Steph Wagner's 45/20/35 Rule for Women's Financial Security

Key Concepts

• Financial Independence: The state of having enough income or wealth to support oneself without having to work.
• Financial Literacy: The possession of the knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.
• Women and Wealth: The specific economic challenges and opportunities faced by women in managing and growing their wealth.
• Wakeup Call: A pivotal event that prompts a significant change in perspective or behavior, particularly regarding personal finances.
• Money Mindset: An individual's deeply ingrained beliefs, attitudes, and assumptions about money.
• Money Personality: Distinctive traits and behaviors individuals exhibit in their relationship with money.
• 45/20/35 Model: A financial framework allocating net take-home pay to unavoidable expenses, investments, and discretionary spending.
• Net Worth: The total value of an individual's assets minus their liabilities.
• Compounding: The process where an investment's earnings become part of the principal, generating further earnings.
• Diversification: Spreading investments across various asset classes to reduce risk.
• Financial Empowerment: The process of gaining control over one's financial life, leading to increased confidence and autonomy.
• Sandwich Generation: Individuals who are simultaneously caring for their aging parents and their own children.
• Partnership in Marriage: A collaborative approach to managing finances and life decisions within a marriage.

Steph Wagner's Journey and the Genesis of "Fly"

Steph Wagner's personal journey, marked by a "wakeup call" to financial independence, forms the bedrock of her new book, "Fly: A Woman's Guide to Financial Freedom and Building a Life You Love." Wagner, a recognized authority on women's economic security, initially pursued a career in corporate finance, starting in investment banking and then moving into private equity at a young age. She notes the scarcity of women in the field during that era, which led to a lack of mentors.

Her personal life, including marriage and motherhood, coincided with the demanding nature of her career. A pivotal moment occurred when, six months pregnant with a toddler at home and a husband who traveled extensively, she was asked to travel for a deal. This unsustainable situation led her to quit her job. However, the true "wakeup call" came 14 years later during her divorce. Having delegated financial responsibilities to her then-husband, she realized she had lost her financial autonomy and was ill-equipped to support herself and her children. This experience, she states, "was the beginning of, oh my god, what had I done? Like, I I don't even know where I stand financially."

This personal crisis spurred her to reinvent her career, focusing on educating and empowering women financially. She developed a curriculum that was "empowering, tools-based approach, you know, built confidence." The realization that her personal roadmap for rebuilding her financial life could serve as a guide for others led to the development of her book. She emphasizes that pivotal moments present a choice: "We're either going to rise or we're going to let it take us down."

Understanding Your Relationship with Money

Wagner stresses the importance of exploring one's relationship with money, as detailed in Chapter 4 of her book. She posits that this relationship is not formed overnight but is shaped by life experiences, beliefs, and absorbed messages. To understand current financial behaviors, individuals must ask critical questions about their upbringing and the messages they received about money.

Key questions to consider include:

• Parental Messages: What explicit or implicit messages did you receive about debt, saving, and spending from your parents? Wagner shares her confusion when her father, who preached financial prudence, had to sell a car won in a golf tournament to pay taxes, highlighting the disconnect between words and actions.
• Family Dynamics: Was money a source of conflict or open discussion in your family? Did one parent handle all financial matters, or was it a true partnership? Wagner notes how her mother hid purchases from her father to avoid arguments, demonstrating how these dynamics can imprint on current behaviors.

Wagner argues that self-awareness is the first step to changing financial behaviors. Without understanding the "why" behind our actions, it's difficult to create intentionality and foster a healthier relationship with money.

Financial Autonomy and Women's Empowerment

Wagner asserts that her book is "a women's empowerment book disguised as a finance book" because financial autonomy is crucial for women's overall well-being and ability to thrive. She highlights alarming statistics:

• Nearly half of women defer financial planning to their partners.
• Approximately 50% of women aged 55 to 66 have no retirement savings.
• 54% of senior women cannot cover their basic needs.

These statistics are particularly concerning given that women are increasingly part of the "sandwich generation," balancing care for children and aging parents while providing financial support. Wagner explains that financial stress, worry about bills, and living paycheck-to-paycheck prevent individuals from "thinking big" and pursuing their passions.

She emphasizes that women are living longer, with average lifespans extending into their 90s. With potential retirement in their mid-50s to 60s, decades of life remain to be created. Financial autonomy is essential for setting new goals, creating a vision for oneself, and having the resources to achieve it. This autonomy allows women to remain curious, open, and dream big, especially during midlife when parental responsibilities may lessen, allowing for a focus on personal fulfillment.

Money Mindset and Money Personalities

Wagner introduces the concepts of "money mindset" and "money personality" as crucial for understanding financial behavior.

• Money Mindset: This refers to whether one operates from a scarcity mindset (fear-based, living small, lacking confidence) or an abundance mindset (believing there's enough for everyone, embracing continuous growth and self-investment). Operating out of fear, often stemming from a lack of financial control, leads to poor decisions and limits potential. An abundance mindset, conversely, fosters belief in oneself and the ability to earn and grow wealth.
• Money Personalities: Wagner identifies several distinct money personalities, each with strengths and weaknesses:
  • Spender: Enjoys spending money.
  • Penny Pincher: Focuses on saving every penny.
  • Avoider: Ignores financial matters due to anxiety or discomfort.
  • Trailblazer: Proactively creates wealth, often as entrepreneurs, but may neglect wealth management and enjoyment.

Wagner stresses that recognizing one's dominant personality traits and behaviors is key to identifying what is working and what is holding them back. The goal is not self-punishment but self-awareness, enabling intentional shifts towards healthier financial habits.

The 45/20/35 Model: An Empowering Framework

Wagner critiques traditional budgeting as often disempowering and leading to feelings of failure. Instead, she advocates for a proactive framework called the 45/20/35 model, which allocates net take-home pay into three key buckets:

1. Unavoidables (Max 45%): This category covers essential living expenses such as housing, transportation (car payments, fuel, maintenance), utilities, and non-medical insurance. Wagner emphasizes that within this bucket, individuals must distinguish between "wants" and "needs."
2. Investments in Your Future (At least 20%): This portion is dedicated to building long-term financial security. It can be allocated to:
   • Emergency Fund: Aiming for 6-9 months of living expenses.
   • Paying Down Bad Debt: Strategically eliminating high-interest debt.
   • Retirement Savings: Ensuring adequate contributions to retirement accounts.
   • Diversifying Investments: Exploring taxable accounts, real estate, or other avenues beyond retirement funds.
   • Education/Skill Development: Investing in oneself to increase future earning potential.
3. Empowerment Money (35%): This discretionary spending category includes lifestyle choices like dining out, shopping, travel, and entertainment. It also encompasses some "unavoidables" like food, prompting a re-evaluation of wants versus needs (e.g., daily filet mignon vs. more economical options).

Wagner highlights the flexibility of this model: if unavoidable expenses exceed 45%, the empowerment money portion must be reduced to compensate, preventing debt accumulation and safeguarding financial goals. The core principle is proactive control and conscious decision-making.

Knowing Your Numbers: Net Worth Over Income

In Chapter 5, "Know Your Numbers," Wagner underscores the importance of understanding one's net worth rather than solely focusing on income. While earning power is significant, especially for younger individuals, it diminishes with age. Net worth, the sum of assets minus liabilities, provides a more comprehensive picture of financial health.

Wagner uses her father's experience as an example: a high wage earner who, despite his income, had "nothing" due to a lack of focus on building wealth. She outlines the four primary ways to build wealth:

1. Invest the money you earn: Allow it to grow without withdrawal.
2. Pay down bad debt: Reduce liabilities that hinder wealth accumulation.
3. Earn more to invest more: Increase income to accelerate wealth building.

She stresses the need to understand how money works and grows, emphasizing that with proper management, money can earn more than most individuals earn in a lifetime on an annualized basis.

Compounding and Diversification: Pillars of Wealth Building

Wagner discusses the critical investment concepts of compounding and diversification.

• Compounding: She explains that with an average annual rate of return of 7% (historically observed in the S&P 500 over 40 years), money can double every 10 years. The Rule of 72 (dividing 72 by the interest rate to estimate doubling time) is a simple tool to illustrate this power.
• Diversification: This involves spreading investments across different asset classes to mitigate risk. Wagner cautions against putting all assets in one place, whether it's a retirement account, real estate, or a business, as this can lead to liquidity issues during emergencies. She advocates for a holistic approach to one's balance sheet, ensuring all financial "spokes of the wheel" are working together to build net worth effectively.

Barriers to Financial Empowerment for Women

Wagner identifies several significant barriers preventing women from achieving financial empowerment:

• Lack of Early Education: Financial concepts are not taught early enough or in low-risk environments. She draws a parallel to Poker Power, an organization that teaches strategic thinking and risk-taking with fake money to young men, building their confidence. Wagner argues that girls often miss these opportunities to learn and build confidence in decision-making with minimal consequences.
• Learning Through Crisis: Many women, like Wagner herself, learn about financial management only when faced with a crisis (divorce, job loss, etc.), when they can least afford to make mistakes.
• Societal Norms and Lack of Confidence: Traditional gender roles and societal expectations can contribute to a lack of confidence in financial matters.

Wagner advocates for sharing personal stories (both successes and failures) to educate the next generation and for a joint conversation about financial literacy that includes men. She also recounts an anecdote where she prevented her son from "robbing" his girlfriend of a crucial learning experience by helping her buy a car, emphasizing the importance of allowing individuals to navigate these financial milestones themselves.

Money and Love Life: Building a Partnership

Chapter 7, "Smart with Your Love Life When It Comes to Money," explores the intersection of finances and relationships. Wagner reflects on her own past marriage and the importance of owning one's role in financial dynamics. She highlights the shift from traditional 1950s family structures (where 65% of families had a clear breadwinner/homemaker dynamic) to today's reality, where only 20% of families fit that model, yet 65% of men still claim to dominate financial decisions.

Wagner advocates for a partnership approach in marriage, emphasizing transparency, open communication, and mutual respect for each other's opinions, even if there's an imbalance in financial knowledge or interest. The goal is for both partners to work towards shared family financial goals.

She also acknowledges the growing number of single individuals and evolving views on partnerships, extending the principles of financial autonomy and healthy financial outlooks to dating and non-marital relationships. The book encourages readers to question outdated beliefs and scripts about money and relationships, empowering them to rewrite their narratives and live life on their own terms. Financial autonomy, she concludes, "opens up a lot of opportunities in your love life."

Initial Steps Towards Financial Empowerment

For individuals seeking to begin their journey towards financial empowerment, Wagner offers practical initial steps:

1. Acknowledge and Accept: Understand that financial empowerment is achievable and not as daunting as it may seem. Release shame and recognize that taking the first step is a significant accomplishment.
2. Embrace Small Steps: Financial growth is a gradual process. Focus on taking small, consistent actions rather than trying to learn everything at once.
3. Understand Your Emotional Relationship with Money: Begin by exploring your current feelings about money, your past financial influences, and your desired future vision. This emotional understanding will inspire and ignite the motivation needed to continue the journey.
4. Assess Your Financial Reality: Take an honest look at your current financial situation. While this can be challenging, having a clear goal for where you want to go will provide the necessary motivation to navigate the work involved.

Wagner's book, "Fly: A Woman's Guide to Financial Freedom and Building a Life You Love," is presented as a comprehensive resource for individuals of all ages and relationship statuses seeking to achieve financial freedom and build a life they love.