Financial planning for women is the key to success and independence. Not relying on someone else for a successful future is essential. Instead, you should rely on one person alone, and that’s yourself. Knowing how to invest, what to invest in, and how to create the perfect personal financial plan is the best way to make sure you stay on your own two feet.
What is financial planning for women?
Financial planning for women means being mindful of and planning for your future. It’s like a roadmap for your money, how you will make it, what you will do with it, and how you’ll manage your future, specifically retirement.
Women, especially, must have a personal financial plan independent of their spouse or significant other. You can end up on your own at some point in time, whether due to death, disability, or divorce.
Why should women have a financial plan?
Women need a financial plan to prepare themselves for whatever the future holds. Unfortunately, there are no guarantees in life. Even if you’re married, there’s no guarantee your spouse will be around as long as you or that they won’t become disabled or ill and unable to provide for you.
Women are still at a disadvantage today, despite society’s advances regarding money and finances. First, there is the wage gap coupled with the longer life expectancies women have over men that make having a financial plan essential for women.
How is financial planning for women different?
Financial planning for women looks different than it does for men for many reasons starting with the wage gap. Women have to work harder and/or more hours than men to make the same amount of money. This means women either have to bend their backs to invest as much money as men or invest more aggressively to catch up to men when it comes to financial planning.
Women have to think about themselves and what they’ll need should their spouse be unable to support them or if they get divorced. But women often have a lower risk tolerance than men and yet have more time away from the workplace than men do.
We have many factors to consider to ensure that we are financially independent now and well into the future. Whether retirement is many years away or right around the corner, setting up a personal financial plan now is essential.
Life events to plan for
Women have many life events to consider when creating a personal financial plan. Here is a list of the most common life events to consider.
Whether you want to continue your education or have kids you want to put through school, education should play a significant role in your financial planning. You can open a 529 savings plan for the tax advantages of saving for college or in other ways you feel most comfortable. The key is to make education savings a part of your financial plan so it doesn’t sneak up on you and force you to take out loans with high-interest rates.
Changing jobs is more commonplace than ever before, especially for women. The average person changes jobs every four years. If you plan to take time off to have or raise children, that number may increase even more frequently.
Having the flexibility to change jobs and not struggle financially is the key to doing what you love. Of course, having an emergency fund with enough money to get you through three to six months of expenses is vital. So if there is a chance you’ll change careers, you may want to consider saving more money.
Buying a home
Buying a home is one of the largest investments you’ll make in your lifetime. You’ll need not only a sizable down payment but enough money to cover the real estate taxes, homeowner’s insurance, and the home’s regular maintenance. Saving as much money as possible to buy a home helps you avoid becoming house poor and risking foreclosure or other financial difficulties.
Women not only carry the burden of carrying children but oftentimes caring for them. Many women stop working during their children’s younger years, so planning to have enough money set aside for that time is important.
Plan not only for the time you’ll take off to have the baby, but any unexpected time you may need to be off for unanticipated situations and the possibility of wanting to stay home and raise your kids instead of going to work.
Care for aging parents
As our parents age, roles tend to reverse. Where they used to take care of us, now we take care of them. The work usually falls on the women in the family, which is why planning for the finances to care for your parents and the time you may have to take off from work to care for them is imperative.
Planning for retirement is especially important for women because of the wage gap and/or the times women don’t work. You can still have a retirement account set up for you with regular contributions if you’re married as long as your spouse works.
Think of the life you want to live while you’re retired, both with and without your spouse so you are prepared for whatever life throws your way financially.
Financial planning for women considerations
As you create your personal financial plan, it’s important to consider these scenarios.
Understanding the gender pay gap
Still, in 2022, women make 82 cents to every man’s dollar earned. It may not sound like a big difference, but it can amount to millions of dollars less in a woman’s working lifetime versus a man’s. That’s a lot of money when you’re planning for the future. This means women either have to invest more aggressively, save more money, or work more than men to make up for the difference.
Career progress and trajectory
A woman’s career progress is usually much more affected by having children or aging parents than a man’s career. This is because women are more likely to take time off indefinitely to step into that caregiver role. Not only does this affect how much money women make, but also their career progress. With too much time away from the workplace, men often advance much faster than women.
Investing with purpose is the key to successful financial planning for women. For example, invest more than the minimum amount your employer will match on your 401K. Instead, invest with a timeline and intended scenarios in place. What do you envision retirement looking like for you, and how do you plan to achieve it?
Plan for diverse scenarios
When you create your personal financial plan sample, think of any and all scenarios you might face. For example, you might have kids, or you might not. No one can predict for certain how or what will happen. Maybe you adopt or go through expensive fertility treatments to have kids. Each scenario affects your costs and should be considered.
Also, consider living longer than the average female life expectancy and where you’ll live in retirement, whether you age in place at home or you move into a retirement home. Plan for each scenario so you can handle whatever life throws your way.
Financial planning for women 101
Now, the important question is how do you reach these exceptional goals you’ve set for yourself? The perfect personal financial plan for women is within reach with these tips.
1. Take advantage of your employer’s 401K match
We mentioned your employer’s 401K match already, but we’ll say it again. Always take the employer’s match, but don’t stop there. The employer’s match is like ‘free money.’ For example, if your employer matches 3% of your salary and you make $100,000, they’ll contribute $3,000 to your retirement account if you do each year. Don’t miss out on this opportunity.
2. Build your emergency fund
Ensure you have an emergency fund with at least three to six months of expenses built up to you should you need to take time off temporarily from work or lose your job unexpectedly.
Your emergency fund should be enough to cover your total living expenses for up to half of a year (or longer if you want) to focus on the issue at hand and not have to worry about your finances.
3. Pay yourself first
Always pay yourself first. Automate it if you can, otherwise, you’ll likely keep savings for last after you’ve spent your money for the month, resulting in nothing left. Set up automatic savings with your employer if they have it. Many will split your direct deposit between your checking and savings account as you dictate.
If you don’t have direct deposit, most banks offer automatic transfers that you set up once and then the money transfers repeatedly on the same date each month. Budget for how much you can save and make sure the money transfers on each payday, so you don’t spend it before realizing it.
4. Pay off high-interest debt
High-interest debt is an opportunity cost for any other investments or savings plans. Therefore, create a debt payoff plan that pays off your high-interest debt as quickly as possible, even if that means saving a little less to pay the debt down faster.
5. Create a plan for your children
Decide how you’ll support your children as they get older and how much money you’ll need to achieve those goals. For example, will you pay for college or help them buy their first home? Think of all the ways you want to support them and work them into your financial plan.
6. Keep beneficiaries updated
Periodically review your financial accounts, trusts, and will to ensure the beneficiaries you have named are still applicable. Updating your beneficiaries is essential. If you were to die with beneficiaries in place that you no longer want to include, there’s nothing anyone can do to change it once you’ve passed away.
7. Keep expenses and budgets updated
Set up a financial date with your spouse, significant other, or yourself monthly. Revisit your budget, see how you did with your spending and update any new or paid off expenses. Make sure you’re making the most of every dollar you bring in and that you’re on track to meet your financial goals at your current pace.
8. Create an estate plan
Estate planning is a key factor in your personal financial plan, especially if you have children. Ensure you have guardians appointed for your children and that all assets are appropriately distributed according to your wishes. Talk to your financial advisor about how to best set up your estate and protect it to minimize probate costs and delays, and to ensure your loved ones are cared for.
9. Keep proper insurance coverage
Review your insurance needs often and make sure you have the coverage you need and don’t pay for coverage you don’t. Your insurance needs will change with time, so regularly check in with yourself to be sure.
Working with a financial advisor
Working with a financial advisor early on in your life can be one of the best choices you make. A financial advisor can help you plan for your goals, revisit your goals and progress, adjust your investments or savings for any life changes, and keep you on track.
You don’t have to be rich or invest a lot of money to work with a financial advisor either. Some advisors work in many different niches. Once you decide what role you want them to play, the easier it is to find the right fit.
Financial planning for women FAQ
How do women set financial goals?
Women set financial goals just like anyone else. First, write down your current and future priorities. Next, put a dollar value on the goals and then create a plan that helps you achieve them. Working closely with a financial advisor once you’ve determined your financial goals is the best way to ensure you meet them.
What is the best investment for women?
Any investment that meets your risk tolerance and timeline is the best investment for you. For example, some women prefer already diversified investments such as ETFs or mutual funds, whereas others prefer to invest directly in individual stocks.
Why is it important for a woman to be financially independent?
In general, women have many more financial barriers than men and should always be able to rely on themselves. There are no guarantees in life, and women need to know that they can be independent should they need to be. Relying on someone else, man or woman, isn’t ideal and can be problematic down the line. What if life throws you a curveball, and you are suddenly alone? Financial independence is the key to avoiding even more stress that life can offer.
When should women start financial planning?
The earlier the better! It’s never too early or too late for women to start financial planning. Start now if you’re already mid-career and don’t have a personal financial plan! If you’re in your 20s and just starting out, also start your financial planning now. The key is to start wherever you are and whatever financial situation you’re in.
The bottom line
Financial planning for women is possibly even more important than financial planning for men. Women experience many more obstacles than men and are frequently two steps behind. Creating a personal financial plan now is the key to ensuring you are financially independent no matter what life throws your way.