Sunday, March 10, 2013

The Biggest Money Mistake Women Make

I’ve recently read several articles revealing women’s money mistakes; not saving enough for retirement, incurring too much debt, giving money to family members, taking on children’s debts by co-signing their loans, and relying on the men in their lives to handle finances and investments. While spending too much on handbags and not knowing how much your husband’s 401(k) is worth are not smart money practices, I feel the biggest money mistake a woman can make is:

Not negotiating a higher salary
According to Linda Babcock and Sara Laschever in their book Women Don't Ask: The High Cost of Avoiding Negotiation--and Positive Strategies for Change:
By not negotiating a first salary, an individual stands to lose more than $500,000 by age 60—and men are more than four times as likely as women to negotiate a first salary.
$500,000 could have bought a lot of overpriced handbags over the course of a women’s life. In addition to earning less in wages, not negotiating a higher salary leads to women contributing less to their 401(k) plans, receiving smaller 401(k) matching contributions and earning smaller social security credits.

Linda Babcock and Sara Laschever also reveal:
  • Many women are so grateful to be offered a job that they accept what they are offered and don't negotiate their salaries.
  • Women often don't know the market value of their work: Women report salary expectations between 3 and 32 percent lower than those of men for the same jobs; men expect to earn 13 percent more than women during their first year of full-time work and 32 percent more at their career peaks.

This was certainly true in my case. I’ve never negotiated for a higher salary not once. When I started out in my career I had no idea what I was worth – my confidence was so low upon graduating from college I actually thought I was unemployable. When I was offered my first real job at $6.29 an hour in 1986 I was happy to just be employed.
I wasn’t the only woman not negotiating:
My second job a year later paid $14,500 a year. I thought this was low until my female co-worker hired a few months prior with similar qualifications disclosed she was earning even less.
As my career progressed I continued to avoid negotiating salary:
Once I became a CPA in the late 90’s, I relied on my credentials to ensure I was paid a fair wage. I was working at an engineering firm when I obtained my CPA license.  Shortly afterwards my employer fired my manager who they thought was lazy and offered me his job. My new annual salary would be $35,000, a 9% increase over my current salary of $32,000. My former lazy manager had been making $75,000 a year. I accepted this position without questioning my new salary, researching the market or negotiating for more.
Other attitudes at the time:
One of my female co-workers, ten years my senior and our company’s office manager offered the following advice:

She felt it was preferable to make a lower salary than what you were worth because in doing so you were insuring employment. Throughout her career she had witnessed numerous individuals who were underpaid be the first to be hired and the last to be let go when layoffs came around. In her opinion, the highest paid employee was always the first one fired.
Why this advice is so horrible?
Unfortunately, I think she mistook highest paid for overpaid. In the recent economic downturn, in addition to down-sizing every employee who wasn’t absolutely necessary many employers reduced the salaries of their remaining employees. Now an underpaid employee was earning even less. Salary-cuts at my current company remained in effect for three years. I lost $15,000 in gross wages. Already on the low end of the salary scale, during the salary reduction years I was substantially underpaid for my position and work experience.
Men in my circles do negotiate more often:
Last year my husband received the standard cost-of-living raise during his salary review. At the end of his meeting he expressed displeasure with his raise, reiterated his yearly accomplishments and told his manager he had been expecting more. His manager agreed to think over his decision and get back to him. I was astonished. Never in my life would I have asked for more money. His company was still struggling, despite my husband’s project going well; how could he expect more money. My husband felt differently. He was working on one of the most important projects of his career at this company. There was never a better time to ask for more money besides what did he have to lose. He was right and ended up receiving the raise he had been expecting.
While raises have been frozen at my company for four years:
Three male managers I know of have asked for more money. One was flat-out refused – he handled the negotiations so poorly he eventually was demoted; one was denied then given a surprise year-end bonus of $10,000 and the third received exactly what he asked for.
Linda Babcock and Sara Laschever make the point that the male approach to negotiating isn’t actually superior to women’s:
Men are not better negotiators than women. Women more often than men take a "collaborative" or cooperative approach to negotiation that has been shown to produce agreements that are better for both sides. Women are more likely than men to listen to the needs and concerns of the other side, communicate their own priorities and pressures, and try to find solutions that benefit all parties—to find the win/win solutions. This approach not only leads to better outcomes for everyone, it often produces creative solutions to problems that might have been overlooked by men taking a more competitive or adversarial approach. Also, by looking for those win/win solutions, women tend to preserve and enhance long-term business relationships—they don't burn as many bridges as men who focus on short-term gains.
It is also important to note:
Failing to negotiate is not just a boomer problem:
Younger women may assume that things have changed far more than they have, but according to Babcock and Laschever studies among men and women in their 20s and early 30s, men are much more likely to initiate negotiations than women.
Don’t forget to negotiate your bonus:
In addition to negotiating salary, many jobs now come with a pre-negotiated bonus plan. Women may think they are being paid a fair salary, but are  unaware their male counterparts negotiated and are earning a much higher year-end bonus. While researching salaries with your networks don’t forget to collect information on bonus plans. 
Have you ever attempted to negotiate a higher salary? What was the result? What do you feel is the biggest money mistake women make?
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  1. Mark me down as a wimp. Having worked 44 years, I have never negotiated a penny. No guts, and surely no glory! Huge mistake.

  2. I have the hardest time with this also. I am terrible about asking for more for me. More money/a better position - etc.. all of which I really want, but feel guilty thinking I think I deserve it. Weird, huh?

  3. So very true. I know a woman who watched a coworker get raise/promotion regularly while she was left behind. The difference was he asked for these raises and promotion while she waited to be noticed. She finally got a huge raise and promotion when she threatened to quit.

    It was a great lesson. Don't wait until it becomes a last straw, because what if it doesn't work out in your favor?

  4. This is an incredible post. I have seen so many women under value their worth to a company.

    It`s true some women think their hard work will be recognized and they will simply be given a raise. That may be true for some people but that isn`t the norm.

    Other women are too scared to ask for a raise. I found it easier to ask for a raise when I gave myself a little pep talk just before going into the bosses office. I thought, I deserve more, I am worth more, my family deserves more.`If you can`t work up the courage to do that, send an email saying, I would like to set up an appointment with you to discuss my wages,(bonus, hourly rate.You fill in the blank)

    Many women just don`t know their value. They need to do the research. Use that data when negotiating.

    I have negotiated a raise more than ten times. Only once, maybe twice, I came out of the meeting with nothing.

    If you don`t stand up for you, who will

  5. Anonymous12:52 PM

    I always negotiate because people don't hand out their top dollar because they are expecting push back. I almost always get what I want or meet in the middle.

    Don't forget you can negotiate your vacation time too. I don't care what it says in the company handbook. :-)

  6. My very first job wasn't negotiated for starting salary because my employers were a bit shady and didn't even tell me what the salary would be until the last second. Even though I'd worked for years at that point in retail, I didn't quite know how to manage it but less than two years into that working relationship I negotiated a 70% raise.

    I negotiated the next three jobs and promotions so that I'm now making three times my first professional salary. I bet that my first salary wouldn't have jumped more than 20% cumulatively by the time I left if I hadn't negotiated. That would have set me back serious money.

  7. {Melinda} Some great advice. I am a freelancer who works from home and I know I've been guilty of setting my prices too low many times. I underestimate my value or I'm just happy to have the work.

    Happy Sharefest!

  8. I don't think I ever negotiated for a raise, a higher salary at hire, or even a bonus. I always took what i got. I felt that many times I was making more money than I should for a "woman", because I saw the salaries of other women in my company. However, I always made sure that if I changed jobs or it came to review time, I always made more. Not by negotiation, just by doing hard work and giving good progress mgt reports. I let my work speak for itself, and it usually spoke in higher raises. I think women should be more involved in their family finances. I handle our day to day finances, our credit accounts and our checking and savings acct. My husband's check is automatically deposited. If he needs cash I am usually the one who withdraws from an ATM and gives him his share. We talk about purchases before buying. We do help our children and grandchildren out. More than we should, probably.

    I think you've opened the eyes of many women. I hope they take a more active role in their own finances and their families.

  9. I actually did negotiate a raise in the fall for the first time - and kind of wished I'd done it sooner! I'm happy with where I stand now though. Great post!

  10. Anonymous10:18 AM

    Such an important life lesson for women. We need to keep educating women to do this and provide them with the skills to negotiate. Visiting from SITS. :) Happy Saturday!

  11. This is a FANTASTIC post in every way. Thank you. You are totally right on the money (ha!) with this advice. Stopping by from the SITS Sharefest on Twitter.

  12. Webb,
    I know. Isn't it depressing.

  13. Nicole,
    Ah guilt. In researching my strength project, I've discovered guilt is a huge strength detractor. I just looked up what is the opposite of guilt – it is deserves. I am adding working toward feeling I deserve it to my strength challenge.

  14. So true. The male employee at my company who eventually was demoted used threats of quitting as a negotiating tool. You just never know how management perceives your value. They responded with well quit then. They felt he wasn’t committed to his job. A collaborative approach works much better.

  15. Darlene,
    Such an informative comment.
    Kudos for asking for a raise so many times. We have to stand up for ourselves.

  16. Savvy, as always, you have given us an excellent read and have made us ponder reasons regarding why we sometimes don't have the courage to do what we should. I admit that I have never asked for a higher salary. In spite of being assertive, I think I accepted what I was offered and didn't question it. If we could turn back the clock! I believe that both women and men should assert themselves so they can be paid according to the experience and credentials they bring to the table. While a lower salary may not matter to many as long as they have a job, the difference will be felt when the time for retirement arrives. Sigh. Whatever will I do? :)

  17. Carli Alice,
    Wow good for you. Also, great idea to negotiate for vacation. I actually negotiated for two weeks of vacation at me current job - which has one of the worst vacation policies I've ever seen. I then assumed after my first year I would have two weeks of vacation every year. That wasn't the way it worked in the second year my vacation reverted back to the policy in the handbook. The lesson here is get everything in writing and never assume anything.

  18. Revanche,
    I am sure you are right.

  19. Mothering From Scratch,
    Good thing I didn't become a freelancer. I imagine I would have given away an awfully lot of work for free. Let's both work on negotiating a fair wage from now on.

  20. Vicki,
    Another good point. Every woman should be involved in the family finances. I think younger women are starting to do be more educated and involved. No one wants to end up like my friend's mother-in-law who had to mail a copy of her checkbook and bank statement each month to her son, so he could reconcile it for her after her husband died.

  21. I have negotiated starting salary, but I've been on the job for more than 20 years, so that isn't much help. As for negotiating a raise, I guess that hadn't occurred to me. At our company, they give a set amount that has to be divided between the group, so I feel like if I ask for more, someone else would get less. But on the other hand, I do twice as much work as most of them, so maybe that's more fair. Definitely food for thought.

  22. Thought of something else - part of the problem is that salary info is so darn confidential. I have NO CLUE what any of my co-workers make or how much their raises are. Maybe if I knew that the twit gen-X guys I work with made more money than I do, it would probably inspire me to go for more. Now I just need a mole in the HR Dept.

  23. Katie,
    Good for you. How about a pact to make negotiating our latest trend.

  24. breadwinningmama,
    I plan on writing a future post providing negotiating tips.

  25. Dose of Reality,
    Thanks for stopping in and the kind comment.

  26. Bella,
    We can’t go back, but going forward we can research what we are worth and try to negotiate a fair salary. If we are told no at least we tried. I’m not sure if you do freelance work, but if you do make sure you are being paid fairly. Don’t give away your talent.

  27. Adrian,
    I am going to let you in on a little secret. Raises are given all the time outside of the set pool. I have seen them be substantially hirer than those in the set raise pool. They are based on merit, for a project well done and sometimes to keep an employee who threatens to quit. I oversee payroll and have seen this occur at every company I've worked for.

    You can find out the going rate in your area by looking at job ads, obtaining salary guides from employment agencies and online websites or doing your own research through a job search.

  28. Great post!! I'm definitely seeing myself doing this in the future but I love this little boost in the right direction.