It is more important than ever that women begin to take the lead when it comes to long-term financial planning. Statistically speaking, women earn less than men, have a longer life expectancy, and often take more career breaks. Nearly one-third of the gender financial literacy gap is attributed to women’s lower confidence levels versus a knowledge gap.
As such, it is important that women have control over their finances so they are able to plan accordingly for these realities. In order to help women reach their financial goals, it will be necessary to establish a holistic and long-term financial plan to speed up savings and help women make smarter investment decisions. Financial planning empowers women to have control over their finances and facilitates future financial freedom and happiness.
We have pulled together this short guide as a useful resource to help women discover the ways in financial planning can help them be proactive with their finances and set themselves up for long-term success. While this provides a good foundation to start your journey, it will be important to ensure that you have a good mentor and a strong support system as you begin to take control of your finances and invest in yourself.
Creating a financial plan is crucial regardless of your current status (single, married, etc.) While it will be helpful to consult an advisor when putting an official plan in place, you can start by gathering pieces of information about your finances to create a rough plan.
Create a budget
Begin by assembling a list of your monthly expenses. This list should include your personal purchases, bills, mortgage and any debt repayments which will help you calculate your monthly disposable income. Compiling this list will help you determine the areas where you may be spending too much and will help you set a budget. And if you do not have a monthly budget tracker, there is no better time than now to start tracking your spending, which can help you save in the long-term. For sample budgets and budget creators, you can visit https://www.mint.com.
Build an emergency fund
Another crucial step will be building an emergency fund. An emergency fund helps to cover basic needs like food, transportation, and housing and will protect your finances from unexpected life events such as job loss. You will be able to determine the amount that you will need by looking at your budget and calculating how much you spend each month on essentials.
To start, set a realistic goal for your fund. Many aim to save $1,000 over a few months, although it will depend on your financial situation. It is helpful to set some money aside each time you receive a paycheck. Each month, attempt to increase the amount that you contribute to your fund by 1-5%. As the amount in your fund increases, you should focus on reaching about three to six months’ worth of your basic living expenses. The three to six-month benchmark is a good place to start but it is not a fool-proof cushion as many people came to realize during the COVID-19 pandemic, so, you should continue to contribute to this fund if you can.
Save for retirement and take advantage of employer sponsored plans
Finally, it is never too early to prioritize retirement savings early on in your professional life. On average, women face a larger retirement savings gap than men and experience higher rates of poverty later in life. The earlier you start saving for retirement, the better off you will be. The best first step to take when saving for retirement is taking advantage of retirement savings plans offered by your employer if you have not already done so.
One type of employer sponsored plan is a Roth 401(k). You can put a percentage of each paycheck into your account with after-tax dollars (money that has already been taxed). Your earnings then grow tax-free and you pay no taxes at the time of withdrawal. Another offering might be a traditional 401(k), where you cancontribute pre-tax dollars from your salary and allocate it to a variety of investment options of their choice. Contributions and earnings grow tax-deferred until they are withdrawn, usually in retirement. Read our blog post to learn more on the difference between the two and to help determine the best option for you,
If your employer offers a retirement plan with a match, meaning that they will contribute an equal amount to that which is pulled from your paycheck, you should at least contribute enough to get the full match that is being offered. If your employer does not sponsor a retirement plan or if you are self-employed, you should consider an Individual Retirement Account (IRA). An IRA allows you to direct pre-tax income toward investments that can grow tax-deferred. If you want to learn more about the income thresholds and tax deductibles that pertain to an IRA, reach out to your financial advisor.
Here are some more specific things to consider if you are…
- Communicate your life and financial goals with your partner! Set time aside each month to review debt repayment, savings, and investments.
- Update your beneficiary information to include your spouse on your accounts and insurance.
- File your taxes to avoid penalties for filing separately.
- Update your budget to include child expenses.
- Update the amount in your emergency fund to include three to six months worth of your child’s basic expenses.
- Update your health and life insurance to include your child.
- Start saving for college education.
- If you are out of work because you are raising your children, consider a spousal IRA.
Regardless of your status, it is always a great idea to consult your financial advisor when making these decisions! Having a solid foundation now will help you make meaningful and appropriate goals for the way your finances are allocated and your current and future financial security. If you are interested in beginning your individualized financial plan, please reach out to our team!
Investment advice offered through Shepherd Financial Partners, LLC, a registered investment advisor. Registration as an investment advisor does not imply any level of skill or training.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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