When it comes to investing, the basic rules are the same for everyone. But biology also plays a role when you’re thinking of the long game in personal finance. Women have unique considerations to keep in mind when working toward financial wellness and independence, and the disproportionate impact that the COVID pandemic has had on women in the workforce adds another wrinkle. Here are 14 tips to help people who identify as women make the most out of their finances.
Prepare to live longer. Longevity is a critical factor that will influence your financial future. Women are more likely to outlive their male spouses, so they need to plan for a longer time horizon overall. More time in retirement means more money needed for living and healthcare expenses.
Take an active role in your money management. Many women defer to their spouse for managing their financial affairs – this may create issues when faced with a life event such as death/divorce of the financially-responsible spouse. Statistics show that 90% of women will make financial decisions alone at some point in their lives, so it’s best to be proactive about it.
Save more. Sounds simple, but saving is an important habit when the reality is that women take on 75% of caregiving roles—whether it’s childcare, eldercare, or both. There are real implications to stepping out of the workforce, as this affects retirement savings, potential employer contributions, and the impact on growth of diminished savings and social security benefit accumulation over time. As a result, women need to think about shoring up their savings to help minimize the impact of caregiving.
Budget wisely. Effective budgeting demands an eyes wide open approach—you’ve got to know your expenses in order to make sure you’ve got enough money to cover them. It’s not enough just to save more—you also need to hold yourself accountable to a budget so that those savings have a chance to accumulate and be invested, if deemed appropriate.
Know your worth. Although narrowing, the gender pay gap is still real. Women tend to undervalue themselves in comparison to men, and frequently accept offers lower than their expectations. Settling for less involves discounting your potential—don’t sell yourself short if you deserve more. Research compensation for comparable roles based on geography and experience, and negotiate accordingly.
Pursue multiple streams of income. Relying solely on a paycheck—yours or your partner’s—can make it harder to save, which may leave you feeling unprepared for a rainy day. Finding opportunities to create passive or supplemental income, such as starting a side business or investing in income properties, will allow you to earn even when you’re not working at your day job. Many female entrepreneurs are emerging post-COVID as a result.
Purchase a life insurance policy. Women’s salary often contributes to financial stability at home, with many women claiming the role of primary or sole breadwinner. Whether you bring home a paycheck or not, your contributions to your household have economic value. If you have any responsibilities toward the well-being of others, life insurance is a critical means of financial protection in case something happens. The good news is that, since women tend to live longer than men, life insurance is typically more affordable for women.
Prioritize estate planning. Faced with longer lifespans and decreased earning power in comparison to men, women have more at stake when preparing for the future. In the event of incapacitation, a healthcare proxy and financial power of attorney will be critical. If you’ve got a woman-owned business, that adds another layer of complexity that demands business succession planning. Protect yourself, your assets, and your family with a customized estate plan that takes into account your unique situation, and relieves your heirs from the financial and decision-making burdens that can come with end of life.
Invest with intention. According to a survey conducted by S&P Global, only about 1 in every 4 women are invested in the financial markets. However, women are more likely to invest in causes that align with their values—and opportunities abound. Environmental, Social, and Governance (ESG) investing is attractive to many women, and it’s on the rise. Women can even invest in other women – certain ESG funds focus on benefiting women by investing in women-owned companies, firms that promote equal pay, companies that require sexual harassment training, etc.
Don’t be afraid to take on some degree of risk. Women tend to be more risk averse than men. Part of the reason may be that women typically face more savings hurdles, and want to protect and preserve the assets that they have been able to accumulate. However, heightened risk aversion can actually limit growth, and can significantly hinder the ability to meet one’s retirement needs or attain other financial goals. Paradoxically it may also result in choosing to work longer in order to earn more. Evaluate your risk tolerance to see if your money can be working harder for you.
Consider taxing issues. Many life events—marriage, divorce, welcoming a child, having a health crisis, etc.—will have implications for your tax returns and long-term tax strategy. The same goes for making certain investment decisions. Consult with a tax adviser to ensure you’re planning for the most efficient and effective tax solutions for your unique considerations.
Work with a female financial advisor. Any financial advisor should be able to offer guidance that can help walk the fine line between growth and protection along the risk/return spectrum. However, many women find it beneficial to work with an advisor who may better understand and empathize with the challenges they face. They may also feel more comfortable discussing tangential topics such as relationships, healthcare, or career aspirations—which can broach on emotional elements but also impact money matters. Find a professional who you feel connected with and will make you feel heard.
Seek education. Be curious – financial literacy is critical to financial success. Read personal finance books, subscribe to financial newsletters/magazines, listen to financial podcasts, or explore financial support groups in your community if you are unable to hire a financial professional.
Practice cyber security. Women are more likely to become victims of financial fraud. Older individuals are particularly susceptible to scams, and as we noted above—women tend to live longer. Take active steps to ensure your privacy and protect your financial future (check out the replay of our Speaker Series webinar on Cyber and Personal Security for some insightful tips).
It’s never too late to build healthy behaviors with financial wellness in mind. Taking a few small steps with an eye on your goals can boost your financial confidence, and add up to a big difference over time.
Schedule a call with one of our Financial Consultants to review key strategies to help improve your financial independence, be more mindful of tax strategies, and start a conversation on how to reach your financial goals.