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How to Plan Your Finances as a Woman
Approximate Reading Time: 10 Minutes
Summary: In this article, you will learn how to plan your finances as a woman, the gender wage gap and how it affects women and money, money tips for women, and investing for women. We’ll also share where to find helpful resources about money, saving, finances, planning for the future and investing strategies.
Women are economically disadvantaged
compared to men across all ethnic groups in the United States, especially as it relates to the pay gap.
Women will also, on average, spend more time in retirement, which means they must save more than their male colleagues to attain the same quality of life.
Securing access to a financial planner, maintaining a financial plan, and being aware of common financial mistakes can help our chances of succeeding.
Women save 9.0 percent of their salary annually, yielding an average of 6.4 percent annual rate of return, according to a recent study by Fidelity. While men save 8.6 percent of their salary annually, with an average of 6 percent annual rate of return.
A demographic breakdown of the average U.S. savings account balance showed that households headed by men save an average of $35,000 per year. Households headed by women save an average of $17,000 per year.
Women and Money – The Gender Wage Gap
It’s no secret that women make less than men. As of 2019, women make 80 cents for every dollar that men make, according to a study by the National Partnership for Women and Families. This amounts to an annual gender wage gap of over $10,000. The median annual salary for women with a full-time, year-round job in the U.S. is $41,977. In contrast, men are making a median salary of $52,146.
What the Wage Gap Means for Women
This wage gap is impacted by gender, racial discrimination, workplace harassment, job segregation and a lack of support for family caregiving, still most often performed by women.
According to the same study by the National Partnership for Women and Families, on average, women employed full time, lose a combined total of over $900 billion every year due to the wage gap. This massive loss in wages for women mean they have less money to support themselves, their families, and save and invest for the future. Because of this, not only do women and their families suffer, businesses and the economy do as well.
What if the Gender Wage Gap Were Eliminated?
If the annual gender wage gap were eliminated, on average a working woman would have enough money for:
- At least 13 additional months of child care
- One additional year of tuition and fees
- Seven additional months of premiums for health insurance
- More than a years worth of food
- Almost seven more months of mortgage and utilities
- More than 10 additional months of rent
- Enough money to pay off student loan debt in just under three years
How the Wage Gap Impacts Financial Planning
Now that we see how the gender wage gap affects women and their families, how does that impact financial planning for women? Planning for retirement can be a daunting task for anyone, but the wage gap makes it especially difficult for women.
The good news is that women tend to be better investors. Fidelity reported that after reviewing over 8 million investments, women yielded higher returns on average and were better savers overall.
The theory behind why women are better investors and savers is because women in general are responsible for household operations, which requires a long-term view when planning for the future. This is especially reflected by how often men trade their investments, 55 percent more frequently than women.
How to Plan Your Finances as a Woman
Because women make less than men, it’s absolutely crucial for women to intelligently invest and financially plan for the future. Learning how to plan your finances as a woman comes with its own set of unique challenges, but with tons of resources out there.
Get Financial Advice
Women tend to lack confidence when it comes to money and investing. Because of this, they tend to seek help more often than men. If you are trying to figure out the best way to plan your finances, get financial advice from an expert. They will be able to look at your unique financial situation and provide helpful insights and recommendations to reach your goals.
Maintain Your Own Financial Plan
Creating a financial plan is just part one of your journey. You need to maintain your own financial plan. Consistently check in on your finances including, spending, savings and investments. Keeping your finger on the pulse of your financial plan will promote discipline to reach your goals.
Avoid Costly Mistakes
Everyone is going to make mistakes. After all, we are all human. One example of a costly mistake is withdrawing money from your retirement accounts early. While it may seem nice to have access to a good amount of money when you need it, the fees and taxes associated with taking your money out early are extremely costly.
Money Tips for Women
- Don’t rely on someone else
- Set goals
- Don’t emotionally spend
- Spend less than you earn
- Get an education
- Build an emergency fund
- Be involved in the day-to-day management of your family’s finances
- Don’t take on your partner or spouse’s debt
- Don’t be afraid of losing money by investing
- Learn from your money mistakes and keep at it
Investing for Women
For a number of reasons, investing is still very much dominated by men. Financial knowledge tends to be lower among women as well.
Sallie Krawcheck, CEO and co-founder of Ellevest, an investing firm that targets women says, “I think, as females, we get such negative messages around money, or how it is not an area we’re supposed to have expertise in.”
Unfortunately, there are so many disadvantages women face that it is arguably more important for us to have investing knowledge and skills. Not only do women live nearly 5 years longer than men, women make less money over their lifetimes. It’s also more likely for women to leave the workforce to take care of children. Additionally, women’s salaries peak during their 40s, in contrast with men’s salaries peaking in their 50s.
Due to all of these disadvantages, women overall have less saved for retirement. According to a survey done by Student Loan Hero, women had only about half as much money saved as men, on average. Plus, only 52 percent of women reported to have a retirement account, while 71 percent of men had one.
Why Women Need to Think Differently About Investing Than Men
With women having longer lifespans than men, on average, women must take more risk with their investments. You can find thousands of traditional investing models that suggest putting 70 to 80 percent of long-term savings into stocks, 30 percent in bonds, and gradually over time changing your portfolio mix to more bonds and less stocks.
But there’s a catch, these traditional investing models work well for the average man’s lifespan and salary trajectory. Women do not generally benefit from these models built around the average male. Krawcheck explains, that women should think about keeping a larger portion of investments in the stock market for longer.
There is no established formula for women to create just the right mix of investments or the right amount of risk. Determining how much risk to take on investments depends entirely on your income, amount of money in savings, age and goals.
Understanding Risk in Investing
In order to help you figure out the right investment portfolio mix, the first step is to understand risk. Generally, higher risk investments means potentially higher returns, but with a greater chance of losing your money. In contrast, lower risk investments mean lower returns, but with less risk of losing your money.
Bonds are considered to be less risky than stocks. With stocks, you are buying into a share of a company, so your investment depends on the success or failure of that company. Bonds are less risky because companies or the government borrow your money and agree to pay you back plus interest.
Diversify By Investing in Funds
Rather than buying single stocks or bonds, it’s important for women to spread their risk when investing. Buying into a fund, or several funds, allows investors to spread their risk across hundreds of stocks or bonds. Your invested money won’t be totally dependent on one company’s success. This is called diversifying your investment portfolio.
As mentioned above, a great way to diversify your portfolio is to invest in real estate. Because real estate is a physical asset, it fluctuates with the housing market, rather than just the stock market. So if either market takes a dip, you’ll have your investments spread or diversified and lower the risk of losing everything in one or two investments.
Invest Based on Your Goals
When weighing risk, you need to consider your goals. Are you saving money for a short-term goal, like buying a new car or building an emergency fund? Or is your goal long-term, like saving for retirement 30 years down the road? How much risk you should take on depends on what your goals are. You can afford to take more risk with long-term goals, like retirement, and less risk with short-term goals.
A good option for shorter-term investments are called CDs or certificate of deposit. CD’s offer higher interest rates compared to savings accounts and come with low-risk.
All people, but women especially, should save as much money as possible, as early as possible. How to plan your finances as a woman and learning how to invest like a woman is even more important because of the gender wage gap. Increase your earning potential through smart investing and set yourself up for retirement and financial freedom.
At Real Wealth Network, we offer hundreds of learning resources about finance, ways to save money, ways to make more money, investing tips for every type of investor, and how to build real wealth through investing in real estates.
You can also listen to our podcast, The RealWealth Show, hosted by our Co-Founder and Co-CEO, Kathy Fettke. Including guest experts from around the world sharing their financial and investing experience and advice.
All of these resources are free! And as Beyoncé sang in Run the World, “We’re smart enough to make these millions/ smart enough to bear these children/ then get back to business/ …Who run the world? Girls.”
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