Five financial habits of a clever woman

For historical reasons, men are better at managing finances and investing. Women are not able to save as much as men who are rational and prudent. Moreover, collecting money and investing is something only for the rich. Does this sound right to you? “Unfortunately all kinds of outdated myths surround success in the financial world. Let’s change the way we think,” says Savings Latvia team leader Anželika Dobrovoļska.




True, looking at investment experts, you might be left with the impression that investing is more for men. Different studies show that close to 90% of employees in the investment sector are male. At the same time, most recent analysis regarding who grow funds and how, indicate that there are even more women than men among those who are starting to invest and that women tend to save a bit more than men. Recent trends show that women are able to earn even higher return on long-term investments, because generally they make more stable investments with a longer horizon – they don`t respond to each and every fluctuation on the market by buying or selling their investments.  Therefore, historical trends are also changing as women become more and more independent and influential on the labour market and as thought patterns broaden in society. It is also true that knowledge and personal characteristics have a lot more to do with how someone manages their funds than sex chromosomes and stereotypes. Fortunately, knowledge is something you can improve for your own interest. 


But how do women who are clever at managing their finances stand out? The magic cure can`t be winning the lottery, an unexpected annual bonus or a big salary. We all know that when you have more, you want more and no income is large enough for a big spender. There must be at least one person in your circle of friends who has surprised you with how skilfully they have set money aside for a faraway holiday or some other bigger dream though their income is small. What is their talent or secret?

Of course, in finances, you have to proceed from your personal preferences, opportunities and risk appetite, but there are certain habits that people who are good with their money follow.  Even just as an experiment, it is worth beginning this year differently and promising yourself to do the following:

1. Choose at least two dreams to save up for
   
   
   As unbelievable as it might seem, sometimes we are short of not money but goals and dreams! If you have put what you want to save for in words, then you`ll be much more motivated to save. Allow yourself to dream, big and small! If at all possible, then it is worth adding a specific sum next to the dream. 
   
   
2. Make a simple and realistic budget
   
   
   Putting a budget together is the only way to get a clear overview of your current finances. However, enthusiastic beginners often tend to assess their income and costs either too stringently or optimistically. If keeping too close an eye on your costs becomes tiring and unrealistic assessment of income does not lead to the desired result, then it is understandable why disappointment or fatigue makes you lose all interest in the matter. You don`t have to put every single thing down, just categorise your main obligations and income and set yourself a maximum for food and entertainment costs per month that you don`t want to exceed. If this seems difficult, then you could open a separate account at the bank for these specific expenses and each month, transfer the maximum sum you have set for yourself to the account – if you run out of money on the account, then you have reached the monthly limit you have set. 
   
   
3. Find at least one way to save
   
   
   You might not always have money for everything you want immediately. Some costs are inevitable, but there are always things you can save on. For example, it is worth trying whether cooking at home more for a month will help save money. Instead of buying a new book, look at the selection in the local library. From time to time, it is worth taking a look at different service providers` pricelists and asking for quotes; maybe the new gym close to your house is more affordable or a different operator will offer the same level of service at better terms?
   
   
4. Practice patience
   
   
   You shouldn`t make hasty decisions when it comes to finances, sometimes it is worth delaying an impulse purchase or some other decision to benefit more in the long-run. People tend to make more emotional decisions when it comes to their own personal funds. That is why it makes sense to trust specialists from time to time, who have much more information, experience and more rational reasoning to work with. This is especially true when it comes to investing. When you are a novice, then you should swap investing in single shares for funds managed by experts, where risks are better managed and you can start with smaller sums of money. 
   
   
5. Make money grow
   
   
   The historical experience of people who live in countries where investing is a tradition shows that if funds are invested for 15 years, then this investment will go through different market fluctuations and benefit also those who chose the less risky solutions. You should think about your future well-being already today and after all primary financial needs are covered and even just 25 euros a month are left over, then it is worth making it grow! For people in Latvia, one of the best ways to start investing is the supplementary pension fund. If you invest in the latter, then you will get income tax back on the investment every year and if necessary, you can use the funds when there is a sudden unplanned need for the savings before you turn 55.
   

It is understandable that out of all these habits, what may scare you the most is investing long-term to earn the return you want in 10 to 15 or even more years. In the recent past, Latvian small investors had few opportunities to invest cleverly and correctly. That is what may have given rise to the misconception that investing is only for the rich who thereby become even richer.


But our local financial market has also developed over the years and completely changed the situation. Nowadays, banks offer many investment opportunities that don`t require much starting out capital but guarantee a well-balanced portfolio. For example, by investing 50 euros a month with  6% average annual return, the investor`s portfolio value will exceed 8000 euros in 10 years` time.  Current investors have a clear advantage: since it is possible to begin with small sums, then you can do this early on, which makes it a lot easier to achieve the goals you have set.


For example, by setting yourself the goal to collect 100 000 euros by retirement (65 years of age), then if you start at 25, it only takes a 50-euro monthly investment with 6% average annual return. But if you start at 45, - then it`ll require 215 euros a month with the same average annual return. Such a big difference comes from the return on the investment making return of its own, thereby improving the end result. This effect is called compound interest and it is very powerful. For example, one of the best and wealthiest investors in the world, Warren Buffet, always mentions compound interest as the main source of his wealth. It may come as a surprise to some that Buffet didn`t become wealthy fast, but by consistently growing his assets over a long period of time. By starting at 11 years-old, he managed to collect 6000 dollars by the time he was 15, but he got to his first billion only at 56. Now, he is 85 years old and the value of his assets exceeds 67 billion dollars – the best example of just how powerful compound interest can be.


Albert Einstein has called compound interest the eighth wonder of the world. So it is worth getting compound interest to work in your favour as soon as possible. You just need to dream, consult experts, make a plan, be patient and in the end - enjoy life to the fullest!