Financial planning is important as it helps individuals achieve their goals and dreams. However, women may face unique challenges in terms of financial planning due to factors such as lower earnings, career breaks, and longer life expectancies. As women move through different life stages, their financial needs and priorities may also shift. It is therefore important for women to have a solid financial plan that takes into account their specific financial circumstances and future goals.
In this article, we will explore financial planning for women at different life stages and offer tips and strategies to help them achieve financial security and independence.
Financial planning for women based on their life stage:
1. While starting a new job
The early stage of your career is the best time to begin planning your finances. Focus on creating a budget, paying off any student debts, and setting both short-term and long-term savings goals. Additionally, use this early phase of your career to start investing in a diversified portfolio and upskilling yourself to enhance your earning potential. Planning for financial protection against life's uncertainties is also essential once you begin earning. Consider investing in life, health, and vehicle insurance. Starting early can help you build a financial corpus for the long term.
Also see: 5 Financial Planning Steps Women Can Take to Build Wealth
2. While getting into a relationship
When you enter a marriage or a committed partnership, your financial plan takes on a new dimension as it incorporates your partner's financial needs and goals. While it's important to prioritize your financial interests, it's equally essential to consider your partner's financial aspirations and work together towards attaining common financial goals.
Open and honest communication about money matters is key to building a healthy financial relationship with your partner. From discussing debt repayment, shared investments, and expenses to being transparent about financial planning and decisions, couples can work towards creating a solid financial foundation for their future together.
If you are newly married, updating your financial documents to include your partner is advisable. For instance, you could update the details concerning beneficiaries in insurance policies and bank accounts to reflect your partner's details. You can also reap benefits such as a low tax rate by filing your taxes together after marriage.
3. While starting a family
Expecting a child requires a comprehensive financial plan to ensure that both current and future expenses are covered. This can include revising your monthly budget to include childcare expenses, starting a college fund, or updating your health and life insurance policies to cover your child. With careful planning and expert guidance, both parents can rest assured that their child's financial needs are well taken care of. As a soon-to-be parent or mother, you may also consult a financial advisor and make the necessary changes to your financial plan to accommodate the needs of your child.
4. While going through a divorce, or losing a spouse
The loss of a spouse, whether through divorce or death, can leave most women facing financial uncertainty. In such times, it can feel overwhelming to manage your finances on your own. Thus, it is advisable to assess your financial situation regularly, such as your shared assets, debts, and income, to avoid issues later. Additionally, it is important to know your rights under the law in the case of shared assets. For instance, in the event of a partner's death, it is vital to review and update estate planning documents, such as a will or trust, to ensure that assets are distributed according to your spouse’s wishes. In the case of divorce, it's essential to understand the ensuing financial implications and ensure that all assets are appropriately divided.
5. While saving for retirement
If you are yet to start a retirement fund, now is a good time to begin. You can opt for employer-sponsored saving funds such as a 401(k) plan or an IRA. A 401(k) plan is an employer-sponsored retirement savings scheme that allows employees to contribute a portion of their pre-tax income toward retirement. Employers may also match a portion of their employees' contributions which can help boost your retirement savings. On the other hand, an IRA is a tax-advantaged savings account that comes in two variants: a Traditional IRA and Roth IRA. While traditional IRAs offer tax-deductible contributions and tax-deferred growth, you can make tax-free withdrawals in retirement by investing in a Roth IRA account.
How women can better manage their finances
Below are 4 tips you can consider to better manage your finances:
1. Start planning your finances as soon as possible
Assess your financial situation to understand where you stand with respect to income, spending, debt, and savings. In addition, create a budget and diversify your income sources and investments. Design your budget around your expense windows (daily, weekly, monthly, quarterly, annually), the nature of expenses (personal, family, charity), or a mix of various budgeting styles. This can help you determine whether you need to reduce expenses, increase your income, or diversify your assets.
2. Create financial goals tailored to your specific financial requirements
Having short-term and long-term goals goes a long way in creating a comprehensive financial plan. It always helps to be specific and realistic with your goals. It can be tempting to place others first at certain junctures of your life, but it is always advisable to place yourself as a priority in your financial plan. For instance, investing in your education and skills can help you advance your career and increase your earning potential. This, in turn, can help you grow and provide for your loved ones. Investing in yourself will not only help you financially, but it will also provide you with a sense of personal growth and fulfillment.
3. Plan for unexpected events or financial emergencies
Planning for emergencies is the cornerstone of a sound financial plan. To protect yourself and your finances, it's essential to have an emergency fund. An emergency fund can help you weather financial storms and ensure that you can continue to meet your financial goals even in the face of unexpected events. A healthy emergency fund comprises 6 to 12 months of basic living expenses. You can consistently grow this fund based on your earning levels.
4. Seek advice from a financial professional
When in doubt, you can always seek professional advice from a financial advisor. For instance, you may require advice and guidance while navigating complex financial concepts, paying taxes, developing a comprehensive financial plan, and ensuring that your financial plan fits your requirements. A financial advisor can help you manage your finances and ensure that you are on the right track to secure your financial future. Similarly, you can make use of specific financial models that cater to women's needs. For instance, women entrepreneurs can benefit from organizations such as the Women's Business Centers – affiliated with the U.S. Small Business Administration (SBA). It is aimed at supporting the entrepreneurial endeavors of women in the USA.
Financial planning is critical, especially for women, as they deal with issues such as income disparity, longer life expectancy, and career interruptions that can impact their financial stability. Therefore, it is crucial for women to take charge of their finances and plan accordingly. This can include setting financial goals, budgeting, and investing in a retirement plan. Additionally, it is important for women to educate themselves about personal finance and gain knowledge about various investment options. Regularly reviewing and updating their financial plan can also help women stay on track toward attaining their financial goals and ensuring that their finances are in order.
Use the free advisor match tool to match with experienced financial advisors who can guide you effectively on how to create an effective financial plan specific to women. Answer a few questions based on your financial needs, and the match tool will help connect you with 1-3 financial advisors that may be suited to help you.