Financial planning for women is as important as it is for anyone. But women are unique in the way they earn, save, spend, and invest. The best financial plans recognize those differences and use them as springboards for making progress.
The Importance of Financial Planning for Women
The gender wealth gap is real. According to the Federal Reserve Bank of St. Louis, females responding to the Survey of Consumer Finances assumed to be the head of their household had a median wealth of just 55 cents for every $1 of wealth that male respondents had.
While systemic issues — think: the gender pay gap and discriminatory lending practices — have been largely to blame for women’s comparative lack of wealth, there’s still a lot that’s in your control.
What is a Financial Plan?
Think of a financial plan like a roadmap for your money. It reflects where you stand right now and where you want to go.
Whether you’re single or partnered, the first step is to document your household’s income and spending, debts, plus your short-term, mid-term, and long-term financial goals. Even if you’re not your family’s breadwinner — though an increasing number of American women are — you still need a bird’s eye view of your family’s finances.
It’s OK to feel overwhelmed at the thought of creating a financial plan from the ground up. But think about it as an opportunity to overhaul, or simply fine tune, your systems and habits to get out of debt, buy your dream house, send your kids to college, or do achieve whatever it is you want.
Importantly, a financial plan isn’t set in stone. It’s a foundational step that you can return to and revise annually or whenever you experience a big life or career change.
Tips for Financial Planning Success
Below are some of the most important elements of financial planning for women, or anyone.
Your first line of defense against debt is a cash emergency fund. Exactly how much you need to have stashed away depends on your expenses and household income. The general rule of thumb is to keep anywhere from three to six months worth of basic expenses in an easily accessible savings account. If you’re part of a two-earner household, you may feel comfortable with less.
An emergency fund can be difficult to kick start without a high income or financial windfall. Start by setting a micro-goal, such as having $500 or $1,000 set aside in two months. Once you meet that target, bump the goal up again. Always remember that having some money to fall back on in a time of crisis is better than having nothing, so don’t feel discouraged if you have to start small.
For many people, paying off debt is a long-term challenge. But you can still make progress in other areas of your financial life while paying back student loans, for instance, as long as you’re organized and intentional about repayment.
Your financial plan should list all your current debt balances, including from credit cards, personal loans, student loans, auto loans, and mortgages.
It may feel more achievable to tackle the smallest balance first, but consider prioritizing the debt with the highest interest rate. Knocking out the balance that’s racking up interest charges means you’ll save more money in the long run (this is known as the debt avalanche method).
Calculate It: How Much Can You Save with the Avalanche Method of Debt Payoff?
Your financial plan should include your savings goals. The more specific and time-bound the goals, the easier it will be to chart your path toward achieving them.
Some examples include:
A 20% down payment on a home in five years
Tuition for a one-year MBA program
Tuition for your child’s private school or college education
A family vacation abroad later this year
A new car fund
Retirement is perhaps the largest financial goal for most people, but planning for it properly starts decades earlier. Unfortunately, women in the U.S. are underinvested, meaning they don’t meet their potential when it comes to how much or how often they invest or what they invest in.
The average woman who retires at age 65 can expect to live another 21 years, according to the Department of Labor. That’s almost three years longer than men, and yet, less than half of women who work participated in a retirement plan to save toward their future in 2019.
“Saving” for retirement is somewhat of a misnomer, because the best way to prepare for those decades of not working is by investing now. Make use of your workplace retirement plan, such as a 401k, especially if your employer offers to match your contributions. If you don’t have access to a plan at work, or you do and want to invest more than the annual limits allow, utilize a traditional or Roth IRA.
When it comes to choosing investments, simple is usually best. That means a diversified portfolio of mostly stocks and bonds and little, if any, active trading. If the stock market makes your head spin, consult a financial advisor to help you put together a portfolio that aligns with your timeline and risk tolerance.
Read More: How to Save for Retirement
One of the major benefits of financial planning is tax optimization. Everyone who earns an income is on the hook for taxes, but a good financial plan helps you utilize the tax code to make the most of every dollar you earn and save.
When your goals are clearly outlined in a financial plan, an advisor or tax professional can help you choose the best accounts and strategies for saving on taxes.
Get the Guide: 5 Tax Hacks for Investors
Insurance and Estate Planning
Long-term care insurance is something every woman who is at least 40 should consider including in their financial plan (it’s cheaper the younger and healthier you are). Since women, on average, live longer than men, they’re often left to rely on family to care for them, unless they have the means to pay for in-home nursing care or assisted living. Planning ahead with long-term care insurance can ease the financial burden.
Tangential to your financial plan is your estate plan. Be sure each of your financial accounts names a beneficiary and that you create a will that shares your final wishes with your family.
The Bottom Line
These are just a few considerations for piecing together a financial plan. You can take a few actions now to get yourself on the right track.
Download 65 Ways to Retire Smart, an actionable guide for your long-term goals with insights from fiduciary financial advisors. The guide is free.
Sign up for the Personal Capital Dashboard. Millions of people use these free and secure professional-grade online financial tools to see all of their accounts in one place, analyze their investments and plan for long-term goals.
Consider talking to a fiduciary financial advisor for more detailed guidance on your financial plan.
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Author is not a client of Personal Capital Advisors Corporation and is compensated as a freelance writer.
The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. Compensation not to exceed $500. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.