the seven pearls of financial wisdom. Copyright © 2012 by Carol Pepper and Camilla Webster.

All rights reserved. Printed in the United States of America. For information, address
St. Martin’s Press, 175 Fifth Avenue, New York, N.Y. 10010.

www.stmartins.com

Design by Patrice Sheridan

ISBN 978-0-312-64166-5 (hardcover)

ISBN 978-1-250-00832-9 (e-book)

First Edition: May 2012

10 9 8 7 6 5 4 3 2 1
 鵻 CHAPTER 1
鵻

W E A LT H B U I L DI NG

THE FIRST PEARL OF FINANCIAL WISDOM:

A Woman Must Build Her Own Wealth

The first pearl of wisdom we want to offer you is that a woman must
build her own wealth. Traditionally, we have been raised to think that
somehow, magically, our financial well-being will be taken care of by oth-
ers, either by family inheritance or, more likely, by marrying a man who
earns a lot of money.
It is understandable that most of us have never really considered the idea of
building our own wealth; only in the last few years has it even been a realistic
possibility. Women couldn’t get a business loan on their own until the 1970s
in America. As Ana Harvey, the assistant administrator for women’s busi-
ness ownership at the U.S. Small Business Administration (SBA) explains,

Congress passed the Equal Credit Opportunity Act in 1974, which,

among other things, made it illegal for creditors to discriminate against
anyone on the basis of race, color, religion, national origin, sex, marital
status, age, or whether or not a person is receiving public assistance. Sud-
denly women, who had always been required to have a male cosigner,
could secure loans on their own, at least in theory. In fact, women con-
tinued to face significant discrimination for a number of years.
8 The SEV EN PE A R LS of FINANCIAL W ISDOM

It wasn’t until 1988 and the passage of the Women’s Business Own-
ership Act that the needs of women in business—such as access to re-
sources and the elimination of discriminatory lending practices by banks
that favored male business owners—were addressed. It was a move that
Julie Weeks, the head of Womenable, a research, program, and policy-
development consultancy whose mission is to improve the environment for
women-owned businesses worldwide, calls “the big bang in women’s entre-
preneurship.” According to the American Express OPEN State of Women-
Owned Businesses report, in 2011 there were an estimated 8.1 million
women-owned businesses in the United States, generating $1.3 trillion in
revenues and employing nearly 7.7 million people.1

Here is the grain of sand that first enters our snug shell—the unfortunate reality of
what happens to a woman who does not assume responsibility for building her
own wealth: She develops an unspoken terror that one day she will be the little
old homeless bag lady she sees on the street. A report from the Center for Prog-
ress called Straight Facts on Women and Poverty reveals that 13.8 percent of
women are poor in the United States versus 11.1 percent of men. Over the age of
seventy-five, 13 percent of women are poor versus 6 percent of men. This gap is
bigger here than in any other developed country in the world.2 Three quarters of
the women with incomes below the poverty line are single women. We say a
woman “must” build her own wealth to avoid becoming an unfortunate statistic.
We really must take care of ourselves!

THE GRAIN OF SAND IN THE OYSTER SHELL

Do you know a woman who . . .

• Works in a low-paying, service-oriented job?

• Has a great corporate job but still earns less than the men in her field?
• Has been divorced and has had to lower her standard of living?
• Has been divorced and has to pay alimony to her husband?
 W E A LT H BU I L DI NG 9

• Has to shoulder the entire burden of child support because of an ex-

husband who won’t pay?
• Has a wonderful husband who lost his job and can’t find another
one?
• Has a husband who became ill and can no longer work?
• Has been widowed and whose late husband left insufficient funds for
her retirement years?
• Has no money saved for retirement and no idea what she will do to
support herself in her old age?
• Is one of the 13 percent of American women who are poor in their old
age (versus only 6 percent of men)?

If you do know any women like this—or if any of these situations apply to
you—then it’s a perfect opportunity to turn a grain of sand into a pearl of great
price. The good news is that today, by following our first pearl of wisdom and by
realizing that you must build your own wealth—for your own sake and for the
sake of your family—you can avoid the heartbreak of poverty in your later years.
When you have money, you have security, you have choices, and you can make
plans. Whether you are a mother planning your children’s education, a new wife
discussing money plans with your husband, a new college graduate considering
your first career, or a retiree considering helping a family member, remember that
your own financial security is paramount.

How do we build our own wealth? There are many ways to go about it;
below, we will cut through the bewildering number of possibilities and
help you get focused on the most effective strategies.

START YOUR OWN B US IN ES S

Why Investing in Your Own Company Delivers the

Biggest Return by Far
Starting a business is by far the best way to build your own wealth today.
When you are trying to build wealth, you need to recognize that the world
10 The SEV EN PE A R LS of FINANCIAL W ISDOM

still offers obstructions as well as opportunities. If you are a highly edu-

cated woman, chances are good that you have pursued a corporate career.
Working for a large company may make sense in the early years, so that
you can develop great experience in a field. However, in the corporate
world, women are still earning seventy-seven cents on the dollar compared
to men. The glass ceiling is very much alive, and the ranks of women at
the most senior levels are thin. Many women leave the corporate life to
start their own business precisely because they realize that they will never
earn as much as their male counterparts, particularly at the senior level.
They then take their excellent skills and put them to work in a small
business.
Between 1997 and 2011, when the number of businesses increased in
the United States by 34 percent, the number of women-owned businesses
increased by 50 percent—a rate one and a half times the national average.3
When you own your own company, you have a chance to level the playing
field in terms of your salary, bonus, and even preferred insurance rates.
“The great equalizer for women in my mind is entrepreneurship,” says Marsha
Firestone, Ph.D., the founder of Women Presidents’ Organization (WPO),
a nonprofit membership organization for women who serve as presidents of
multimillion-dollar companies.
Today, two out of every three new businesses are started by women.4
“Many [women business owners] come from the corporate world, where
they’ve hit the glass ceiling or the level of flexibility they seek is not avail-
able. They know they can do just as well— or better— on their own, and so
they go into business for themselves,” explains Ana Harvey of the U.S. SBA.
Although the prevailing view is that women are running mom-and-
pop-style operations, Marsha Firestone says research shows that “the fastest-
growing segment of women-led companies are those that have more than a
million dollars in annual revenue.”
The World Wealth Report, published each year by Merrill Lynch and
Capgemini, reveals that the majority of all global wealth is created by
family-owned businesses. Business-owner data also reveals the potential for
greater earnings for business owners rather than employees. In the top 25
percent of earners, entrepreneurs make more money than those who work
for employers. The average small-business-owning family earned $185,350
in 2007, compared to $64,207 earned by non-business-owning households.5
 W E A LT H BU I L DI NG 11

If owning your own business becomes your sole vocation, you’ll be able
to set your work schedule and get excellent tax breaks. If it’s a secondary
interest, you will gain more financial security in the new freelance econ-
omy. This is the era when your business vision can come true at any age,
and there’s a lot to consider when starting your own business. As Oprah
Winfrey says on her website, “What I know for sure is that if you want suc-
cess, you can’t make success your goal . . . the key is not to worry about
being successful; but to instead work toward being significant—and the
success will naturally follow.”
We realize there are many excellent resources available to help women
start businesses. In this section, we want to dispel some of the myths sur-
rounding this path to wealth building and help you focus on the most im-
portant things to know before you get started.

To Succeed in Your Own Business,

Start with a Good Idea
We want to dispute the widely held belief that you must only start a busi-
ness that reflects your deepest passion. Although that would be ideal, this
daunting preconception can stop you from pursuing the best way to build
your wealth. According to Marsha Firestone, the single most important char-
acteristic of the women who have created businesses that earn more than
$1 million per year is that they focus on some type of innovation. That means
that the idea for your own business might be found in something simple—
improving the way you do an everyday task, inventing a better version of an
existing product, or coming up with a less expensive way to deliver a prod-
uct to market, thereby drastically reducing costs. There are also many success
stories of women who started a business based on a beloved hobby like
working with pets or gardening.

Understand the Limitations of a Service Business

Many people decide to start a business based on providing a ser vice. If the
ser vice is something that is provided by you, the growth of your business
will be limited by the number of hours in your day. A good example of this
is a massage therapist who works at a gym and decides to leave the gym to
12 The SEV EN PE A R LS of FINANCIAL W ISDOM

take only private clients. The growth of her business will be limited to the
number of hours in a day in which she can give massages. Ser vice busi-
nesses do not have property, manufacturing plants, or equipment, which
means that they do not have assets that could be used as collateral for a
business loan. Eventually, in order to expand a ser vice business beyond
what you can personally do, you will have to hire employees who do what
you do, and these employees may or may not be able to provide the same
level of excellence you provide in giving the ser vice.
On the other hand, people who are excellent at providing a ser vice
can translate this excellence into a products-based business. For example,
a Pilates instructor can consider writing a book on Pilates, creating DVDs
to sell, and marketing a line of clothing to wear during Pilates classes.
Products do not require you to personally interact with each potential
customer. You write a book once, and it can be read by millions, for ex-
ample. You can standardize excellence much more easily in a product than
in a ser vice. Many products take equipment to produce, and these assets
can be financed through business loans. There are tax incentives and subsi-
dies available from the federal and state governments to businesses that
hire employees. In the long run, a products-based business generally pro-
vides you with more personal flexibility than a service-based business. As
your business becomes more successful, you can hire others to run it while
you sit back and enjoy the benefits of ownership.

Start Your Business in Twenty-four Hours

If you’re feeling overwhelmed by the task of starting your own business,
don’t be. Getting started now takes only a few strokes of the keyboard, thanks
to technology. Jane Applegate, America’s leading small-business expert and
the author of 201 Great Ideas for Your Small Business, declares to reluctant
entrepreneurs: “Only in America can you wake up in the morning with
a great idea and start a business by nightfall. Anyone can do it in a day. It
really is the American dream.” You used to need between ten thousand
and twenty thousand dollars to set up a business. Now you can accomplish
it with less than five thousand dollars, and do most of the work on your
computer.
 W E A LT H BU I L DI NG 13

SMALL BUSINESS TIPS

These helpful tips come from author and small-business management expert Jane
Applegate.

• Set up your preferred business structure—a corporation, partnership, or

limited liability company (LLC)—and register it with your city, county, or state
online through websites like Rocket Lawyer or LegalZoom.
• Open a business bank account online.
• Surf your way to a Web domain registration site (examples include Go
Daddy and Network Solutions) and register a name for your website.
• Set up Web hosting, fill in a design template, and have a website on-
line before bedtime.
• Hire outsourced talent to ser vice your business from sites like ELance
.com. They handle all the tax forms and arrange payments between
you and your freelancers or employees.
• If you need marketing help, go to a website like
growyourbusinessnet work.com.
• Set up a cloud-based telephone system on RingCentral.com, or go to
Google Voice and set up a “follow me” phone number.
• Take a step into social media for your new business by setting up a
Facebook fan page, a Twitter account, and a LinkedIn page.
• Order your promotional materials on sites like 4over4.com, Zazzle.com,
and 1800postcards.com.
• Finally, before you rest your head on your pillow, you can announce
your new venture through PR Newswire or EnFlyer.com.

Do Your Research and Write a Business Plan

The most important investment you can make is taking the time to write a
business plan. It is absolutely critical to figure out if there is a market for
your business idea and to figure out how much money it will cost to get
started. There are a number of great online resources and software programs
14 The SEV EN PE A R LS of FINANCIAL W ISDOM

you can purchase to help you write a business plan. You must get very clear
on the costs of running your own business and understand how you will
pay for these costs. The high failure rate of new businesses can be overcome
by smart planning. If you are new to working with numbers, hire a good
accountant to help you develop a business plan, and bounce your ideas off
people with experience in the field you want to enter if you are not highly
experienced. Take advantage of the wisdom of retired executives available
through SCORE (www.score.org), which provides free small-business train-
ing and mentoring. The more research you do in advance, the more likely
your business is to thrive.

Be Able to Cover Your Living Expenses

Before Quitting Your Day Job
There are conflicting ideas on how much money you need to set aside when
leaving a job to start your own business. Conservatively, you need to have
two to three years of living expenses put aside—because that’s how long it’s
going to take for a new business to start generating cash. It’s always a good
idea to keep your day job as long as possible. Use your spare time to write
your business plan and source materials, and when you absolutely can’t
move forward unless you quit your job, then it’s time take the plunge.

Fund Your New Business Sensibly

You can fund your new business from savings or by obtaining financing.
Often, the cash used to start a business comes from an unexpected source.
For example, some women have launched businesses by using a divorce
settlement or a lump-sum payment received after they have been laid off.
If you intend to fund your business from savings, you should fund it from
personal savings, not your 401(k) plan. You can withdraw funds from your
401(k), but this is a very unwise thing to do. First, if you are younger than
fifty-nine and a half, you must pay a withdrawal penalty and taxes, which
means that you are receiving only forty cents of every dollar you have put
away. Second, you are potentially devastating your retirement. Your busi-
ness may or may not work, but you will certainly grow older and need those
funds in the future, regardless of how the business does.
 W E A LT H BU I L DI NG 15

Although it may be tempting, also avoid using the excess value in your
home as collateral for a home-equity loan to start your business. If the busi-
ness does not take off, you may not be able to cover the second mortgage
payments and may, tragically, lose your home as well as your new company.
If you do not have enough personal savings to fund a new business, and many
people don’t, then you will need to look for financing.

• Borrow against your 401(k): To finance your start-up costs, you

might consider borrowing against your 401(k), but this can happen only
while you are still employed and working on your new business on the
side; once you leave your corporate job, you must repay the loan, so this
is a very short-term solution.

• Check out SBA programs: You can investigate loan-guarantee

programs available from the Small Business Administration, which has
many good options for women looking to start their own businesses.
The SBA does not make loans but does provide loan guarantees to
encourage banks to lend money to you. Again, you are more likely to
get funds for a product-based business— one that has equipment, a
plant, or property that can be used as collateral for a loan. It is much
more difficult to get a loan for a ser vice business, and almost impossi-
ble to get a bank loan for a ser vice business without years of demon-
strated cash flow from multiple clients.

• Don’t place high hopes on the banks unless you have other
collateral: It is extremely rare for banks to give noncollateralized loans to
start up a business. The bank may give you a loan if you have other assets
to pledge, such as a personal portfolio of securities. It may make sense to
pledge a personal securities portfolio in order to get the funds to start
your company; your securities can continue to grow while you launch
your business. In this case, negotiate for long repayment terms, or an
interest-only loan, to give yourself two or three years before you have to
start repayment. Make sure the securities are conservatively invested so
that you don’t face a margin call if the markets go through a bad period.
(A margin call means that the value of your collateral has fallen and the
bank wants to sell the securities to pay back the loan.)
16 The SEV EN PE A R LS of FINANCIAL W ISDOM

• Take a personal loan from friends and family: Many people turn
to friends and family for personal loans to start a business. In this case,
share your business plan, draw up a promissory note, and make sure
family members have reasonable expectations of when you can repay
the loan. Offer to pay interest and take out a life-insurance policy that
would repay your family member should you die unexpectedly. These
policies are usually very inexpensive if the benefit amounts are small.

• Take a part-time job or a second job: You may find it necessary in

the beginning to take a part-time job or a second job to fund your liv-
ing expenses while working on your business. This is not as bad as it
seems—as long as you can cover your overhead, you can give your
business the extra time it needs to become self-supporting.

• Live on your partner’s salary while starting the business: If you

are in a relationship, you may be able to join forces with your partner
to support you and your family while you are starting your business.
This can be an exciting family decision, and if the business takes off,
your partner may be able to quit the nine-to-five routine and join you
in working on the business. It is critical to share the business plan with
your partner and to have regular financial meetings so he or she under-
stands the progress you’re making and setbacks you may be experiencing.

• Max out your credit cards as a last resort: Some famous busi-
nesses were started by maxing out credit cards; this is a much less likely
scenario today due to tighter credit standards and smaller credit lines.

Beware the Dangers of Angel Investors

and Venture Capital
If you have a terrific idea, you may be able to attract the attention of angel
investors or venture capitalists. These are individuals who are looking to
invest their capital in start-up businesses. Although this route may be ap-
pealing, angels can be distinctly devilish to new business owners.