosses even harder to deal with.
There are some small things that should be a bit easier to do. I actually have no problem covering for a colleague, whether married or single, as long as it is reciprocal. So when someone asks you, say something like: “Sure, I’d be happy to. I know there are times when I’ll need to leave early, and I’m sure you will do the same for me.” Then ask, when that time comes.
I also think that workplace policies should be fair for all workers. So, for example, all workers should have to cover holidays an equal number of times. And when workers have a certain number of days off, they should not have to account for what they are doing with their days off, or justify the days they want to take. That doesn’t mean that company needs are unimportant — of course they’re important — but the personal lives of single workers are also just as important as the personal lives of married workers and should be subject to no greater scrutiny.
Q. Do you see the rift of understanding about lifestyle choices and workplace inequities between singles and marrieds becoming greater or closing up the more these issues get discussed in the media and public eye?
A. I think that at first, the issue will be very hot. People on both sides will feel offended and misunderstood. It is funny that you raise this question, because just recently, I got a fascinating e-mail from a reader of Singled Out. He told me that he put together a carefully prepared audiovisual presentation on the ways in which family-friendly workplaces can be unfair to single people. One of the people in the audience stormed up to the podium, unplugged the equipment, grabbed his papers and threw them up in the air, then marched out of the room! So I think there is going to be some of that sort of thing happening, though perhaps not always so dramatically. Eventually, though, as the topic gets discussed more often online and in the mainstream media, we’ll probably be able to have more thoughtful and calmer discussions. The thing is, I’ve never heard single people say that they want more than what married colleagues get; they just want to be treated fairly. If other people can stop and hear that message, it should be hard to object to. In theory.
Q. In addition to your book, are there are organizations working for policy/workplace change and other resources you recommend singles check out?
A. My current favorite is the Alternatives to Marriage Project. There’s another group that works under the title, Beyond Same-Sex Marriage: A New Strategic Vision For All Our Families and Relationships. Their point is that even if same-sex marriage were made legal everywhere, there would still be many uncoupled people shut out of the 1,138 federal benefits and protections given to people who are legally married. As the subtitle indicates, this is a group that believes in the significance of all of our close relationships, not just our conjugal ones.
November 4th, 2007
