Finances are a topic many women don’t talk about. But, why? It’s something that affects women just as much as it affects men. And if overlooked, it may leave you lacking both now and in the future.
Women should understand and manage their personal finances. Not only is it necessary for financial independence, but a longer life expectancy, wage and opportunity differentials, and risk-averse financial tendencies make financial planning a must for any woman planning for the future or looking to take control of their financial lives today.
When women take control of their finances, they have more control over their lives. This doesn’t mean women need men any less, but the sense of security that follows is something few women can live without.
Top 5 Reasons Women Should Manage their Finances
Understanding why women should manage their finances is the first step towards climbing your personal financial mountain (i.e. achieving financial freedom). Whether you’re married, single, or somewhere in-between, every woman should understand their finances, know where they stand, and have a say in the spending, saving, and investing decisions made in their lives.
It might seem like just another thing to add to your plate when you’re already so busy, but here are the top reasons women must learn to manage their finances today.
- Women live longer than men
- Women are often the ‘outsider’ in financial relationships
- Women need to prioritize
- Women make less than men
- Women are risk averse
1. Women Live Longer Today
On average, women live 4 years longer than men. According to the CDC, 50-year-old women today could expect to live to an average age of 83, whereas a 50-year old male could expect to live to an average age of 79. That’s a minimum of 4 years more that women need to plan financially for themselves (and that’s just the average).
This means there’s a high chance (and therefore, risk) that women will be left on their own to manage their finances at some point. Whether you live a basic life expectancy or outlive it, learning how to manage your finances now is key.
A major problem women face today when it comes to retirement is not saving enough. What happens if you outlive your life expectancy? Generally, you’re looking at possibly saving enough money to live for around 30 years. Given the wage and opportunity differences women face today, it’s often harder for them to save an adequate amount to cover such a long time period.
Knowing how to manage your finances today and to save for the future is the key to a successful (and stress-free) retirement.
2. Women are Often the ‘Outsider’ in Financial Relationships
In a traditional relationship, the man handles the finances. While women might have a say in the budgeting or even have access to the accounts, men typically handle the interactions with financial advisors and make the investing decisions. While there’s nothing wrong with dividing up the duties amongst each other to alleviate stress, there’s a key importance in women understanding the day-to-day operations of the finances.
Not being involved in the major discussions or decisions could be detrimental to a woman’s future. Just look at baby boomers today. At least 87% of boomers were married by the age of 46 and at least 45 percent have had at least one divorce.
To complicate matters, the rise of the ‘grey divorce’ is increasing yearly too. The divorce rate of couples over age 50 has doubled between 1990 and 2010. Just about 25% of divorces in 2010 were couples over age 50.
If women went through their entire marriage without taking a part in the financial planning or saving for their own retirement, they could find themselves climbing uphill without any gear or guides, suddenly on their own without any knowledge of finances or any money saved.
3. Women Must Prioritize
It’s a woman’s nature to take care of everyone before herself, and this includes financially. Moms are more likely to worry about their children’s college education fund before their own retirement fund. Daughters are more likely to put their parents’ needs first before thinking of themselves.
When you manage the finances, you get a better feel for what you need too. You’ll realize how important it is to have money saved for your retirement. Without money saved for you, what good are you to your children and elderly parents?
Women need to focus on prioritizing their own retirement funds, even if they don’t work. If you’re out of the workforce during childrearing years, discuss options to save for your own retirement. You can open an IRA if you file your taxes jointly with your spouse and he/she works. If that’s not an option or you’ve maxed out your contributions, consider saving in after-tax accounts prioritized for retirement.
4. Women Often Make Less than Men
It’s a story that’s gone on for centuries and in our modern-day world, it continues. Women make less money than men, especially if they have children.
History proves the fact. In 1979, women made 62% of the earnings men made. Fast forward to 2020, and women are still behind, making 82% of their male counterparts. The largest growth in income equality was in the 80s, when women’s income compared to men’s jumped 6%, but it has since been a slow and steady climb.
Making less money means women have to work harder to save the same amount of money (or more) for retirement. With a lower life expectancy and lower wages, women have to invest smarter and work harder to achieve their financial goals.
5. Women are Often Risk Averse
Another big reason women should manage their finances is to learn to take risks. The lack of financial education can make anyone wary of investing aggressively, but it’s one of the best ways to reach your financial milestones.
Relying on conservative ‘investments’ like high-yield savings accounts and CDs won’t help you reach your financial goals. Women have to get accustomed to the investments out there and be willing to take chances.
Understanding the financial markets, how to invest, and how to construct a properly allocated portfolio can help you make the right decisions to reach your financial goals in retirement. Women are accustomed to saving – many have much larger emergency funds than necessary for peace of mind.
But while emergency funds are great (and necessary), if they are sitting in a liquid account, like a savings account, there is an opportunity cost. Every dollar that sits earning minimal interest has the opportunity cost of what it could be earning if you invested the funds more aggressively.
How Women can Take Control of their Finances
Now that you know why women should take control of their finances, here are the ways you can make it happen.
Learn the Fundamentals
To manage your finances, you must understand the fundamentals. If you’re married and your spouse always handled the finances, you’ll need a debriefing on what’s been done up to this point and what plan strategy your family is currently pursuing. You’ll also need to understand what phase of your financial journey you’re in.
It helps to be fully onboarded before you meet with a financial professional (if you choose to do so), so you aren’t blindsided about what’s happened thus far. Review the accounts, ask any questions you have, and then make your own list of questions. Obtain your answers and work to understand them over time. You don’t need to master these concepts overnight. Give yourself grace and work slowly to gain knowledge. Through experience, these concepts will make more sense to you – and often, you gain experience with time.
When you feel empowered and engaged, you’ll feel better about making financial decisions that affect you and your entire family. Leaving it all in the hands of your spouse may feel easier right now, but in the long run, if you end up on your own one way or the other, you might feel lost and overwhelmed.
Stepping in now to learn the basics of your financial situation, what financial plan was put in place, and how it affects your future is important. Schedule time with your partner to begin talking about your family finances.
Talk about Finances
Finances often run in the same vein as politics – women just don’t talk about it. But why not? When we normalize the conversation for men and women, it becomes a lot less overwhelming and more normal for women to talk to others about it.
The more you talk to others, the more ideas you’ll get and the more empowered you’ll feel. You never know when your ideas are the ones people are looking for too. It should be a normal conversation within the marriage, but also outside of it too – including with your own financial advisor or friends.
Schedule time to talk about finances regularly. As life so happens – it happens. You’re always going to be busy, and if you don’t find time to talk about it, you won’t. Take the first step to start the conversation. It doesn’t have to be much, but then schedule a regular cadence of finance meetings – perhaps monthly at first, then scaled to quarterly as you learn more and become comfortable with your situation.
Focus on Retirement
Retirement should be everyone’s focus even as early as your 20s. It might feel like ‘ages away,’ but it’s a lot closer than you think. The earlier that you save, the more money you’ll have in retirement because your money will have much more time to grow and compound.
If you work, invest in your employer’s 401K for the tax-advantaged savings along with the employer’s match that most employers offer. If you don’t work, together with your spouse figure out the best ways to save for your retirement, not just his.
Just because you aren’t employed doesn’t mean you won’t need money in retirement. What happens if you divorce or your spouse dies prematurely? You need a plan in place so that your funds are independent of your spouse’s. You need to know that you can manage financially with or without your spouse, and focusing on retirement years now is a great way to make this happen.
Learn to Invest, not just Save
Saving is great, and is what most women are focused on when they think about their finances – but it’s not enough.
Investing is where it’s at. You must invest some of your portfolio somewhat aggressively to ensure that you reach your financial independence goals. While it’s true the stock market can be risky, there are thousands of ways to diversify your portfolio and reach your goals. And it can be a lot easier than you think – investing in low-cost index funds are a safe and proven way to get in the market while setting you up for future financial success.
If you aren’t sure where to start, you could always partner with a financial advisor. You’ll learn how to build a portfolio that’s balanced and allocated to help you reach financial independence. When you diversify your funds to invest not only in stocks, but bonds, real estate, ETFs, and commodities, you offset the risk of a total loss and increase your chances of better returns. Having someone to turn to for advice may be a great way to get you started. You can slowly scale to handling your investments over time.
Create a Financial Plan
The best way to achieve your financial goals is to have a financial plan. Just going along with the plan your spouse put together isn’t enough. You need to know how the plan affects you, should your spouse no longer be around.
When you are fully informed of the plans, how they work, and what could happen should the worst occur, you’ll be in a much better space. If you were to divorce or your spouse dies, you’d know where you stand financially and what you must do to keep up with your goals to achieve financial independence.
You can create a plan with your spouse, but make sure your ideas, needs, and worries are taken into consideration too. Have separate accounts so that you have money when you need it, especially if you should outlive your spouse.
Women must learn how to manage their finances today. Whether you’re single or married, it’s important to know where you stand, what decisions are being made for you, and how they will affect your future financial goals.
Understanding finances and how they work early on helps you feel more empowered and, more importantly, ensures that you have the money saved that you need for retirement or other personal goals. Saving and investing as early as possible is the best way to make your earnings work for you. Whether you make more or less than your male counterparts doesn’t matter, it’s all in how you manage your finances and learn to reach your financial goals.
Want to take your finances to the next level? Start by scaling your income and learning if you’re ready for a raise. Spoiler alert: you are. Check out these tips if you need to learn how to begin the conversation. From there, keep finding ways to increase your income, while still focusing on your savings rate. If you want a new budget, check out these percentage-based budgets to help you save, invest, and have a little fun money as well.
Keep it up, and you’ll be at the top of your financial mountain sooner than you think.
Climb on, FinBase.