I'm so excited to introduce you to our new Finance Contributor, Erica Gellerman! Money is something we've never covered regularly, but every time we do, it's is some of our most shared and read content, and with good reason—making smart financial decisions is invaluable! We asked Erica, a trained CPA with an MBA from Duke and longtime C&C reader, to share some of her wisdom (read her full story here). You may recognize her as the Finance Editor of The Everygirl, from her weekly column on Forbes, or from her company The Worth Project. Originally from Los Angeles, Erica and her husband have lived in London for the past four years—though she's already starting to dream about returning to L.A. Read on for the six most common mistakes she sees women make with money—and be sure to comment if there's anything you'd like to see her cover in the future! xEmily
First of all, I am beyond excited to be contributing to Cupcakes and Cashmere, a blog I've been reading daily for years. It actually inspired me to start writing! I've always admired how Emily (and now Leslie and the rest of the team) has been able to make me feel like I'm talking to one of my savvy girlfriends and I've tried so many new things from the recommendations they give. I'm excited to add my own voice!
I like to think that I’m a reasonably smart person, especially when it comes to money. I’ve taken more finance classes than I can count, I have my CPA, and my airplane reading pick is usually a slightly nerdy money book. But I’ve also fallen prey to plenty of money mistakes I was never warned about. While they're not catastrophic failures, there are several I've found myself, and so many other smart women, making over and over again.
After an evening of swapping lessons learned with a girlfriend, I realized if we started talking more openly about our money mistakes and lessons, we could help each other avoid the simple, but costly mistakes that most of us make. Here are six of the easiest-to-fix money mistakes that I’ve seen even the smartest women make, and how to ensure you avoid the same trap:
If you are one of those people who can buy a box of cookies and eat just one or make it to the gym every single morning at 6 a.m., skip to the next section—you have amazing willpower! (Please teach me your ways.) But the rest of us mere mortals can’t always rely on our willpower alone to get things done. Most of us need nudges, like promising to meet a girlfriend for an early workout or hiding the box of cookies, to make sure we do the things we say we’re going to do.
The nudges that we need to make healthy, eat-fewer-cookies choices, are the same we need for our money. So many smart women I know rely too much on willpower with their money and assume that at the end of the month there will be plenty left over to save and invest. But more often than not, something comes up, and they save just a little bit less than they meant to.
The easiest way to create a "nudge" for saving is to take advantage of any employer-sponsored retirement plans, like a 401(k), and not even give yourself a chance to spend the money. These plans will deduct the money and funnel it into your retirement account before your paycheck hits your bank account.
You can create another nudge by setting up an automatic transfer to move money into your savings or investing account just days after you get paid. Bonus points if that savings or investment account is at a different bank from your regular checking account. Keep it out of sight and out of mind to make saving and investing practically painless.
A friend’s mom once told me that if she wanted to know what I valued, all she'd have to do is look at my bank account to see where I spent my money. That sounded right—in theory—but in practice, it's a different story. To see how my spending stacked up, I took a scroll through last month’s transactions. I was shocked to see there were so many purchases I could have happily lived without. There was the mediocre breakfast I picked up on-the-go because I always seem to be running just a few minutes late, the monthly subscription fee for a service that I used to enjoy, but haven’t used in months, and dinner at a restaurant I didn’t care to go to with people I wasn’t necessarily thrilled to be going with. When I realized that only about 25% of the purchases I made each month actually reflected the things that I truly valued, I knew it was time to reassess.
I took 5 minutes to look through my transactions for the last month to see:
- which ones needed to be there,
- which ones I was happy to have spent on,
- and which ones I wasn’t thrilled about.
Now, before I decide to spend money on anything I pause and ask, “Does this purchase really make me happy? Is it something I really value?” It's like the KonMari Method of finances. Pausing and asking this simple question has made a surprisingly huge impact on my bank account, without feeling like I’m missing out.
From the first day we enter the working world, we are told that retirement savings must start immediately. It’s solid advice, but it shouldn’t be the only thing we are looking forward to.
I’m not talking about buying a house, a car, or having kids—I'm talking about taking an epic vacation, navigating a career transition or career break, heading to grad school, starting a business, or moving to a new city (or hey, a new country!). These experiences make your adult life exciting and are just as important to plan for as retirement
While you may not be 100% clear on exactly what you want to do and when you want to do it, making fun life experiences a priority and planning for them will leave you with options. What excites you? What do you find yourself daydreaming about? If you decide you may want to spend three months learning Spanish in Central America, set up a savings account specifically for that goal and start funneling a little away. If plans change and you decide you’re more interested in starting a business, you’ll have a head-start with money ready to allocate to that new goal. The important thing is to plan for things that excite you, not just the things you're supposed to do.
Studies tell us women are typically better investors than men. And yet, every finance class I’ve ever taken has been full of guys, every Wall Street movie features a predominantly male cast, and most of the financial advertising that we see is geared towards men. And despite research that proves women’s investment portfolios perform slightly better than men’s, we still invest less. Instead, we're more likely to defer the role of investing to someone else, like an advisor or spouse (even if we earn as much as they do). You may be asking yourself: Why do women not participate more? I have a theory, based on my own experience with investing.
Like a lot of smart women, I fell into this trap. While I have a background in economics and finance, making sure I was investing seemed to make its way to the bottom of my mental to-do list. It felt like an enormous task to figure out if I’d opened the right account or had selected the right funds. It was always something I’d tell myself that I’d do... next month.
But the funny thing is, once I decided to look at my investments, the most difficult part was getting my account password reset after being locked out. As soon as I began to dive into the options for investing that were out there, I was asking questions and reading articles that helped me to get started. I felt more empowered than I did overwhelmed.
P.S. In terms of investing options, I recommend using Wealthfront or Vanguard. Wealthfront is really similar to Betterment (robo investing & similar fees) but Wealthfront has 529 plan options (college savings), which can be a good choice when you have kids. Vanguard is a little more DIY but they have great funds out there with some of the cheapest fees in the industry.
This is where so many women (including myself) struggle! We assume everyone else has everything figured out, so shouldn’t we know it all as well? Couple that with the fact that financial jargon makes things sound so much more complicated than they actually are (hi, “tax-loss harvesting”), asking questions can be really intimidating.
It wasn’t until I noticed one day that I had an account with way too many fees, and realized that I should ask my own questions. And with so many new apps and tools to help save money and invest, asking questions—and finding your own tailored solutions—has never been more important.
Before you make a financial decision, like making an investment or switching banks, ask yourself:
- Do I know how this investment works?
- Do I know how I will potentially make or lose money?
- How does the person or service that I’m about to use make money (e.g., what are the fees)?
- Is there anything else about this I don’t understand?
Don’t assume that asking questions like these will make you look less knowledgeable. You’ll probably find out that the person dishing out the advice doesn’t have all the answers (if they can’t explain it in simple, jargon-free language, they probably don’t understand it themselves). Ask the questions you need to until you 100% understand where your money is going. No one will care about your money more than you do.
We’ve all heard the battle cry for women to negotiate. “Stand up for what you’re worth! Ask for more!” And that’s really important because a $7,000 salary deficit early on in your career can add up to over $1 million in lost earnings by the time you retire.
But it’s hard for even the savviest woman to know how much they deserve to make. Why? It takes more than just looking at online salary calculators (I like this one and this one), which has become the new default for most of us. It requires that we objectively assess our performance and have the confidence to know what we’re really great at. It’s that confidence piece that can be a little difficult for some of us—women tend to rate their performance lower on self assessments than men do, something referred to as a "confidence gap" (I can’t even tell you how many times I’ve thought to myself, “well I’m not the absolute best at this.”).
The next time you’re looking at your salary, don’t just look at an online salary calculator and pick a number somewhere in the range. Stop to reflect on a few questions, with a positive spin:
- What have I contributed that my manager or team has really valued?
- What am I absolutely amazing at doing?
- Does my salary really reflect how much I’m valued and how great I’ve been doing?
Being confident in what makes you great in addition to knowing the average salary ranges will help to really put in perspective how much you deserve to make.
Thank you, Erica! What would you like to see her cover next month? Let us know in the comments, below!