Financial planning is critical for all people. Financial planning can be vital for everyone regardless of age, income, or gender. However, it can be more crucial for some groups than others. If you look at the gender gap, you will notice that for every dollar earned by men, women earn only 82 cents. While there may be exceptions to this, and not all women earn less than men, most women have to work longer and put in more effort than men to make the same amount of money as them by the end of their careers. Women may also have to take sabbaticals due to childbirth and postpartum issues, which can come in the way of their careers and ultimately impact their financial standing.
This is why financial planning for women is important. Financial planning can help women bridge the income gap that exists in the workplace. It can empower women to be better planners and control their money on their own. Above all, it can give them a sense of financial freedom to carry on with their lives as they see fit. Women also may not always have customized professional guides to refer to that cater to their unique challenges, needs, investing styles, and future goals. If you need help with financial planning that specifically focuses on the financial needs of women, reach out to a professional financial advisor who can guide you on the same.
To simplify this, here is a financial planner for women for all life stages that can help you be financially independent:
1. Early years of working:
The first of the many personal finance life stages is when you start working. This can be a time when you may have student debt to deal with, a starting salary that could likely be the lowest you would ever earn, and a lack of enough information to plan ahead. This is also a very critical time. People who start saving and investing in their 20s and 30s can be far more at ease financially than those who waste these years and start saving later in life.
The primary focus in these years for you can be to get rid of your student debt as soon as you can. Student loans are high-interest debt that can drill a hole in your pocket and come in the way of your savings. So, the sooner you settle it, the quicker you can move on to the next step. Try to divide your salary into debt repayments, expenses, and savings. While it may be hard to prioritize savings at this point, saving your money and creating an emergency fund are crucial. Young people and career starters are the most dispensable in a company. So, companies are the first to let them go if an economic crisis like a recession occurs. With minimal experience, it can be hard to find a new job. Therefore, keeping an emergency fund that can support you for a few months is essential. Additionally, the emergency fund can also be helpful in the case of a health emergency or any other unexpected financial need that may crop up unannounced. Another benefit of having an emergency fund is that you do not need to depend on more debt in the form of credit cards and loans to cover emergencies.
Insurance is also a critical part of a financial plan at this stage. Insurance premiums are the lowest when you are young. Health insurance, life insurance, renter’s insurance, car insurance, etc., are all vital financial tools that you can buy to keep yourself covered against unfortunate eventualities.
2. Mid-career years
Your late 30s and 40s may be slightly more stable than your 20s and early 30s. By now, you may have found your calling in life. You would likely have a steady salary, some savings, and ideally, no more student debt. This can be a time to focus on saving and investing your money. Financial planning for women at this stage can include maximizing your workplace retirement account, like the 401k. In 2022, you can contribute up to a maximum of $20,500 if you are under the age of 50. If you are aged 50 or older, you can make a catch-up contribution of $6,500 over the primary contribution and contribute up to a maximum of $27,000. Besides, since employers can also contribute to a 401k account, the maximum joint contribution by the employer and employee under the age of 50 can be up to $61,000. In the case of an employee aged 50 or more, the maximum joint contribution by the employer and employee can be $67,500. This can be a good time in your career to maximize these contributions and reap the fruits later. You can also max out an Individual Retirement Account (IRA) if you do not have a workplace retirement account. Although the contributions for an IRA are relatively low at $6,000 for those under 50 and $7,000 for those aged 50 or older, an IRA can still be a convenient tool for long-term savings. In addition to this, you can also invest in other tax-advantaged accounts like the Health Savings Account (HSA) to secure your retirement against medical expenses.
If you have children, you may have additional expenses like their healthcare, basic needs like clothing, etc. The expenses of your children will only likely grow with time. Higher education costs are one of the biggest concerns for parents. If you are a single mother, the responsibility further increases. One of the best ways to save for your child’s future expenses can be with a 529 savings account. A 529 education account is a tax-advantaged account that is uniquely designed for higher education savings. The account can be used to cover K-12 education and apprenticeship programs. States run these plans, and so their rules may differ from one state to another. Therefore, it is best to check your state’s regulations before you start saving for the future.
Make sure to continue maintaining an emergency fund during this phase as well. With the responsibility of children, the relevance of an emergency fund is further magnified in financial planning for women.
3. Early retirement years:
Your early retirement years can be critical in your life. These are the years that can largely shape your retirement. They can prepare you for it and help you transition into it slowly. If you plan to retire in your 60s, your 50s can be a time when you evaluate your savings and investments. You can look for any shortcomings and accordingly make amends. If you are falling short of your goals, you can also decide to postpone your retirement by a few years. Additionally, you can concentrate on paying off all your mortgages during this time. Entering retirement with any kind of debt can be challenging for your future financial safety. So, try to get rid of it during these years. Other than this, you can continue to max your contributions to tax-advantaged accounts like the IRA and the 401k. Considering the additional catch-up contributions, you can really use these years to your advantage and create a sizable corpus for yourself. With an extra $1,000 in an IRA alone, you can invest $10,000 in ten years from ages 50 to 60. For a 401k, you can invest an additional $65,000 in ten years. This can significantly help you make up for any lapses made in the previous years.
Another essential thing to consider at this stage is to plan a solid withdrawal strategy for your retirement. Saving your money is not enough, and you must also concentrate on how you would spend it. If you have a traditional 401k or IRA, you would be paying tax on your withdrawals in retirement. You would also have mandatory Required Minimum Distributions (RMDs) from the age of 72. So, having a withdrawal strategy in mind is essential. You can also hire a financial advisor for this if you are unsure how to proceed. Moreover, if you think you would have a high tax outcome in retirement and would rather pay your tax now, you can consider a Roth conversion. By converting your traditional accounts to Roth accounts, you can get rid of your taxes in the present and enjoy tax-free withdrawals in retirement after the age of 59.5 years. However, you must know that conversions are taxed as ordinary income, and you would not be able to withdraw funds without incurring a 10% penalty for at least five years after the conversion. So, make this call after due deliberation.
4. Retirement:
Life in retirement can be peaceful and stress-free as long as you plan well. Your aim at this stage can be to use your savings optimally and not outlive them. All of your investments would now mature, so use them wisely. Try to curb your expenses wherever possible, as you did before, and focus on the future as much as you do the present. You can consider delaying your Social Security Benefits until the full retirement age to increase your benefits paycheck. It is also essential to have an estate plan in place. Irrespective of whether you have individual or joint assets, you can plan your estate to empower your future generations and ensure that your money and hard-earned assets are appropriately used in your absence. Besides this, you must keep note of long-term care options, assisted living facilities, household help, etc., as you may require them in the future. Being prepared for the worst is critical for all personal finance life stages, especially when you are old.
Common tips that can be included in a financial planner for women:
Women are often not extended the support to excel in life, which can be a roadblock in their financial journeys. Here are some common tips that all women can follow for their well-being:
1. Learn to put yourself first:
A lot of women, especially mothers, may not consider chasing their dreams. However, it is never too late to put yourself and your financial dreams first. Whether you want to start a business or chase after a position in a company, the right kind of planning can help ensure you live a life that can offer you comfort, happiness, and above all, a sense of accomplishment.
2. Use your spare time to upskill yourself:
Pay disparity is one of the women’s most significant issues despite good education and experience. Upskilling can help you break some of these barriers. There are several online courses available as well as offline training options at workplaces as well as colleges. You can keep doing these short courses to learn new skills and stay relevant with changing times.
3. Make wealth outside of your parent’s and spouse’s wealth:
It is essential to take charge of your finances and create your own wealth no matter your age. Women must have money irrespective of their spouse, parents, siblings, or children. Moreover, it is also necessary to use the wealth you earn for your own financial security. A lot of women end up prioritizing their children or family’s needs over their own. While you may contribute to your household expenditure, keeping your own goals in mind is vital. Financial goals for women can be to travel, buy a house, own collectibles, etc. Try to keep your goals distinct from those of your family and aim to achieve them. This can offer you peace of mind and happiness.
4. Work with like-minded people:
There are several organizations today that take workplace diversity and gender equality very seriously. While you may likely find those who may stall your growth, some may like to help you excel in life. Try to connect with people and organizations that are on a progressive path. This will help you get the right opportunities in life.
5. Be disciplined:
Discipline can take you farther in your financial journey than anything else. Try to be consistent with your savings and investments throughout life. No matter how little or how much you earn, fix a percentage of your salary and save and invest that money for your future needs. This will help you build a life for yourself slowly but steadily.
To conclude
Financial planning for women is highly crucial to ensure equality and equal opportunity for all genders. While measures are being taken to improve things on a grander level, small efforts by women to better their individual lives are also important. Women can aim to take charge of their finances and create the desired life for themselves. It can also help to get customized advice from a professional to get a better understanding of your goals and needs.
For additional information on financial planning strategies women can use to grow and manage their finances, visit Dash Investments or email me directly at dash@dashinvestments.com.