Business Travel Tips From an Expert Traveler

I’ve been traveling for business for more than a dozen years. Looking for business travel tips? I’ve got you. These are some of the travel hacks that help me survive on the road.

Enjoy the experience. There are many articles about the drudgery of travel, but visiting new places is a tremendous luxury. It is estimated that two-thirds of American adults haven’t flown in the past 12 months and 18% haven’t flown in their life. Only 36% of Americans hold a valid passport, meaning that 64% cannot travel outside the United States (though they may have previously.) Look to meet new people, try a new type of cuisine, and broaden your own horizons through your trips.

Pack a good attitude. Confirmation bias is the tendency to seek, interpret, and recall information that confirms our biases. If you travel with a negative attitude (thinking airlines are terrible, people are annoying, stations are crowded), your brain will seek those experiences and reinforce your bias towards the horrors of travel. I encourage you to pack another attitude: that travel is interesting, exciting, and offers an opportunity to experience things you never would in your home office.

Be loyal. While rewards programs aren’t as rich as they used to be, they’re still useful. I have a colleague in a different department that was traveling sporadically for five years without any loyalty programs. Since they only traveled four or five times a year, they didn’t think signing up for anything was worth the effort. Understand your company’s travel policies and look for a few airlines and hotels you can remain loyal to in order to earn rewards.

Sign up for TSA Precheck and Global Entry. Not optional. Global Entry includes TSA Precheck, so once you are vetted, you’ll have both benefits. The current cost is $85 for five years. Precheck saves you time and effort at the beginning of your journey - you can move more quickly through dedicated security lines that also include Precheck travelers (who tend to be more experienced, and therefore efficient.) Global Entry saves you time when you return from an international flight; you simply enter information at a kiosk as opposed to standing in a queue to interact with a live agent.

Invest in excellent luggage. This really, really matters. I prefer Briggs & Riley and Tumi, as both have excellent customer service and provide warranties. If possible, select your luggage in person, and ensure it works with the items you pack, is comfortable to wheel when full, and is something you can lift into an overhead bin.

Invest in a travel-friendly wardrobe. Look for pieces that can mix and match easily with one another, in neutral colors, that don’t wrinkle. Here’s where women get a big leg up on men - they are often in suits with pressed shirts; women in a professional role can often get away with an amazing shift dress. Much easier to pack. Other critical items include good scarves and statement jewelry; both add flavor to a wardrobe without taking up much space. I’m also mindful of my pyjamas; I have been in hotels that have been evacuated at night and have been standing outside with colleagues. It can happen.

Use a list and pre-pack. Even experienced travelers forget things! I have a packing list that I use for my business trips, which ensures I don’t forget small items, like socks, hosiery, and my sports bra. I also pre-pack, meaning that there are certain items that never leave my luggage. These items include: an umbrella, travel pyjamas, chargers for my electronics, and my makeup/toiletry kit (which include Band-Aids, aspirin, and Imodium, which you should never be without). I also travel with my beautiful Shhhowercap; life is too short for the ineffective plastic caps provided by most hotels.

Keep your work bag stocked. Some items that are critical for flights stay in my work bag at all times, like lip balm, hand sanitizer, tissues, gum, and a travel-friendly pouch of wet wipes in case I end up in a seat with a dirty tray table that hasn’t yet been cleaned. I also always have a large scarf in my bag; temperature is unpredictable while traveling and it can double as a blanket.

Use packing cubes. You never know when you’re going to have to open your luggage in front of colleagues, clients, or the TSA. I use Eagle Creek packing cubes, laundry bags, and shoe sacks so I can easily dig through my bag without any embarrassment.

Never check your luggage. I’m serious - even if you’re headed overseas for a few weeks, it is possible to go carry-on only if you have excellent luggage and a travel-friendly wardrobe. At best, checking your luggage wastes your time (and that of your colleagues if you’re traveling together); at worst, it puts you at risk of not having what you need for tomorrow’s meeting.

Pack an extra bag. Sometimes, you end up adding things to your luggage on your journey. This may be binders or books from your clients or something fun like an unexpected piece of art and a splurge at Duty Free. I keep Tumi’s ultra-lightweight Just-In-Case® tote packed in my luggage for these emergencies. In this case, you are then allowed to check your luggage on the return flight!

Consider noise-cancelling headphones. I travel with mine for flights that are over 2-3 hours; shorter than that, I can get by with smaller earbuds to drown out the noise. Your experience may differ, but my ears get irritated after a few hours, so an over-the-ear model works best for me on long flights.

Identify a pair of “airport flats” that work for you. I’m usually in business professional clothing when I travel, and I prefer to wear heels to client meetings. If you’re often in heels, I recommend identifying a pair of neutral “airport flats” that you keep in your luggage and can change into after a client meeting, before you have to dash through the airport to catch your flight. Comfortable ballet flats work well.

Prepare for long-haul flights. Long-haul and overnight flights require a little extra effort. When I’m flying overnight, I add a few things to my work bag, including: my noise-cancelling headphones, eye drops, panty liners (I’m serious, pack a few to stay fresh on long flights!), woolen socks, an eye mask (I prefer the 40 Blinks mask from Bucky), and a superb travel pillow (I prefer the Aeris neck pillow; Travel and Leisure has an excellent list for different types of sleepers). I also drink a lot of water and use Airborne; I’m not sure if the Airborne actually does anything but I rarely get sick while traveling.

Stay active healthy. Whether I’m traveling for a single night or several weeks, my gym clothes and sneakers come with me. Staying active on the road helps my energy and keeps me healthy. Nearly every hotel has a fitness facility, and it’s possible to get a great workout in your room, too. I also eat healthy, looking for fresh fruits and vegetables and avoiding the temptation to grab a “treat” just because I’m on the road. Since I often travel to the same locations, I’ve learned where I can get a healthy meal on the go. And in an unfamiliar airport or city, a quick Google search can reveal the best options nearby. Hydration is also really important when you're traveling; drink a lot of water if you'll be stationary and near a bathroom for a few hours!

Set two alarms. I’ll end on a very practical note. Never, ever rely on just one alarm to wake you up. If you use the hotel clock, set your phone as a backup. And, if you use your phone, call down to reception to request a wakeup call.

Those are some of my very favorite business travel tips. In a future post, I’ll share my favorite travel hacks, tech, and apps to make the journey easier. I’d love to hear if there are any that are new to you, or if you have any you’d like to add. Travel safely, and enjoy the journey!

xoxo,

Ms. Financier

25 Things Women Should Stop Apologizing For At Work

It’s time to stop being sorry. Many of us were taught to be nice, mind our manners, and apologize. Those well-intended (gendered) behavior guidelines can hurt us in the workplace.

 Women apologize more than men. Pantene even created an ad that highlighted our tendency to say sorry. However, it is important to note that when evaluating the same set of situations, we identify more of them as apology-worthy compared to men. That said, “I’m sorry,” weakens your position and puts you on the defensive in the workplace. 

Save your “sorry” for when it is needed; a difficult situation your coworker is going through at home...not before you ask a question. Here are 25 things we must stop apologizing for at work.

  1. Bumping into someone: “Pardon me,” is a perfectly acceptable response when you bump into a colleague. Acknowledge, but don’t apologize.

  2. Asking a question: Don’t start your question with, “I’m sorry;” instead use language like, “Excuse me,” “Could you clarify…,” or “I  have a question.”

  3. Answering a question: You’re asked something you don’t have the answer to. “I’ll look into that,” or “No, I don’t have the analysis for Asia,” is better than apologizing.

  4. Getting sick: Whether you stay home or leave suddenly during the day, do not apologize for falling ill! Presenteeism hurts productivity; if you’re contagious, your coworkers will thank you for staying home.

  5. Caring for a family member: If a family member or friend falls ill or needs help following a medical procedure, don’t apologize for using your time off to care for them.

  6. Declining a request: You’re asked by a peer to do something you can’t (or shouldn’t). Decline without apology; suggest other colleagues or related resources if you’d like.

  7. Requesting materials: You’re preparing for a meeting, and need certain supplies. State your request, not: “I’m sorry, but could get a projector for today’s session?”

  8. Starting a meeting: The meeting you’re leading is about to begin and everyone is still chatting. Start with, “Good afternoon, let’s begin,” and not, “I’m sorry to interrupt…”

  9. Being busy: Your colleague wants to meet with you, but your calendar is full. Don’t apologize; see if you can skip a “nice to have” meeting or suggest a few alternative dates.

  10. Asking for benefits information: HR teams are designed to source, attract, and keep great employees. When you ask for clarification on your benefits, don’t apologize. State your question clearly so they can get you the information you need.

  11. Asking for time off: In America, time off is a benefit that more than half of us don’t use in full. Don’t start with, “I’m sorry to ask for a few days next month;” simply communicate the dates you’re requesting.

  12. Announcing a pregnancy: It can be scary to tell your employer about an upcoming pregnancy, even though it shouldn’t be. Here’s how to tell your boss - no apologies permitted!

  13. Writing an email: Don’t add “sorry” to your emails. It undermines your credibility and unnecessarily documents an apology.

  14. Rescheduling a meeting: Don’t make a huge deal out of having to move a meeting. A simple, “We will need to reschedule,” with alternative times will suffice.

  15. Beginning your presentation: Right before you begin presenting, an apology slips out, like: “Sorry, these slides aren’t as organized as I’d like,” or “Sorry I only prepared this yesterday.” Don’t undercut your authority before you’ve even begun!

  16. Addressing a disruptive colleague: “Sorry, we need to move on to the next agenda item,” may silence Disruptive Dan, but why are you apologizing? Instead, try, “Dan, your point is noted. Now, we’ll address the next item, to ensure we cover everything on today’s agenda.”

  17. Requesting time from a senior executive: Senior sponsors play a critical role in career advancement. Here’s how to cultivate those relationships. Importantly, do not start off by apologizing when you ask for their time.

  18. Catching up after returning from leave: When you return back from vacation, parental leave, or an illness, you need help to catch up. Be gracious to your colleagues, but don’t apologize for being out or needing assistance to get back up to speed.

  19. Participating in an important life event: Everyone’s life outside of work is different. If you’re not available because you’re at your daughter’s important recital, or cheering for your best friend in her first marathon, don’t apologize - find another way to get the information or suggest a different time.

  20. Popping into the boss’ office: Your boss’ door is open, and you’d like to tell her about the fantastic client feedback you received. Don’t start with, “I’m sorry, Sheryl, do you have a minute?” Instead, try: “Sheryl, since your door is open, I know you’d appreciate some fantastic client feedback.” She’ll let you know if she doesn’t have time.

  21. Admitting a big mistake: Yikes - the report you sent to Alpha Company included two massive data errors. Immediately alert your boss; bring her the details of the situation and at least two ideas on how to fix it, not an apology.

  22. Informing an employee they didn’t get promoted: This is tough, but a well-intended apology undermines your promotion processes. Be direct and empathetic but not apologetic; “Cameron, you didn’t receive a promotion. You may be disappointed; I can provide a detailed summary of feedback on the two skills you’ll need to improve.”

  23. Giving a client bad news: Communicating bad news gracefully is challenging. Your client wants to understand the situation, why it occurred, and what alternatives they are now facing - not how sorry you are.

  24. Giving an employee a poor review: Ideally, you’ve had prior discussions about where they are failing to meet expectations. However, discussing a poor performance review is difficult. Stick to the facts; apologizing can only undermine the feedback you’re providing.

  25. Firing someone: Letting someone go is best done swiftly, directly, and in partnership with HR. You may be tempted to apologize, but doing so can muddy the message. “I’m so sorry, Andre I have to let you go,” may sound nice, but it’s not clear. Instead, use language like; “Andre, today is your last day at Alpha Company. You have not achieved your goals in the last three months and are frequently late to work. Here is the paperwork to complete in order to receive your last paycheck.”

Stop apologizing and start being direct. If you think you apologize frequently, share this article with a trusted colleague or friend who can hold you accountable. And, if you’re mentoring other women, let them know if you observe them over-apologizing - they’ll thank you for it!

Are there any that I missed? Do you disagree with my recommendations? Let me know.

xoxo, Ms. Financier

This post also appeared on the Fairygodboss blog - I love their mission to improve the lives and workplace for women, through transparency.

Five Money Lessons From My Childhood

I am lucky. I grew up in a household where we talked about money. I was raised in a middle-class, Midwestern suburb, and I credit Momma and Papa Financier for so, so much, particularly when it comes to my relationship with money. 

In the 80’s, we faced times where my father’s work (tied to the Detroit auto industry) slowed down, and that often meant my parents worked more while the entire family tightened our belts. We’d look for creative ways to find money - which included me taking on babysitting jobs and my siblings and me biking to local construction sites and picking up pop cans. (Cans could be returned for a ten cent deposit in Michigan, famously exploited by Kramer in a Seinfeld episode.)

When we wanted to buy the Nintendo Entertainment System, the money generated from our pop can-foraging expeditions contributed greatly. Transparency around costs and wants (like the NES) and needs, helped me understand how money worked as a little tyke. Here are five money lessons that stemmed from my early childhood.

1. All money is not created equal. My parents had a large glass jar on our wet bar that was full of spare change. At four years old, I would gaze at it in awe, thinking it contained the riches of the world. One day, my babysitter and I counted the money - we started with the copper coins and had over 100 of them. I’ll never forget the heartbreak I felt when she said, “One hundred pennies means we have one whole dollar!”

I remember thinking, “ALL of those pennies equal ONE lousy dollar?!” My shock must have shown on my little money-minded face. Next, my sitter explained that I only needed four of the large silver coins to make one dollar (much more palatable). Even better, we had a few Kennedy half dollars which added up quite quickly.

This lesson taught that all currency is not created equal. Today, I can apply today to other categories of finance, like mutual funds and ETFs. Simply because they are in the same category does not mean they have the same value, risk, or cost.

2. Doing the things no one wants to do can get you paid. We had an apple tree in our backyard, which was a superb climbing apparatus. However, every fall it also dropped loads of apples that my dad had to gather in order to cut the grass.

Papa Financier hated picking the apples up, and I offered to do it for a penny an apple. Any apples that deemed “very gross” were worth five cents, though I had to be ready to show them to my dad for inspection (they had to be rotten, or crawling with bugs and worms).

I'd tear around the yard with my apple bucket, excited because we didn't ever get paid for chores like these. Dad must really hate this task to pay me for it (or, I was very, very cheap labor)!  

Taking this approach as an adult can help generate extra income or create opportunities. One of the things I encourage new employees to do is find something that you can get good at, ideally that no one else wants to do. Take it, own it, kill it and make more income from it than I did with my buckets of apples.

3. Your money can make you money. I referenced this briefly in my introduction; one of my very early financial memories. I was five years old and my dad explained that the bank would pay me interest in exchange for my savings. This blew my mind - money without having to work for it!

At the time, U.S. savings bonds were earning 7.5%; as a comparison, the current rate through October 2017 is 0.10% (yes, only ten basis points.) The idea that I could put one dollar in the bank and earn more than a nickel by the end of the year was miraculous. This concept made saving money both compelling and tangible. I could see that free nickel from the bank with every dollar I got my hands on.

This concept is at the heart of financial freedom, which is the point at which our assets (investments and income from real estate, for example) produce enough regular income to cover our expenses. It’s also at the heart of the most powerful element of investing - compound interest.

4. Save at least half of any unexpected income. Starting as early as I can recall, my parents suggested I save at least some of the gifts I would receive for birthdays or other celebrations. They didn’t require it, or take it from me, but they’d remind me of the power of saving...versus spending it all.

Nearly 30 years later, I still remember a girlfriend who got three beautifully crisp $20 bills in her Easter Basket when we were 8 years old. The Financier household had fun, sugar-fueled Easters but our bunny hid candy, not cash. My friend showed me those three Jacksons and immediately started rattling off what she was going to buy. My heart hurt that not one dollar was going to the bank!

When we receive a windfall - an unanticipated bonus, or a generous birthday check - we’re more tempted to frivolously, quickly spend it. Our brains tend to compartmentalize and we view the extra money as distinct from our paycheck (which we spend more responsibly). One study on the psychology of unexpected, windfall gains concluded, “...the unanticipated nature of windfall gains is responsible for their heightened proclivity to be spent.” Emily Guy Birken also writes about this concept in her book, End Financial Stress Now

Don't let windfall gains slip through your fingers! I see this today. In management consulting, I'd see folks at bonus time rattle off the vacations, cars, treats they'd be buying with their bonus...and rarely hear folks talk about how excited they were to invest or save some of it. Today, I usually treat myself with at least one splurge when bonus season comes around. But most of it goes to longer-term financial goals, like saving for travel, debt payoff, or my Vanguard Financial Freedom account.

5. Anything worth buying is worth saving for. In the 80s and 90s, many retailers offered something called “layaway” where you could pick an item out and the store would set it aside for you; you could pay the store over a period of time, and receive the item once you’d submitted enough money to pay for the item. Importantly to me, Toys ‘R Us had this service.

When I outgrew my first bicycle, I started saving (along with my parents) for a pink and purple Huffy bike. This bike was absolutely outstanding. It even had a matching bag that attached to the handlebars, so I could carry my He-Man and She-Ra characters around the neighborhood with me. Sweet, right?!

To pay for this bike, I'd save up money and go with my parents to the customer service counter, present our funds, and get a ticket showing me exactly how much we had left to submit before the bike was mine to take home. What an amazing illustration of how to save up for a specific item!

This taught me to save first, spend next. When credit cards came into my life, I forgot this lesson and paid for it dearly. Now that I finally have my credit card debt under control (more on that later), I use a “layaway” approach for big purchases, from new Charlotte Olympias to appliance replacements, home improvement projects, and vacations.

I'm so grateful that I grew up with these five lessons. And while they didn't prevent me from making money mistakes they've certainly given me a strong financial foundation.

What about you? Are there money lessons you learned when you were little? I’d love to hear from you.

xoxo, Ms. Financier

Three Answers You’ll Get From “End Financial Stress Now”

One of the most fabulous things about exploring the world of personal finance is meeting other money-minded gurus. On Twitter, I follow loads of personal finance bloggers, advisors, and money mavens. There’s the practical benefit; a constant flow of interesting perspective on money and there’s also the benefit of being part of (and contributing to) a community. 

One of the finance writers I’ve had the chance to meet (virtually) is Emily Guy Birken, author of End Financial Stress Now, The 5 Years Before You Retire, and Choose Your Retirement. Emily shipped me a copy of her latest book, saying, “While [my new book] is not specifically feminist, it is geared toward helping people manage their financial stress at all income levels. (I hate that most PF books are clearly geared toward upper middle class readers). Thought it could be a good fit for you if you're interested...” I devoured End Financial Stress Now in just a few days; here’s my review and the three answers you’ll get from Emily’s book.

I’m overwhelmed with life and money, where should I start? I could imagine this book being particularly useful for those going through a big life change. New high school or college graduates, someone who is recently separated, or a person with a brand new job. Emily doesn’t shy away from the fact that money can be a stressor, damage relationships, and make us feel not-so-great.

Emily pushes us to first understand our relationship to money, so we can improve it. Her book starts with a section on Redefining Money and the first chapter asks, What Does Money Mean to You? She includes common feelings about money: shame, respect, security, freedom, success, love, time and encourages us to determine what money means to us. I found this section to be particularly powerful; as women, many of us are encouraged explicitly to be good, helpful, and kind - but not powerful or successful. This can hamper us from having a productive and respectful relationship with money.

Later, Emily encourages us to explore our money scripts. She writes, “A money script is an unconscious core belief about money. Such scripts inform everything you do with money.” Chapter seven explores four money scripts; avoidance, worship, status, and vigilance. She briefly describes the positive and negative characteristics of each and outlines the tactics you can employ to ensure your money scripts aren’t creating financial stress.

There’s also a short quiz you can take to quantify your relationship to the four scripts. Mr. Financier and I took it together, which started an interesting conversation. We both scored highly on Money Vigilance, but I also scored highly on Money Worship. This didn’t surprise me; I always have to remind myself money isn’t the answer to all my problems. As a couple, our joint tendency towards Money Vigilance has caused friction. At one point, our budget was so restrictive it created stress for both of us, because we were denying ourselves too many experiences we valued. Emily’s quiz helped us re-visit this topic in a really productive way.

How does human behavior relate to personal finance? Throughout the book, Emily explains powerful, academic concepts down using simple language. For anyone that has a curious, nerdy, academic streak - you’ll find these portions fascinating! Many of us are really interested in human motivations and Emily’s exploration into common biases and behaviors is really interesting.

Two of my favorites are restraint bias (explored on page 86) and the loss aversion (page 91). Restraint bias acknowledges that most of us think we can resist temptation, even though we often fall prey to it when faced with something tempting. I’ve been in credit card debt at least six times in my life. Each time I’ve paid off a balance, I swear, “I’ll never, ever use my cards to buy something I can’t afford.” But then, an email hits my inbox advertising a fabulous shoe sale at Neiman Marcus, and I let myself to splurge, racking up debt on my card again! Emily explains you need to know your weaknesses and plan for them; in my case, I have to unsubscribe from Neiman Marcus emails and avoid going to the mall “for shopping,” because I’ll be far too tempted.

Emily devotes an entire chapter to loss aversion, a term that describes how humans feel loss more acutely than gain. For example, finding a $5 bill on the sidewalk provides a momentary burst of happiness; but misplacing $5 that you just know you had in your coat pocket is more painful. I believe that women can particularly benefit from this chapter; we are often in the role of managing all the “things” in our home - buying gifts for others, decorating, shopping for clothes for our family members. If we better understand and combat loss aversion, we’ll save more money and avoid cluttering our lives with things we don’t need.

What practical, easy-to-follow financial advice can I adopt immediately? While understanding our biases and human behavior is critical, End Financial Stress Now includes plenty of practical tips. I particularly enjoyed the last part of the book, Achieving a Stress-Free Financial Life, where Emily digs into budgeting, managing expenses, and self-discipline.

I’m a big fan of negotiation (see my thoughts about asking for a raise). On page 161, Emily highlights a series of expenses we should be negotiating (and provides tips on how to do so.) Many women were taught to follow the rules as little girls; a nice sentiment, but the rules of commerce are often unwritten. Everything is negotiable. That doesn’t mean we’ll always get what we want, but I find women are more anxious than men to ask for lower prices or different payment terms. Researchers have found similar gender differences, particularly around initiating a negotiation. What is the absolute worst that will happen? Your offer will be declined and you’ll be where you are now, in the status quo. Let’s start negotiating, ladies!

The very practical section on budgeting is entitled, Budgeting with Your Psychology in Mind. I absolutely love this approach, because what works for one person might not for another. I’ve shared my approach, scarcity budgeting, but have come across many other approaches that work well for others. This section includes worksheets that help you think through what to include in your budget, as well as a variety of suggestions on how to budget. If I could copy one section and give it out to the women in my life, it would be this chapter!

Emily Guy Birken’s book is incredibly accessible and thoughtful. As someone who has read a lot of personal finance advice, I found her take to be a unique blend of human behavior and practical advice. If you’re in a book club, I love the idea of suggesting End Financial Stress Now as a way to open up the topic of money with your friends. Or, grab a copy for yourself and lend it out liberally as a way to gently broach the topic of money with important people in your life.

As a bookworm, I’m curious to understand some of your favorite financial books. What are your go-to favorites? Is there another that you would recommend I read and review? Let me know! 

xoxo, Ms. Financier

My Money Mistakes: The Wild Terms (and Size) of My First Mortgage

Money mistakes - we all make them, don’t we? Some are bigger than others. This one's a doozy.

In late 2004, Mr. Financier and I got swept up in the housing bubble. We were in the Washington, D.C. area and struggling to afford this expensive city. So, we did what every young couple should do - buy a home. (Please read that with the full sarcasm with which it was intended.) 

Colleagues, friends, and the media concurred; while D.C. housing was expensive, real estate prices never, ever dropped. So, if we didn’t buy now, we’d never get on the property ladder. We started looking and were promptly floored by the prices. We’re Midwesterners and grew up in areas where $250,000 could buy you more house than you could ever need. In D.C., we blew right past our $300,000 maximum after a weekend of looking for properties. Shortly, we found a beautiful, obscenely sized home perfect for a couple barely out of college. (Again, sarcasm.)

Along the way, my gut told me it was all too good to be true. Yet, I was reassured at every turn. The real estate agent pointed to the rising prices, reinforcing that housing was the safest financial bet one could make. A family member encouraged me to stop investing in my 401k, because my house could become my retirement account. The lender’s very first question was, “How much do you want to borrow?” Colleagues talked excitedly about the massive tax deduction that a house provides. “Everyone in D.C. has a massive mortgage,” they assured us.

Our first mortgage had terms that make me cringe. Our combined gross pay in 2004 was $105,000; Mr. Financier has an engineering degree and I have a business degree. We were lucky to secure excellent jobs after graduation. But, our total housing debt was $607,430. We didn’t put a penny down. The mortgage was creatively assembled, as so many were in the heydays of the boom leading up to the 2008 financial crisis.

The primary mortgage was a 5/1 LIBOR interest-only loan for $472,500 at 4.75%. Interest-only meant we were only required to pay the interest during the initial five years of the loan. Regular payments we made wouldn’t decrease our outstanding balance. After five years, our loan would amortize for the remaining term and the rate would adjust. (In layman’s terms - the payment would go WAY up.) LIBOR loans are tied to the London Interbank Offered Rate, which serves as a benchmark for interest rates that banks use to loan themselves money.

The remaining debt was a home equity line of credit provided by National City. (Subsequently, National City was hit hard by the financial crisis and was acquired by PNC.) The $134,930 line of credit started with an APR of 5% but fluctuated, as lines of credit do. The rate steadily rose during the time we had this mortgage; our initial payment of $562.65 grew to $668.37 in less than a year; an increase of 18.8%. 

Initially, we were swept up in home buying excitement and assured by the encouraging chorus around us (real estate agents, lenders, media buzz, family, and friends). It wasn’t until we were in the home for a few months that we appreciated how incredibly stupid our mortgage was. We stressed as we saw the line of credit payment increase, rising steadily as the interest rate changed.

In 2005, we scrambled to find a loan officer that could refinance this ticking time bomb of a mortgage. Mr. Financier and I worked our tails off at work, trying to increase our income to both make us more attractive to lenders and reduce the balance on our interest-only mortgage.

We got very, very lucky - in October 2005, we refinanced into a more stable mortgage. Our new loans were a $520,000 first mortgage (30-year fixed at 5.75%) and a $90,000 second mortgage (20-year fixed at 7.13%). We were lucky because we refinanced before the economy imploded. Also, our rising income made it possible to secure the new mortgage - by that time, our gross income had grown to $135,900. I also give a tremendous amount of credit to my family - my parents realized what a bind we were in and offered to lend us some money to help with the payments on our new, more expensive, mortgage until we could afford it on our own. (This resulted in another money mistake; stay tuned.)

For those of you keeping track of the numbers, you noticed that our second set of mortgages was higher than the first. No, we didn’t take any cash out; the increased mortgage covered the fees associated with refinancing. We bought for $607,430 and our second set of mortgages was for $610,000 (a difference of $2,570). In the eleven months that we had our wild first mortgages, we did pay off some principal.

The first painful part of this money mistake is the $25,730.48 we paid to our lenders during the time we had the 5/1 ARM and line of credit. Much of that was interest, of course, and is money that we never got back. As I write this, well over a decade later, I still feel sick at how much stress our original mortgage added to our lives. And I feel ill thinking about what would have happened if we hadn’t been able to move to a “better” mortgage before the housing bubble popped.

The second part of this money mistake is the fact that we bought a house we couldn’t afford at a very early point in our lives. We dedicated our twenties to furiously growing our incomes in order to pay our mortgage and build our savings. Because the housing market collapsed shortly after we refinanced, we didn’t attempt to sell the house. D.C. housting was also negatively impacted by the crash and we were underwater on our home for years, which meant we were stuck.

You might be interested in what’s happening today. We are still in the same home and completed what I hope is our last refinance in 2012. We currently have a 15-year fixed rate mortgage at 3.375%, and I recommend everyone consider a 15-year mortgage when purchasing a home. Mr. Financier and I aim to eliminate our mortgage in the next five years and regularly make extra payments. 

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Whew, that was a painful money mistake to relive! But, we learn from the mistakes of others. I share this story as an example of why you should listen to your gut and resist getting caught up in the frenzy created by others, particularly when making big financial decisions. We’re so, so lucky we didn’t lose our home (or jobs) and got through the financial crisis ok. However, luck is not a sound financial strategy. 

Have you ever had a loan with wild terms or one that you regretted? What other money mistakes have you made?

xoxo, Ms. Financier

How Do You Budget? Scarcity Budgeting Works Best for Me.

Wealth is created in the space between your income and expenses. If you’re interested in growing wealth, I suggest you grow your income and manage your expenses. If you’re like me, you enjoy increasing income more than reducing costs. But, if you don’t keep an eye on your expenses it is very easy to over-spend. 

I believe the most efficient way to manage your expenses is to find a budgeting method that works for you. If you’re partnered, you need to determine how to blend your approach with your partner’s - but we’ll explore that in a future post. 

The budgeting approach that works best for me is something I call scarcity budgeting. At a high level, the idea is to set up your finances such that you do not have excess money in your checking account. By creating scarcity, you don’t have the ability to comfortably over-spend or let your money sneak away from you.

Here are the four steps to scarcity budgeting:

1. Track your expenses to understand what you’re currently spending. Then, based on your actual expenses, decide what you want to reduce, change, or keep the same. For example, you might be appalled that you’re spending $1,250 monthly on food, drink, and eating out. Or, you may be disappointed that you aren’t investing enough for your future or donating enough to the charitable causes that matter most to you.

2. Automate your finances. I do this by having separate accounts for things that aren’t daily expenses. Travel, fun money to splurge on shoes or gifts, and boring necessities like car maintenance are funneled into different savings accounts. Each payday, a certain amount of money automatically transfers out of my account and into these savings accounts. Same for charitable contributions, regular bills, and investing; money is sent to those organizations on a defined schedule.

3. Spend only what’s left. After my money is whisked away, I’m only left with enough to buy gas, groceries, household items, and restaurant meals in accordance with my budget. I keep an eye on my checking account and don’t give in to putting things on credit cards to “tide me over” until my next payday.

4. Save or invest any excess. This is the fun part of scarcity budgeting! (Yes, I’m serious). If my checking account grows too large (because I haven’t been spending that much on regular expenses), I save or invest. This “found money” contributes to my other financial goals and gives me an unexpected financial boost. 

That’s my approach to scarcity budgeting in four steps. For me, this budgeting approach has worked wonders. Because I do not have excess money in my checking at any given time, I am not tempted to spend. Importantly, I rarely use credit cards because I have struggled with credit card debt in the past.

Do you use scarcity budgeting? Is there another approach to budgeting that you prefer? Or, are you one of the financial unicorns who doesn’t budget yet still manages to build wealth? Let me know!

xoxo, Ms. Financier

Three Reasons Why Financial Freedom Is a Priority For Me

There aren’t many people in my life that know about my goal to retire by 45. While I love to talk about money and personal finance, only a few people know I’m spending most of my money trying to reach financial freedom (the point at which our investments produce enough regular income to cover our expenses). 

That said, when I get brave enough to share, one of the common reactions is incredulity. Some suspect I have a major trust fund (I don’t), or that Mr. Financier and I have inherited wealth (we haven’t); others are curious about the math behind financial independence; and others say, “Retire by 45?! Why would you want to retire so early - what will you DO with yourself!?”  

 The answer to that question is exactly why I’m so focused on financial freedom, so I’d like to share my perspective. I also recognize how lucky I am that my circumstances and hard work have put me in a position to consider leaving the workforce at a relatively early age. Here are three reasons why I’m so focused on this goal.

#1: I Need More Time for Hobbies

There’s a lot that I enjoy...reading, traveling, hiking, bicycling, volunteering, mountaineering, kayaking, discussing personal finance, bird watching, running, weightlifting, yoga, cooking, learning and taking classes, enjoying a nice glass of wine...to name a few.  With my current career, I am left with only two precious days each week - Saturday and Sunday - to focus on my hobbies. Realistically, those days are currently also filled with chores that get neglected during the workweek.

I get more enjoyment from a day that allows me to focus on the things that bring me joy. A day that starts with a morning yoga class, a post-class coffee with local volunteers to strategize about an upcoming campaign, followed by a hike in the woods and picnic lunch with my partner, ending with starting the first several chapters of a huge novel before a delicious home cooked dinner and glass of wine - that’s a dream.

If I’m lucky, I get 4 days like that a month.  If I’m realistic, it’s only 1 - and that’s depressing, to me. The idea that I might be able to escape the daily grind and have more time to spend on the things I enjoy is incredibly motivating, empowering, and liberating.

#2: I’m Sick of Working

I’ve been earning a paycheck in some way, shape, or form since I was 13. Before that, I babysat for neighborhood kids (I even had my own business cards and completed the American Red Cross Babysitting & Child Care Training) and did clerical work or physical labor as needed for my dad’s small business. When I was able to take a job outside the neighborhood at 13, I began earning paychecks. I’ve worked at a daycare center, served as a restaurant hostess, was a cashier at a sporting goods store, interned at a financial planner’s office, served as a lifeguard, and interned at a law firm...all before turning 21.

Since graduating from college, I have worked in consulting. There’s plenty to love about my career; the client challenges are fascinating, I work with smart colleagues, and I get to travel extensively. As most businesspeople know, traveling for work is both a pleasure and a grind; on the whole, I realize that I’m lucky to explore the world as part of my work. However, the massive time commitment and consistent stamina required of at a full-time job in management consulting is something I’d gladly leave behind. At the end of the day - it’s work. It's work I have to do because I need money to live.

#3: I Finally Realized That Experiences > Things

I think of 2011 as the year that the scales fell from my eyes around the value of material goods. I won’t tell you that I have sworn off beautiful things - I still salivate over a gorgeous pair of Louboutins. But, during the financial crisis, I was terrified I’d lose my retirement savings, job, and home. When the economy began to improve, I bounced back in a very financially counterproductive way. I rewarded myself with a lot of things. And those things weren’t necessarily making me feel happier or more secure. I’d often open up my credit card bills and feel nauseous about how much I spent on “stuff.”

That year, I started taking smaller steps to get my financial house in order. I stopped planning shopping afternoons with friends and instead suggested museums or picnic lunches. I canceled my recurring housekeeping service and began cleaning my own home. Mr. Financier and I started reviewing our budgets even more regularly and critically to look for areas where we were leaking money. We re-routed “fun money” that we had previously spent mindlessly towards investments. I got more serious about my career, knowing that if I grew my income, I’d have more to invest. Simultaneously I started exploring the FIRE movement and was very inspired by others that had saved enough to stop full-time work in their 50s, 40s, or earlier!

I began to internalize that, for me, life experiences will always deliver more value than material goods. And I’ve always been a fan of aligning money with your personal values. This series of realizations helped me put my money to work for my future, instead of on things I’d enjoy in the present.

As you can see by these three reasons, the goal of achieving financial freedom is so important to me because time is an incredibly precious asset and given the choice (which I’m grateful to have), I prefer free up time for experiences outside of work. I’m curious if you’ve contemplated financial freedom - either earlier in your 30s or 40s or later in life. If so, what drove you to explore the idea? Let me know your thoughts.

 xoxo, Ms. Financier

How To Create Your Retirement Budget

I get incredibly excited about the idea of creating a retirement budget. It is a chance to imagine my life at a point when I no longer have to work and can fill my time as I choose. I think about my retirement budget as a “financial freedom budget;" I aim to stop working a traditional job (or before) I reach the age of 45. Those that know about my goal of financial freedom ask about my budget. In this post, I’ll share how I think about my future spending.

I created my first financial freedom budget in 2013 when I started exploring the FIRE community (Financially Independent, Retired Early). Before that, I'd always thought, “Retirement is so far away, I can’t imagine what my budget will look like.” I had never considered how I’d be living when I stopped working; it was always “off in the future” and so “far away.” I could figure it out later, right?

My thinking changed once I was bitten by the bug to achieve financial independence. I became inspired to figure out exactly how much Mr. Financier and I would need to save to become financially free. A key part of that is how much we’d be spending, so modeling our future budget became critically important. 

At first, thinking about the expenses we’d incur for the rest of our lives was overwhelming. There are so many variables and assumptions. So, I began in the most obvious place - with our current household budget. I reviewed our annual expenses from 2012 and began making adjustments from there. The first adjustment was easy; I immediately deleted my two largest monthly expenditures. These were our mortgage (which we plan to pay off before we stop working) and our retirement savings. That change immediately reduced our monthly expenses by 59%.

Are you surprised that we were spending nearly 60% of our income on retirement and our mortgage?  Two things to keep in mind: First, we refinanced our generously-sized home (and associated generously-sized mortgage) into a 15-year loan that we pay extra on each month. Second, in 2011 and 2012 we had already optimized our budget to remove extra expenses in order to invest more our income.

Note that many mortgage payments include property taxes and homeowners insurance payments; these won’t disappear once your loan is paid off. If you plan to pay off your mortgage before retirement, include your taxes and insurance payments in your retirement budget.

Next, we reviewed our entire budget and made adjustments to reflect what we expected to spend once in the future. Like any budget, ours is a best guess and a living document that we keep coming back to and modifying over time. Here is a summary of the major changes we made.

Home Maintenance Saving: We added a dedicated line item equivalent to 1% of our home’s value to save each month for repairs, since we would not have salary and bonuses to help pay for any big expenses out of upcoming cash flows.

Health Insurance and Healthcare: We increased costs for health and dental insurance for us both, estimated based on visiting online sites and getting quotes (pretending we were 55.) We assumed we’d be paying more for healthcare as we age and increased spending in that category.

Auto Insurance: This line item decreased, as we’d sell one of our two cars in retirement (no more dual commuting) and we’d also be driving fewer miles annually, without the daily trip to work.

Travel: I love exploring, so this line item went up significantly. I increased our travel expenses three-fold. Right now, Mr. Financier and I are very time constrained and don’t travel as much as we’d like given our careers. I look forward to “slow travel” when we’re financially free - weeks or months in one location, living more like a local.

Clothes & Dry Cleaning: This went WAY down, as we wouldn’t need to be in our professional work gear every day. I still plan to buy shoes, but perhaps not quite as many new pairs each year!

Food, Wine, Dining: We increased these slightly; business travel subsidizes some of our fine dining today and we do plan to enjoy going out weekly in our financially free days. I’m also a wine enthusiast, and I’d like to explore it even more in the future.

Hobbies: We increased our hobby expenses, though not by much as we have pretty inexpensive hobbies (reading, running, hiking, camping, and yoga). I did add in additional costs for classes and seminars; there are so many amazing programs in the D.C. area and I regularly can’t participate because of my work schedule.

With these adjustments, Mr. Financier and ended up with a total monthly requirement that is far lower than our expenses today. When I did the math, I was stunned that we could have the lifestyle reflected in this retirement budget, for so much less than we were living on.

What about inflation? Many prefer to include inflation in their modeling. I do all of my calculations in today’s dollars.  Yes, inflation is real, but we never intend to move our entire portfolio out of the market, so we expect that keeping our money in the market will combat inflation - just like it does for us today.

Is my retirement budget perfect? Like any model, I know it isn’t. However, it is a starting point that allows me to explore how much income I’ll likely need to replace when I stop working full time. Many that approach financial freedom begin to live on their post-retirement budget a few years before they stop working. I like this idea as a way to reality-check and pressure-test the budget.

Have you built a budget that reflects your expenses post-career? If so, how did you do it? What feedback or suggestions do you have for me?

xoxo, Ms. Financier

The Magic Number Behind Financial Freedom

To me, financial freedom is the most glorious phrase - even better than free Manolos. What is financial freedom? It is the point at which our assets (investments and income from real estate, for example) produce enough regular income to cover our expenses. I find the idea magical! Financial freedom means we’ve invested so much that our own money has turned into our primary source of income. At this point, we no longer “need” to work for income.

At first, financial freedom sounds impossible. Only for the very wealthy, or for the tremendously lucky. I acknowledge that this magical concept isn’t accessible to everyone. However, the cold, hard math suggests that far more of us could achieve financial freedom if desired; it is a choice that requires us to prioritize growing our wealth.

You may aim to achieve financial freedom in order to retire in your 60s (or later). Or, you might be driven towards an earlier date; your 50s, 40s, or even 30s. I've shared that my goal is to reach financial freedom by 45 (or earlier). If the idea of a “work-optional” life appeals to you, there is one key number you need to understand. This number makes it possible to eliminate the need to work in a traditional career, or stop working all together! So what is it?

Four percent, which refers to the 4% safe withdrawal rate (also called the 4% rule). Why 4%? Several studies have confirmed that retirees can safely withdraw 4% of their nest egg every year, without the risk of running out of money, and without adding to their savings. While the returns on investments will vary (some years more than 4%, some years less than 4%), if you consistently withdraw 4% annually, you’ll avoid the risk of completely depleting your funds. Here’s a roundup of some of the most relevant research.

The most well-known exploration includes the Trinity Study, which originated at Trinity University. Professors explored market data between 1925 and 1995, seeking to understand what withdrawal approaches wouldn’t exhaust the retiree’s nest egg. They wrote, “Withdrawal rates of 3% and 4% are extremely unlikely to exhaust any portfolio of stocks and bonds during any of the payout periods [15- or 30-years].”

Even before that research, William Bengen’s 1994 study, Determining Withdrawal Rates Using Historical Data, analyzed and tested various withdrawal rates against historical market data. The maximum rate that retirees could withdraw without depleting their savings? You guessed it - 4%. One important assumption in this study is that 50% of the portfolios were in bonds. (It is common for retirees to place large amounts in lower-risk investments like bonds. I personally plan to have a longer retirement and will put far less than 50% in bonds).

Finally, Michael Kitces, a financial expert and lifelong learner who has many professional designations in the world of finance (see them all here), also examined periods of time going back to the 1870s - and he found that there isn’t a 30-year period in which a 4% withdrawal rate was too high. His fascinating post is here.

You can find endless information on the 4% rule and it is important to explore the studies, in order to understand the relevant assumptions. Importantly, if you believe the studies (which I heartily do) you can do some serious planning for financial freedom.

Let’s play along: if your living expenses are $75,000, you’d need to have $1.87M in order to fully cover your expenses. (You would withdraw 4% of $1.87M, which is $75,000.)

But, let’s say you spend some of that $75,000 on your mortgage (which you will pay off before becoming financially free), saving for retirement, and investing in a college fund for your niece (who goes to college next year). Then, these are expenses you won’t have to account for in the future; you might really spend only $50,000 each year! This lowers your investment requirement to $1.25M.

If you’re like me, you probably have lots of questions.

What about inflation? Simple answer: keeping some of your money invested in the market will fight inflation.

What if you want to spend more when you're financially free? That’s great; just up your budget appropriately and re-calculate the nest egg required.

What if 4% feels too risky for you? Change your withdrawal rate. Use 3.5%, 3%, 2.5%...whatever you feel comfortable with.

How can you know what your future budget will be? Short answer: create your best model based on your current budget. Longer answer: check out my next post.

In summary, the 4% rule gives you a tangible, specific number to work towards in order to achieve financial freedom. You may think the amounts required to generate income to cover your expenses sound impossibly big. You might ask yourself, “How the heck will I ever save $1.25M?!” I’ll tell you - one dollar at a time. The magic of compound interest will help you grow your money at a fast rate over time.

There’s plenty of discussion on whether the 4% rule still holds true today, as time in retirement lengthens. I encourage you to explore alternative models and determine what would work for you.

One thing I can promise? You’ll never get there if you don’t get started. Your path to wealth all depends on what you do with the space between your income and your expenses. If you grow that space, by increasing your income and reducing your expenses, you give yourself a greater opportunity to achieve freedom earlier.

I'm also a big fan of starting small and persistently increasing your investments over time. Figure out the best estimate of your target nest egg and get investing. I’ll see you in financial freedom!

Do you believe the 4% SWR? If not, what withdrawal rate do you prefer? Let me know!

xoxo, Ms. Financier

Financial Planners: How to pick the right one for you

If you've decided to work with a financial planner, selecting the right person (or team) for you will take some effort. Remember, financial experts come in many forms. Source recommendations from family and friends. If they’ve had a great, long-term advisor you should add that expert to your list. Other professionals in your network, like attorneys, insurance agents, and physicians can also be a good source for recommendations. But don’t forget to explore the CFP® Board’s directory of Certified Financial Planners (CFPs). These individuals have achieved a specific certification that includes hands-on client work, educational requirements, and standards of ethics.

Once you have developed a list of 3 - 6 planners you’re interested in, I suggest you consider three elements to narrow down your possibilities.

Credentials - what expertise do they have? I clearly prefer Certified Financial Planners, but your potential planner may also have other certifications or designations. Some to keep an eye out for include CPA (Certified Public Accountant, or an expert in the tax code) and CFA (Chartered Financial Analyst, or the equivalent of a master’s degree in finance.) Explore where they have studied, what continuing education they pursue, and whether they teach seminars or classes - this will help you understand their expertise.

Increasingly, you’ll find planners that have social media accounts. I follow several CFPs that provide fabulous advice and insight, and the CFP Board also shares advice from those that have achieved certification. By scanning social media profiles, you can get a sense of a planner's personality, interests, and whether they might be a good fit for you.

Incentives - how do they make money? If you’re hiring a professional, they need compensation for their services. Generally, there are three models of payment: Fee-only means they charge for their advice, often hourly or in set packages; Assets under management means they charge a percentage of the fees that they invest and manage on your behalf (this is typical of investment/wealth managers, and not something I recommend for most); Commissions means they get paid by banks and financial services firms for selling certain financial products (like annuities) to you.

Your financial planner’s incentives should be in line with your incentives, which is why I never, ever work with commission-based advisors. My strong preference is for a fee-only advisor with an hourly rate. If they provide great advice, you’ll recommend them to others and use them again - which will make them more money. Thus, your incentives are aligned.

Fiduciary - is your financial planner a fiduciary? You may be thinking, “What the heck is a fiduciary?” In short, it means that advisors must both disclose conflicts of interest and consistently put their client’s interests first. This is not legally required, even though many assume it is. The suitability standard is required by law, which only asks advisors to consider whether investments are suitable. In my opinion, suitability is a very subjective standard.

You will not be surprised that I think a fiduciary is non-negotiable. Ask your advisor, and don’t take their word for it. Get it in writing and ask for documentation. If you hire CFP, their certification ensures they are acting as a fiduciary.

In addition to those questions, plan to “interview” at least 3 planners in a more detailed discussion to find the right fit for you. Money magazine provided a set of 10 questions to ask. I particularly love the last two: “Why did you become a financial planner,” and “What five important financial or investment books have you read?”

Some of you have asked me what I do; I largely self-manage my money, with a check-in every now and then with a fee-only advisor. However, several years ago, that fee-only advisor did a huge comprehensive review of my finances which was very helpful and illuminated a few blind spots for me. I’m happy to recommend the group I use - they work all across the United States via video/teleconferences with clients and do a very thorough job. (I do not receive any referral fees for recommending clients to them.)

What else would you recommend to those considering a financial planner? Do you have any other questions I can help with? Good luck finding the right advisor - it takes time, but can be very well worth it.

xoxo, Ms. Financier

What’s a Financial Planner? Answers to Three Common Questions

Personal finance can feel overwhelming. An insightful article in The Atlantic explored financial literacy and reported, “While Americans are not expected to manage their own legal cases or medical conditions, they are expected to manage their own finances.” I’m curious - who do you trust for financial advice? Are they knowledgeable, experienced, and on strong financial footing themselves?

The wealthy often teach positive and valuable money habits to their children. But what about those of us that didn’t grow up rich? What about women that grew up in families where it was taboo, rude, or stressful to discuss money? How can we ensure we’re making the right steps with our money?

One option is educating yourself and managing your own money. There are fabulous financial education resources available; between books, podcasts, and personal finance forums, we can become very money-savvy. But sometimes, we want an expert that can specifically examine our unique situation, and answer questions about our goals and challenges. This can be a role for a financial planner.

What can a financial planner do for me? Fair question - because of the lack of regulation around titles and designations, services can vary. Broadly, planners work with you to build a financial plan that supports your goals. A financial planner can analyze your current situation, help you set financial targets, recommend changes to meet your objectives, provide advice, and measure your progress. A quality plan will evaluate and include your entire financial landscape, including sources of income, expenses, debts, investment accounts and holdings, life insurance, and more - comparing your current state to your goals.

One portion of financial planning is investment planning; examining your specific investments, recommending how much of your portfolio should be in certain mutual funds or ETFs. But financial planning is wider than your investment strategy. If you’re just looking for investment advice - great, but a planner offers wider support. Fee-only financial planners change an hourly rate, and often offer an initial consultation for free.

Where can I find a financial planner? I suggest starting in two places. First, ask family and friends for referrals. Ask if they’ve had a productive, positive experience that has improved their financial situation over the long term. Second, explore the CFP Board’s directory of Certified Financial Planners. These individuals have received a certification that includes completing practical and theoretical financial education, passing a rigorous examination, gaining years of hands-on experience, and upholding a high standard of ethics. Importantly, they put the client’s financial interests ahead of their own. (Importantly, this is not true of all “financial planners” or “financial advisors.”)

A good financial planner can be hard to find. Many are salespeople “veiled” as planners, others are only able to offer a limited set of financial products due to the firm they work for, and others may trade in relationships - versus quality financial advice. I’ll be clear - my bias is always towards fee-only financial planners that have attained a CFP certification. Be prepared to have introductory meetings with at least three before you select one that is right for you.

What other financial advice is out there? Accountants that are CPAs are very specifically educated about the U.S. tax code. Some CPAs achieve the Personal Financial Specialist credential (PFS); these accountants are well versed in aspects of financial planning including estate planning, investing and retirement planning. While financial planners are generally well versed on taxation, they are not required to be tax experts. So, many women choose to work with both a CPA and a financial planner, to ensure their financial plans are tax-efficient. CPAs have various fee structures but typically charge an hourly rate.

Wealth managers are also available and come in many forms. In general, wealth managers work in firms that provide financial planning, tax advice, and they will actually manage your investments on your behalf. Wealth managers typically charge by taking a percentage of “assets under management,” or how much money they are managing on your behalf.

One percent is a typical rate for wealth management services; if your wealth manager oversees your $1.2M portfolio, you’d owe them $12,000 annually. This is on top of investment fees (typically expense ratios, sometimes commissions) associated with the investments themselves. I used a $1M+ example because many wealth managers have a large investment minimum. As you can likely guess from my prior posts, I do not believe most of us require a wealth manager. A 1% fee sounds small but will eat away at wealth over the long term.

In the next post, we’ll explore how to pick the perfect planner (if you’ve decided you need one!) I’d love to hear your comments on this topic. It took me years to figure out the right balance of money professionals and everyone’s need (and desire) for advice differs.

xoxo, Ms. Financier

Three Money Lessons You Can Learn From Mountaineering

I grew up in the great mountaineering state of Michigan*. (/Sarcasm: the highest point in Michigan is Mount Arvon at 1,979 feet.) I live fewer than 200 feet above sea level in the DC area. Yet, I'm an amateur mountaineer. It all started in 2011; I stumbled across the book, No Shortcuts to the Top, by famed mountaineer Ed Viesturs at the local library. The book detailed Ed’s experiences in becoming the first American to climb the world’s 8,000-meter peaks (the 14 mountains that are all higher than 8,000 meters or 26,246 feet).

I devoured the book in one sitting and passed it to Mr. Financier. We immediately dug into other mountaineering tales - including Into Thin Air, Annapurna, and K2: Life and Death on the World’s Most Dangerous Mountain. (I heartily recommend them all!) Reading about adventure and life-and-death struggles on remote, dangerous mountains made us both decide, “We need to start climbing!!” Mr. Financier started researching and found a mountaineering class that we took together. The course taught us the basics of mountaineering and enabled us to summit Mt. Baker, in the beautiful Pacific Northwest.

Since 2012, we’ve climbed several hills in Washington state, including Mt. Rainier, Eldorado Peak, and Mt. Shuksan. Along the way, I’ve observed that mountaineering and personal finance are the. exact. same. thing. These are the three money lessons I’ve learned from mountaineering:

Success requires small progress for a sustained period of time. When you approach a massive mountain, like Mt. Rainier (5,400 feet at Paradise, where you often start climbing from and 14,411 feet at the summit), you look up in awe. It’s a hulking, beautiful, slab of rock, snow, and glacier. The only way to reach the summit is to place one foot (carefully) in front of the other for hours at a time.

In fact, during my summit attempts, I can’t focus on the summit - it’s far more manageable to focus on getting to the next snow mound, cresting the next glacier, or crossing the upcoming crevasse. I find myself in a mountaineering groove when I’m thinking 5 - 10 steps ahead, and working towards a near-term goal.

This is exactly like loan repayment, saving for an emergency fund, and investing for retirement. If you’re staring down a massive student loan or have ambitions to retire with millions of dollars, your goal can seem impossible. It’s easy to get discouraged, lose focus, and stop making progress. Instead, you must break your goal down into more manageable steps and move diligently forward. Celebrate the wins along the way, and keep making steady progress. Your summit will come, and it will feel amazing when you arrive.

There is no substitute for excellent preparation. When you’re climbing, you carry your life on your back and are ascending thousands of vertical feet in tricky terrain. Superb cardiovascular health, yogi-like balance, powerful strength, knowledge of the terrain, comfort with your gear, knowledge of rescue techniques, and basic first aid skills are among the many non-negotiables for the responsible mountaineer.

When Mr. Financier and I are gearing up for a climb, we up our fitness. We throw 40lbs in our backpacks, put the treadmill on max incline, and hike our tails off. We practice rescue techniques and refresh ourselves on the minutiae of our gear. We obsessively read maps and summit reports from other mountaineers to understand the terrain we’ll be facing.

This is exactly like charting a financial plan. In the Five Fabulous Steps to Financial Freedom, I described the steps to build wealth. They’re interconnected - just like cardio and strength training - but also distinct. You first need to understand where you’re starting from with a financial inventory. Then, you need a plan to strengthen and grow your income. Managing your expenses ensures your hard work doesn’t go to waste. Next, saving and investing is putting aside funds to build and grow your riches over time. Finally, just like on the mountain, you need to carefully manage your risk.

Your rope team is your survival. When you climb mountains with glaciers, you’re vulnerable to crevasses - cracks in the glacier that can be hundreds of feet deep. These crevasses can be hidden under snow, so you must rope yourself to other climbers in order to be safe. When I climb, it’s often a two-person climb, where I’m roped to Mr. Financier. If I fall in a crevasse, I need to count on him to appropriately stop the fall and set up a rescue to haul me out of the glacier’s depths.

The same is true for your financial security. You can pick your own rope team - this might be your partner, or friends, family, and colleagues you surround yourself with. They’ll impact your habits - either pushing you to increase your risk (spending more than you can afford) or helping you reduce your exposure and safely manage risk (smart investing and avoiding silly money schemes.) Who is on your rope team today? Are they the best people to ensure your financial safety?

Just like money, mountains can be a source of renewal, empowerment, and strength - or tremendous stress, anxiety, and peril. I look forward to your feedback - is there anyone on your rope team that you’ll be cutting loose? Are you preparing to effectively build wealth, or does sloppy prep put your success in jeopardy?

xoxo, Ms. Financier

*Credit to my mountaineering hero, Ed Viesturs - who regularly says he grew up in the great mountaineering state of Illinois. He does so at 1:22 into this talk he gave at the National Geographic Society. (I met him at this event, squee! He was so lovely - encouraging and kind.)

Zhou Qunfei: The world’s wealthiest self-made woman

Zhou Qunfei is the world’s wealthiest self-made woman and the richest in China. Unlike other business titans, hers is not a household name. Her business, Lens Technology, isn’t particularly glamorous, but has a reputation for high quality and employs over 80,000 people. I hope you find as much inspiration in her life as I did.

Qunfei was born into poverty and grew up in China’s Hunan province. Like many children in rural families, she contributed to her family from a very young age. Qunfei was a passionate student, but other responsibilities (including tending to livestock) required her time and attention. Her father, who was partially blinded in an accident, raised Qunfei and her two siblings. Living with her father’s disability heightened her attention to detail, a trait that would serve her well in business. She had to be hyper-aware of her surroundings and where items were placed, to avoid confusing him. Her mother passed away only 5 years after Qunfei’s birth.

At sixteen, Qunfei dropped out of primary school to pursue full-time work and contribute to her family financially. She was quoted saying, “In the village where I grew up, a lot of girls didn’t have a choice of whether to go to middle school. They would get engaged or married and spend their entire life in that village. I chose to be in business, and I don’t regret it.”

Qunfei left her village and moved in with family members in Guangdong province, seeking work near Shenzhen University. She sent part of her earnings to her father, saved, and invested in herself. Her proximity to the University allowed her to continue her education and she explored a range of topics including computers and accounting; she even secured her commercial driving credentials!

At one point, Qunfei was working in a factory that manufactured watch parts. Her responsibilities included shaping the glass, which gave her a unique opportunity to understand lenses. The conditions in the factory were poor, and she made the decision to resign. Qunfei wrote a letter of resignation that included her appreciation for the job opportunity, but clearly laid out the reasons for her departure. The letter made its way to the factory chief, who offered her a promotion after her letter crossed his desk. Qunfei said, “Maybe it was because my resignation letter was well written and this attracted the attention of the factory supervisor. They kept me on and gave me a promotion to head up my own newly created department.”

In the intervening years, Qunfei worked (and saved) diligently. The watch factory went out of business when she was 22, putting her out of a job. Because of her consistent saving, Qunfei had a nest egg of $3,000. Empowered by her savings, she made the decision to launch her own business creating lenses with support from her family. She prioritized product quality and was extremely hands-on, focusing on the manufacturing details. Over time, she expanded beyond watches and began serving electronics companies.

Ten years after the launch of her own business, Motorola requested Qunfei’s help to create a screen for their new Razr V3 phone. Seeing the potential in phone lenses, she founded Lens Technology, and began attracting customers like Samsung Electronics. When the Apple iPhone launched in 2007, it was with Lens Technology’s glass, which helped propel her company’s growth.

Qunfei’s focus on high-quality products and innovative, scratch-resistant screens, made her products unique. She has said in interviews that she would watch the rain falling on lotus leaves as a child – which inspired her to create Lens Technology's patented, scratch-resistant coating. “Droplets of water would roll around the surface of a lotus leaf and not leave any trace,” she said. “If it wasn't for my primary school teacher reminding me to be observant I may not have had the inspiration to think of my invention.”

The business Qunfei started has a massive workforce, went public in 2015, and had revenues of over 23.7 yuan in 2017. Qunfei is Chairman of the Board* and holds over 87% of the company’s shares; Forbes estimated her net worth at $8.7 billion. Her passion for the details of manufacturing and high-quality output propels her to this day. Qunfei refers to work as her hobby, alongside mountain climbing and ping pong, and cites her desire to learn as the secret to her success. Her cousin, Zhou Xinyi, said, “In the Hunan language, we call women like her ‘ba de man,’ which means a person who dares to do what others are afraid to do.”

I love Zhou Qunfei’s story for so many reasons. Her persistence, detail orientation, and the fact that she created her own business using her nest egg as seed money are similar to other entrepreneurs. What struck a chord with you? I’m curious to hear your thoughts!

xoxo, Ms. Financier

*Yes, that is her official title, irrespective of the fact that she’s a woman. We need to gender-neutralize these titles, people! She should be Chair of the Board, period.


Learn more about Zhou Qunfei:

How a Chinese Billionaire Built Her Fortune, by David Barboza via The New York Times (This profile is absolutely superb!)

How A Former Factory Girl Became A Billionaire: Zhou Qunfei, The Richest Woman in China, by Dr. Amarendra Bhushan Dhiraj via CEOWORLD Magazine

From Rags to Riches, by Elaine O’Flynn and Edward Chow via Daily Mail

Asia Power Women 2016 Profile in Forbes

Wikipedia Page

My Money Mistakes: Buying GM Stock

We all make mistakes! In these posts, we’ll explore money-related mistakes. Shame and embarrassment cause many of us to avoid talking about money. However, we learn just as much (if not more) from our financial screw-ups. Sharing our mistakes can help others avoid making similar moves in the future. And we’ve all had them - making a misstep with your personal finances is inevitable. Here’s one of my many money mistakes:

I purchased my first investments in the summer of 2000, at 19, with money I had been squirreling away from part-time jobs. I had $8,000 to invest. To spread my risk, I invested $4,000 in one mutual fund and $1,000 each in four individual companies. One of the companies was General Motors (GM).

I bought GM stock because I knew they’d never go bankrupt. I’m a native Michigander and am very proud of our auto industry. I also considered buying Ford stock but didn’t because I had more family and friends that worked there. My rationale was that by investing in GM, I’d be spreading my risk. Also, there’s a common saying in Detroit - “what’s good for the country is good for GM.” This would prove oh so true eight years later.

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I invested at just over $60 / share, shortly after the GM’s all-time high on April 28, 2000, at $93.625. My $1,000 purchased 16 GM shares, after commissions and fees. Over the next several years, GM stock puttered along, generally declining, but regularly spinning off dividends.

Between 1999 and 2003, I was working my way through the University of Michigan and subsequently, focused on starting my career in Washington, D.C. As a staunch “buy-and-hold” investor, I didn’t act on the general decline of this individual stock in my small portfolio. Enter the 2007 financial crisis. My little portfolio was not immune to the tidal wave of bad news.

As consumers struggled to keep their homes and jobs, GM was hit hard. They offered a wide portfolio of expensive, large vehicles that relied on readily-available credit and low gas prices. With foreclosures steadily rising, Americans weren’t rushing out to buy $54,110 2007 Hummer H2’s which boasted an average MPG of 15. At this time, I was also struggling to keep my job, and largely ignored my portfolio, which was in the toilet.

On June 1st, 2009, GM went bankrupt and my shares converted into Motors Liquidation Company stock (ticker symbol: MTLQQ). Because I stupidly did not sell my GM shares before they converted to MTLQQ, nor did I act on the MTLQQ shares, they became worthless. I had to complete and sign a form entitled “Request for Removal of Worthless Securities” to get them out of my account. Ouch! GM issued new stock in 2010. I did not line up to purchase.

This money mistake cost me both the original investment and the opportunity cost associated with the several years I held a losing stock. But, I’m grateful for the lesson. I’ve since sold all individual stocks and now only invest in low-cost mutual funds and ETFs. It’s very difficult for us individual investors to pick winners and losers in the stock market, and I no longer try. 

This isn’t my biggest money mistake, by far. Stay tuned as I share even more financial stumbles! What money mistakes have you made?

xoxo, Ms. Financier

Start Investing in Four Steps

In the last few posts, we’ve explored investing, mutual funds, and ETFs. Understanding these will help you effectively save and invest. But you need to take four steps (and make four corresponding decisions) to start investing and building serious wealth.

1. Choose an account type. Decide the type of account you will invest in, aligned to your financial goals. We talked about this decision when we explored saving and investing money.

If you don’t have an investment account for retirement, start there first. If you already have a retirement account and are looking to invest even more - congratulations! You’re ready for a general investing account that will allow you to build even more wealth.

Common account types include:

  • Retirement accounts, like a 401(k) or 403(b) offered through your employer; or a retirement account that you manage, like a Roth or traditional IRA.

  • General investing accounts, which don’t offer specific tax advantages but are also more accessible than retirement accounts

  • Educational investing account, like a 529 college savings account

Select the right account type so you can get your money in the market, growing for you. Make the best decision you can and move forward to identifying where you’ll invest. Here’s even more on the difference between an IRA and 401(k) to help you explore your options.

2. Select a financial institution. This company will service your account, report investment performance, and help you make trades and access your money. I invest with the low-cost industry leader, Vanguard. The company is client-owned, and every strategic decision they make is focused on lowering investor costs and fees.

Financial institutions provide a service, and rightly charge fees and make money. I urge you to select a company, like Vanguard, with a low-cost reputation.

3. Pick your investments. I do not recommend investing in individual stocks, but instead ETFs and/or mutual funds. Warren Buffett, considered one of the best investors in history, speaks regularly on the power of investing in an index like the S&P 500. Don’t reinvent the wheel or think that you can do better, start with a market-matching fund like the Vanguard S&P 500 ETF (ticker symbol: VOO).

Eventually, you’ll want to create a portfolio of investments - picking a few different investments to balance your risk. We’ll explore that in the future, as it is important. But, I subscribe to the KISS principle: Keep it simple, stupid. Start with one, maybe two, mutual funds or ETFs you’re comfortable with. You can add to them over time to balance your portfolio.

Look carefully at the fees associated with your investments, particularly the expense ratio. Examine the 10-year performance (don’t be excited or dismayed at 1- or 5-year results). Some investments may require a certain minimum amount before you can start investing. Don’t get discouraged; start saving diligently and you’ll be there before you know it.

4. Fund your account automatically. This is the final and most critical step to building wealth. Don’t just open the account and hope for growth. Decide how you’ll continue to fund it. I strongly recommend a regular, automatic transfer timed with your payday. Start with whatever you can afford today, and aim to steadily increase it over time.

Automatic investing will ensure you’re always paying yourself first. Let’s quote Buffett one more time: “Do not save what is left after spending, but spend what is left after saving.”

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You may be curious about the role that financial planners can play. A great planner can serve as a valued advisor and help you build wealth, but beware advisors that are tied to a type of investment or institution - how unbiased can they be? Read more about what planners do here.

That’s it! Those four steps (and corresponding decisions) will put you on a path to create real wealth. Is there more complexity we could examine? Sure. But, the basics will put you ahead of most that are hesitating to get started due to lack of knowledge or analysis paralysis. Don’t let that be you. Are you ready to get started? Let me know!

xoxo, Ms. Financier

What the Heck is an ETF?

I know, I know...the financial industry loves acronyms! ETF stands for Exchange-Traded Fund. Like mutual funds, ETFs allow investors to buy many companies in a single share. I like this better than individual stocks, remember?

The biggest difference between the two is how often they can trade. Nerdy, I know. Mutual funds are priced once each day, after the market closes. In comparison, ETFs act like stocks and trade throughout the day. They often have lower fees than mutual funds. We love lower fees - it means we get to keep more of our hard-earned money.

In our last post, we explored the Vanguard 500 Index Fund (ticker symbol: VFINX). That mutual fund currently has an expense ratio of .14%. For every $100 you invest, you’re charged 14 cents. Let’s compare that to the Vanguard S&P 500 ETF (ticker symbol: VOO); it has an expense ratio of only .04%, so you’ll be charged only 4 cents for every $100 you invest. That’s an extra dime in your account for each Benjamin invested - pretty good.

So, why would anyone ever buy VFINX when VOO is similar, with a lower expense ratio? First, many employer-sponsored retirement plans don’t allow ETF or stock investments, and only permit investing in mutual funds. Additionally, many regular investors don’t understand ETFs and are ignorant of their differences from mutual funds.

Here’s what to watch out for when picking ETFs:

What's the expense ratio? Keep a close eye on what the expense ratio is, and compare it to other similar ETFs. Recall, the expense ratio is how much the company that manages the ETF charges you. An average expense ratio is around .44% for ETFs (lower than .6% average for mutual funds). These recurring fees make a meaningful difference in your wealth over the long term. Vanguard’s average expense ratio is consistently lowest in the industry, letting you keep more of your hard-earned money.

Are there other fees? Since ETFs are traded like stocks, you’ll want to understand commissions you’ll pay to buy or sell, and investigate any other fees associated with the investment, like account service fees. Vanguard account holders can trade ETFs commission-free.

What's the 10-year return? Just like a mutual fund, compare how the ETF performed over the last decade, compared to the S&P 500? If it didn’t come near the S&P 500, it may not be worthy of your hard-earned money.

So that’s an ETF, in a nutshell. Fidelity also has a useful article on mutual funds compared to ETFs if you’d like to learn more. In the next post, we’re going to explore exactly how to get started, now that we have all this information about investing. I’d like to know: What are your favorite ETFs? Are they new to your portfolio or are you a long-term fan?

Mutual Funds: Smarter than individual stocks

We just explored what a stock is, and why investing in individual stocks is an extremely difficult growth strategy. Let me be clear: I love investing as a  way to grow wealth.

But...there's a smarter way than betting on individual stocks, hoping you magically selected the winners from the losers. Mutual funds are one investment vehicle that allow us to buy many, many stocks in just one purchase. I prefer these to individual stocks because you can own hundreds of companies in each share. This helps you avoid one of the money mistakes I've made - investing in one company and losing everything.

However, there’s a twist. All mutual funds are not equal. Mutual funds can be designed to fit different types of investment goals. My favorite are mutual funds that mirror a large, diverse market. One example is the Vanguard 500 Index Fund (ticker symbol: VFINX). In full candor, I prefer Vanguard and most of my million-plus of invested assets are in Vanguard funds and ETFs (we’ll explore those next.) 

One share of VFINX includes just over 500 companies, including Apple, Berkshire Hathaway, Procter & Gamble, Starbucks, Goldman Sachs, and Southwest Airlines. Funds like VFINX are low cost because they don't employ lots of people trying to analyze stocks and beat the market. Instead, this fund automatically includes the 500 largest US companies. This saves you money!

Here's what to watch out for when picking mutual funds:

What's the expense ratio? This is how much the company that manages the fund charges you for their work. An average expense ratio is around .6% - meaning, for every $100 you have invested, the fund rakes in 60 cents. Sounds small - but tiny fees make a meaningful difference in your wealth over the long term. Vanguard’s average expense ratio is .12% - meaning, for every $100 you invest in a Vanguard mutual fund, they charge 12 cents. That’s much, much lower, and lets you keep more of your hard-earned money.

Are there other fees? It can be costly to create fancy, actively-managed mutual funds. So, look carefully for purchase or redemption fees, or 12b-1 fees (marketing or distribution fees.) Ask, ask, and ask again about fees before investing!

What's the 10-year return? How did this fund perform over the last decade, compared to the S&P 500? The S&P 500 is a very common performance benchmark because it includes the 500 largest U.S. companies. If the mutual fund seriously underperformed the S&P 500, it may not be worthy of your hard-earned money.

What are the initial and ongoing investment minimums? Funds typically have initial minimums, or a certain sum of money to start investing. VFINX has a $3,000 minimum for general investors, meaning you first have to save $3,000 before you can begin investing. Don’t let minimums discourage you! Save up and once you get that minimum, invest. On an ongoing basis, VFINX has a very low “additional investment” minimum; you can add to your account in increments as low as $1. So, clearing that initial minimum hurdle is worth it.

It's easy to get overwhelmed. We explored markets and stocks, and are digging into different types of investment vehicles. But, think about it like this: if you stop reading now, pick a mutual fund with low fees and good long-term performance to regularly invest in, you're seriously ahead of the game. Do not let your quest to make perfect decisions paralyze you (or your wealth). In fact, I’ve broken down exactly how to start investing in just four steps.

What other mutual fund advice do you have? Which fund(s) do you own? I look forward to seeing you build your nest egg with smart, low-cost investing! You got this.

xoxo, Ms. Financier

What does investing in the market really mean?

Investing is defined as, “the outlay of money usually for income or profit.” The idea behind investing? Put your money to work for you, in something you believe will increase in value over time.

As usual, the devil is in the details. Where do you invest? How much? How often? There are some gender differences, too. Men are generally more confident about investing, while women are more goal-directed and trade less. Women tend to keep 10% more of their savings in cash than our male counterparts. Millennial women report a lower level of financial comfort. On average, we are less likely to feel “in control” or “confident” about our financial future. And, women generally have a smaller total invested when we retire - because we earn less. Increasing your income will help close that gap.

I believe we can jump many of those gender-based investing barriers by improving our understanding. So, let’s get started and tackle the basics together.

When people talk about investing in “the market,” what are they referring to? Today’s markets are largely exchanges - like the New York Stock Exchange (NYSE) - that allow us to buy and sell investments to others. You’ve seen photos of business executives and celebrities “ringing the bell” to open the NYSE, but it’s not the only market; others include the NASDAQ, London Stock Exchange, and many others.

Okay, we’ve figured out markets...but what can we invest IN? Just like when you go shopping, you have a lot of options. We’ll start with individual stocks.

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What the heck is a stock? Buying stock is like purchasing a little slice of a company. Say you buy stock in consumer goods company P&G (manufacturer of Tide, Crest, Dawn, Tampax, and many other household names); that stock costs $86.22 per share at the time of this writing. If you buy that share, you are betting that P&G will continue to grow and make money. P&G uses your $86.22 to invest in its business; open new locations, fund new products, hire new staff. So, it's a win-win.

Stocks make money for investors in two basic ways. First, the company may perform well and create profits (taking in more money than it spends). In this case, P&G may choose to pay stockholders dividends from those profits. Dividends are a financial “thank you” for investing in the company. In May 2017, P&G paid stockholders 69 cents for every share they owned. (Dividend payments are announced as part of their quarterly earnings reports, where they summarize financial performance for stockholders.)

Second, you can make money by selling your stock to someone else. Then, you profit (or lose) the difference. In our example, you bought P&G at $86.22. Over time, if the company continues to do well, more investors will want to buy that stock. This can push the price higher. If the stock hits $90, and you sell, you’d earn $3.78 for each share you owned. Very popular stocks can be like a Hermès Birkin bag - very expensive because they are limited in quantity and hard to get.

A caution: if you are buying stocks one by one, it is very difficult to consistently make money. Think about it; as an individual investor, you need to be educated enough to buy only the stocks that will continue to pay dividends OR buy (and sell) the right stocks at the right time, when they increase in price. And you’re competing with everyone else who watches the market - including professionals. One of the money mistakes I made was trying my hand at purchasing individual stocks and I’ve shared how that worked out - disastrously - for me. There are over half a million companies you can invest in on public exchanges. How will we pick the right ones to buy stock in?

I have great news for you. We don't have to. There’s a better way to invest in the market by purchasing groups of stocks in mutual funds and ETFs (we’ll explore mutual funds next). Buying groups of stocks won’t give you an amazing story like someone who invested in Google at $85 per share (now worth $937.50); nor will it wipe out all your investments like Pets.com (the company went bankrupt less than 300 days after starting to sell its stock).

Has this introduction to markets and stocks helped you? What other questions do you have?

xoxo, Ms. Financier

The Good, the Bad, and the Ugly: When Employees Ask for a Raise

We hear a lot about how critical it is for women to ask for raises. But, asking is only the first step. Most businesses require managers to exert effort to fund even the most well-deserved employee compensation increases. I’ve been managing employees since 2006 (longer, if you ask my younger siblings!) Here’s the good, bad, and ugly I’ve experienced when my employees have asked for a raise.*

Let’s start with the bad. “Allison” worked on my team during the economic downturn in the late 2000’s. Allison was a detail-oriented employee who was meeting the expectations of her entry-level job. She wasn’t a rock star, nor was she dragging the team down. However, at that time our company was struggling as the housing market and banking sectors were imploding. Allison requested a salary increase, after receiving a passable performance review.

There were at least three things that Allison messed up:

  • Her request was really a demand. How you ask for a change in compensation matters. Allison’s tone was, “Pay me more or else.” A more productive, fact-based tone would have started the discussion off without sounding like an ultimatum.
  • She didn’t have the performance to back it up. Allison had just received a review that identified her as adequately meeting her performance standards. Focusing on her areas for improvement, and building a plan to improve those in pursuit of a salary increase, would have been more effective.
  • She asked for salary (and only salary) at a very difficult time for the business. This was the late 2000’s. Businesses like Lehman Brothers, which was founded in 1850, were going bankrupt! Allison didn’t bring any other negotiables to the table, and I certainly wasn’t inclined to suggest any to her.

Allison didn’t get the raise she demanded at that time. Instead, we focused on her development plan and ensuring she was getting the feedback and opportunities to improve her performance in her current role.

Now, the ugly. “Heather” was a lower-than-average team member who seemed to excel in getting in her own way. Her work was inconsistent in quality, and team members struggled to work productively with her. She was constantly comparing her performance to others that joined the business at the same time, and would regularly bring up the expenses and lifestyles of others.

When Heather approached me for a raise, it was in a rambling speech that included remarks like, “...everyone in DC was born with a silver spoon in their mouth,” and “I can’t afford to live the lifestyle I want on my current salary.” Her reasoning seemed to be that given the excess she saw around her, and the cost of living in downtown DC, our company owed her a raise.

Anchoring your request for a raise on your own personal financial situation or lifestyle is a huge mistake. First, it isn’t germane to the conversation - which should be performance and business based. Second, it’s likely to backfire. In this situation, I saw Heather’s negative attitude in a very unvarnished manner, and we later had a candid career discussion that resulted in her resignation, which I happily accepted.

Finally - the good. “Nia” was a strong performer who pro-actively managed her career, by asking for feedback on how she can improve, seeking additional responsibility, and supporting her peers. In a conversation before her upcoming performance review, Nia shared her salary history and compared it to her current responsibility set, which had expanded since she accepted the role. She also compared her salary to more junior hires on her team. They were certainly making less than she was, but not that much less given their difference in responsibility.

I told her I understood her request and would do some research on her behalf. First, I asked HR to benchmark her salary to other higher-performing employees in her role. Next, I met with the other decision makers that would need to weigh in on the decision, and with their support negotiated an increase with our company’s compensation team. Nia’s request required me to do work on her behalf, but her clear and well-reasoned case inspired me to expend the effort and political capital to support her.

You can tell what Nia did well; she was a stronger performer who came in with a business-grounded request. For example, I had access to her salary history, but she brought me the data and presented it in compelling contrast to the more junior team members. She concisely summarized the added responsibilities she had taken on in one summary document.

After this effort, Nia received a sizeable salary increase. This helped her in two ways - obviously, her regular take-home pay increased. But, because she had a bonus available where she could earn up to a certain percentage of her salary, her overall compensation pool increased.

Wouldn’t you prefer to be Nia, compared to Allison and Heather? Even Nia could have improved her ask by identifying more negotiables (beyond salary). But, she created the case that compelled management to take action. Have you had an employee ask you for a raise? Were they the good, the bad, or the ugly? Or, have you been the asker? (In which case I hope you were the good!)

xoxo, Ms. Financier

*Names and identifying details have been disguised, but each story is real. You seriously can’t make this stuff up.

How to Ask for a Raise in 4 Steps

Many of us assume that if we work hard and are effective, salary increases and career opportunities will follow. However, the reality is that doing well in your current position is necessary but not sufficient to grow your wealth.

In this post, we’ll explore the four steps to asking for a raise. This is particularly important for women, who face a pay gap relative to men. Growing income is one of the two levers to building wealth, so let's do this!

First, define your business case. Do not pass go, do not collect $200 until you have clearly defined why your achievements merit a raise. If you’re gunning for a pay increase, you need to document the heck out of the business value you deliver to your employer.

Your comparison point is your current salary. What and how have you earned more than that? Consider things like extraordinary effort, taking on new processes or tasks, implementing solutions that saved the company money, or introducing services that result in more repeat purchases.

Don’t freeze up in this first step. Don’t minimize your achievements. Reflect on the value you contribute and think creatively. If you're unsure about the quality of your business case, a savvy friend, family member, or mentor can pressure-test your thinking. They may see more impact in what you’ve done or help you think about it differently.

Use the “Situation, action, result” format to create your business case. For example, “The new client survey process I designed helped client service levels,” isn’t specific enough.

Try: “In 2016, client service satisfaction was 5% lower than 2015, which hurt Alpha Company’s revenue and reputation. I designed a new client survey, trained our customer service staff, and implemented the measurement system in order to capture client feedback in the first 30 days of their contract. This allowed our client service teams to identify service risks earlier, which improved client service satisfaction scores by 15%. This improvement contributes an estimated $1.2M in annual revenue.”

The first sentence describes the situation, the second describes the action, and the last sentences describe the result. Do your best to quantify results, and be okay with making informed estimates. Businesses are built usin estimates and models to inform decisions! Your case for a raise is no different.

Second, identify your negotiables. You've got the case for your pay raise. Now what? You need to come to the table with what you want. The good news is that technology is your friend in this effort. Just a few years ago, we had to rely on general industry studies, government data, or asking colleagues (yikes!) to benchmark our salaries. Today, pay data is increasingly accessible. Online sources like the Fairygodboss salary database provide more precise data on what your role is worth.

Decide the exact amount you’re asking for, and then increase it by at least 10%, because women don’t ask for enough. Then, prepare at least 3 other non-salary items that you will negotiate for, in addition to your pay increase. I recommend asking for the salary increase and one other item at a minimum as your “first ask.” Then, you’ll have 2 other items in your back pocket to introduce if you don’t get the full increase you’re requesting.

What else could you ask for? More paid time off; Better expense account - things like taxi service to/from work, flight upgrades, airline lounge memberships; Administrative support or a summer intern; Funding for conferences or classes for ongoing education; Working from another office location on a regular basis (say, you’re based in DC and you want to work from the London office once a quarter).

Next, practice! Once you have your business case and negotiables, practice with a savvy friend who can role-play your boss’ reaction. Prepare for objections like:

  • “We don’t have budget at this time.” Ask follow-up questions to understand when and how budget could be freed up, and confirm that budget is the only barrier.
  • “I’ll need to speak about this with my boss or HR.” Ask what your boss’ boss/HR needs to see, and how you can help prepare that case. Suggest speaking directly with other decision makers.
  • “Your last raise wasn’t enough?” Clarify that this ask doesn’t come from a place of ungratefulness, but business value. Reiterate your business case and understand whether your boss supports your request.

Your goal in the discussion with your boss is to understand if she agrees with and supports your case. If not, confirm what she needs to see in order to support you in the future. Practice “closing” the conversation to ensure you leave with clear next steps to continue the discussion.

Finally, ask (and ask again). Set time with your manager and ask! Don’t wait for the next review cycle. When your case is ready and you’ve practiced your pitch, confidently approach your boss with the business case for why you have earned a raise. Take careful notes and be prepared to continue the conversation - I find it is rare to come to an agreement in just one discussion. Follow-up in writing with a summary of the discussion and next steps, to ensure you and your boss are on the same page.

A “no” or “not right now” with defined next steps is progress. A study of Australian workers found that women were 25% less likely to receive a pay raise when we asked for it. I’m not convinced this study is globally representative, but be prepared to persist with your case. You will need to own the next steps to secure that raise over time, if need be.

With that, I wish you very good luck. And, I look forward to sharing my experience on the other side of the table - when my employees have asked for a raise. I’ll share the good, the bad, and the ugly! What other advice do you have for securing a raise? If you used this approach, how did it work for you? I look forward to hearing from you.

xoxo, Ms. Financier


Resources:

Women Don't Ask: Negotiation and the Gender Divide, by Linda Babcock and Sara Lashever

Ask For It: How Women Can Use the Power of Negotiation to Get What They Really Want, by Linda Babcock and Sara Laschever

High Performance Negotiation Skills for Women, Lecture featuring Professor Leah Thompson, Kellogg School of Management