Financial independence is different and more important for women because we have different financial responsibilities and circumstances. Women typically earn a lower income than men do. Women outlive men, are more likely to become disabled and we are more likely to be solely responsible for dependents. So, we have to make our lower, less stable incomes work harder to achieve financial independence.
Financial Independence for Single Women
There is particular uncertainty for single women, divorced women, and widowed women, who are building a plan on their own. Personally, I found it very hard to plan as a single woman. Single at 35, my life really didn’t look like what I had expected. I had spent most of my time focusing on tactics (paying off my student loans, for instance) rather than planning for the future. I couldn’t even see the future. You’re not alone.
Now that I’m married with kids, it is still so easy to get caught up in day-to-day finances and kick the plan down the road. And I’m a financial planner!
Every woman can become financially independent, regardless of her starting point or situation, and she needs a plan to get there. In this blog post, we will discuss some tips on achieving financial independence.
What is financial independence?
A lot of people associate financial independence with being wealthy or a million passive income streams, but I think of it as independent from finances.
Having enough money stops being the limiting factor. The limiter becomes time.
A financially free woman can spend money to buy time. I can pay someone to clean my house, or run my errands or do my laundry, so I can focus on the things I want to do. Time to spend with my kids, enjoy my hobbies, work on my house, or just take a nap.
You’re not financially independent at a certain savings number – a lot of millionaires are overwhelmed by financial burden and low on financial literacy. Nor is financial freedom about quitting your job, necessarily. It might be about choosing a job for reasons other than the salary.
Why is it important for a woman to be financially independent?
There are so many reasons, but the simple answer is that it gives many women more options in life. Getting a grip on personal finance also helps empower women to make choices based on what she wants to do, not what she has to.
Financially independent women can raise children in the way she envisions, spend her career time, care for herself and live her best life.
What Is Financial Planning for women?
Financial planning is the process of organizing and managing your own finances with the goal of becoming financially independent. Makes sense that is essential for anyone who wants to achieve financial independence, regardless of their income or net worth.
Financial Challenges women face
There are many financial challenges women face when it comes to achieving financial independence. One of the biggest challenges is the gender wage gap, (women earn less than men do for doing the same job). We also have social factors that reduce our lifetime incomes and savings: time out of the labor force for raising children or caring for a family member.
Women also tend to have more expenses, such as child care, health care expenses and care for elderly relatives, which can reduce their overall income.
Additionally, women are more likely to become disabled and live longer than men, which means their income and retirement savings needs to cover more years of voluntary retirement or less work.
The Good News: Women Meet Our Goals When We Take Control
The best secret in personal finance is that generally speaking, women are better investors than their male counterparts, a statistic upheld by many studies. And it can be a lot.
We also tend to use debt for things like investing in ourselves (Women hold nearly two-thirds of all student loan debt) or dealing with crises (medical debt). Women tend to carry less credit card debt and personal loan balances, have smaller car loans, home mortgages, and HELOCs.
Now, some of this is because women tend to have lower income, so it’s harder to qualify for loans, like a mortgage. But it also indicates we’re a little more prudent (~20% lower personal loan balances).
How to Build Your Financial future – planning for women
Your path from struggling to pre-rich to comfortable to wealthy WILL look totally different from that of the woman standing next to you. But, there are some steps women tend to follow.
Manage your money and keep your lights on
When it comes to financial planning, one of the most important steps is to manage your money and ensuring you have enough to cover your living expenses. The best way to do this is to find the right budget method for you.
Build a safety net – emergency fund savings account, disability and life insurance policy
No one knows when an unexpected expense will come up, which is why it’s important to have an emergency fund saved up. An emergency fund is money that you set aside specifically for unexpected expenses, such as losing your job, or leaving a dangerous living or work situation. Check out our definition of emergency fund and why this crucial first step is different for women.
Disability and a life insurance are important financial priorities for women because they provide peace of mind in the event of an unexpected tragedy. Disability insurance can help protect your income if you become disabled and are unable to work, which is especially important for women, who have a longer life expectancy. In contrast, life insurance can help ensure that your loved ones are taken care of financially after you die, or that you help build generational wealth for women in the next generation of your community or family.
Balance debt payments and retirement planning
Women generally know how to use debt the right way, but we are also more heavily burdened with debt than men. On average, women have $30,000 more in student loan debt than men and they also tend to have more credit card debt, although that debt is used more often for necessary items than frivolous purchases.
Don’t put off planning for retirement while you pay off your student loans.
The most powerful wealth builder is time. Start small if you have to, but start. The sooner you get your retirement planning in gear, the more money you’ll have when it’s time to retire. Employer matches and other employer contributions can help accelerate your savings growth.
Put the debt and savings on autopilot, starting at a small percentage every month, and increase it gradually until you’re coming out ahead.
Make more money! But how?
I bet you never heard that women make less money than men, or that women of color make a LOT less money than white men and women.
This is not news, but there are two ways to tackle it: diversify your income or build your career aggressively for promotion. Which to chose can depend a lot on your industry, responsibilities, skills, talents and preferences.
Build the right investment strategy and investment portfolio for you
When it comes to investing, one of the best ways to get started is to open a retirement account, because they have major tax advantages. There are a few different types of retirement accounts, but the most common are 401(k)s and IRAs.
Both of these accounts allow you to save money pre-tax, which means you’ll pay less in taxes when you withdraw the money at retirement age.
401(k)s are offered by employers and may also have matching contributions, which means your employer will contribute their own money, in addition to what you save. An IRA or Roth IRA, on the other hand, is an individual account that you open on your own. Each has different tax advantages.
Expand from a savings account to an investment account
Most women keep too much cash in their investment accounts. Cash in a retirement account is not investing. It’s saving. And a savings account will not fund your retirement. It will actually lose money to inflation.
The happiest day for any woman should be the day she puts on her big girl pants and starts her first investment strategy in a brokerage account.
You know you have arrived when you open your own brokerage account. Fidelity, Vanguard, Robinhood, Cash App, WHATEVER. I don’t care where you open it. Just open a free account, build the muscle of putting in $1, $5, $10 EVERY WEEK and investing it in something that appeals to you. I like no-fee index funds, with some fun side bets, but you can invest in whatever gets you excited to keep contributing. Consistency will win every time.
If you want to learn about investing, take one of Amanda Holden’s investing courses (she often does scholarships for women of color) and follow her on IG for saucy investment education and to sign up for the $19 workshop she does occasionally – it’s amazing!
Envision your financial future
I love Tiffany “The Budgetnista” Aliche more than my cat, and one of the funniest things she has given the world is the concept of Wanda, “I like to refer to my senior self as Wanda. I imagine her to be sassy, hilarious, feisty… and financially whole. “
Her point is that how she is managing money now doesn’t just impact who she is now, but also who she is going to be in 30 years. There’s an identity element to it. What are you say to yourself? What are you saying to your senior self. Tiffany recommends giving your senior self a name now, to think about what your current money habits are saying to her, and to plan for her life.
Mine is named Trudy. She’s really into Tommy Bahama print shirts, has a dirty sense of humor and is a bridge shark.
Why is retirement different for women?
Now that you have Wanda and Trudy and their tropical print shenanigans in mind, how do you go about planning for retirement?
First, it’s important to note that Wanda and Trudy are not Mike and Ike. Retirement planning is different for women.
Disability and Health Care Expenses
One of the main reasons retirement planning is different for women is that women are more likely to experience a disability during their retirement years. In fact, women are two times more likely to experience a disability than men.
This means that it’s important for women to save more money for retirement, as they will likely need to cover additional healthcare expenses. Additionally, women tend to live longer than men, which means they will need their retirement savings to last them a longer period of time.
Most women don’t have Pensions
Another factor to consider is that women are less likely to have access to pensions than men. In fact, only about 20% of women have access to a pension, compared to about 50% of men.
Women receive 29% less Social Security on average
This leaves women more reliant on Social Security as a source of retirement income. However, Social Security is based on your earnings during your career, and women tend to make less, so their social security checks are lower. According to the Social Security Administration, the 2019 average annual Social Security income for women 65+ years was $13,505, but for men it was $17,374. 29% less.
Important: You Need Your Own Retirement Accounts
When you contribute to a 401k or IRA, you get special protection in the event of divorce. These retirement accounts are owned by the individual, meaning you own the money that is in the account. It is solely in your name, never owned jointly with a spouse.
Qualified Domestic Relations Orders (QRDOs) Protect Women
In order to get at your retirement plan in a divorce, you ex would need to hire a lawyer, negotiate a settlement with you and the court, and get a Qualified Domestic Relations Order (QRDO), and then enforce it with your plan administrator.
On the flip side, if you don’t have your own retirement plan because it was all invested in your soon-to-be-ex’s 401k…. you have to go through all those steps to get your fair share.
Having money of your own is easier to protect and it protects you. (And even stay-at-home moms can have their own retirement plan through a Spousal IRA, which is a sweet tax deal).
Start Building Retirement Savings Now
The two major blockers I hear from women about retirement planning are 1) student loan debt and 2) they feel they are starting late. Yes, it would have been great if you knew at 25 that Wanda and Trudy were going to invite your senior self on a singles cruise, and you wouldn’t be able to afford the Mai Tai’s. But you can only be in charge of the future.
You can start today. It’s ok. Do it regularly. Now is a great time to get started turning retirement savings into Boat drinks.
How to Start Growing your retirement savings
Personal finance is not rocket science, so getting started with your retirement savings is easy, even if you’re late to the party. Here’s how:
Open a 401k or IRA Account and Hit the Match
Only 64% of women – who work – have access to a 401k or similar account. If you do, your first priority should be to open an account max out your contributions up to your company match, if there is one. That’s free money!
The same 401k strategy applies to a 403b or contribution pension plan
If you are one of the many women who doesn’t have access to a 401k or other retirement plan through work, you can open an IRA account. You may also be able to contribute to a spousal IRA, even if you are not working.
You can open an IRA with Fidelity, Vanguard or any other major brokerage. I like Fidelity because they have low investment minimums and free funds. Most of the interfaces are pretty ugly. Persevere!
Determine how much money you want to invest each month
Now that you have an account, you can increase your contributions as you are able. Try to then increase your contributions by a percentage every six months, until you are maxing out.
The cap for 401k are higher than for IRAs.
Select the investments you want your money to go into
There are a lot of views on how to invest, but I think the most important thing is that you invest in something you are excited about. And that you diversify a little bit.
One note: a lot of retirement accounts have Target Date funds, and they can be great. But in 2021 a lot of them got clobbered with major distributions and high fees, because they shift the investments a little every year based on what the market is doing. Only use these funds in tax advantaged account, and keep an eye on the fee structure.
Set it and Forget it
I believe pretty strongly in the “Obama suit” model of financial decision making. As the former President told Vanity Fair:
“I wear only gray or blue suits,” [Obama] said. “I’m trying to pare down decisions. I don’t want to make decisions about what I’m eating or wearing. Because I have too many other decisions to make.”
Avoiding the fatigue of making financial decisions all the time is how you stay in the game for the long term.
I think one of the strongest moves a woman can make is to get her retirement and investment contributions maxed out and automated, and then maybe check in a couple times a year to make sure the hose is still flowing.
Once women gain a basic knowledge of the stock market, how much risk we’re comfortable with, how much debt, and our financial goals, we tend not to monkey around with our portfolios. This leads to better performance, because we’re not chasing trends or trading, which costs.
Ultimately, there are a lot of ways to invest, but saving money is hard. I take the easy route with my investments (no-fee index funds), so I can focus my attention elsewhere.
How can a woman invest in herself?
Honestly, your earning power, self-awareness, resiliency and financial literacy are your superpowers. Here are a couple tips for investing in yourself.
Save for health care costs and health insurance
Build a sinking fund with your maximum out of pocket expenses for the year, and choose the right health insurance. Women have higher healthcare costs and one of the best ways that you can ensure you get the care you need is to avoid a “can I afford this?” tradeoff.
A medical sinking fund can help keep you out of debt if you or one of your kids spends the first week of the year in the burn unit (True story. Maxed out the second he entered the emergency room). You might also consider an FSA.
Build A “Loved One Fund”
Women from more collectivist cultures, or who have achieved success relative to their roots, are often called upon to help. My favorite piece of advice around this comes from WealthParaTodos, who advises building a “Loved One Fund.” A dedicated amount of money allows you to help while also helping create a clear boundary. “This is what I have set aside and I can’t do more than that.”
Build your financial education and financial literacy
Becoming financially literate is not only one of the best things you can do for yourself, it’s one of the best things you can do for the women around you. There are so many books on financial planning for women. My fave if you’re getting started is Get Good With Money by Tiffany “The Budgetnista” Aliche, of whom I am a massive fangirl.
Build your Budgeting Muscle and Work Toward Financial Goals
Serena did not become Serena overnight. Does anyone else remember the Venus years when Serena was the little sister who was kind of an afterthought? Not so much any more.
We all need to practice to get good at something, and money is no different. There are a million different ways to manage budgeting. One of the most important financial decisions you can make is the decision to stick with one of them till you meet your goals.
One of the things I found funny about studying for the CFP: they don’t use the word “budget.” I’m sure it’s a turn off for the guys, so they use “cash flow” instead. Women control the vast majority of household spending in the US, so the amount of cultural knowledge we have as a group is Huge. Financial planning for women starts with budgeting, just like financial planning for men starts with “cash flow”.
negotiate salary aggressively to avoid the trap of unequal pay
There are costs to pay negotiation for women – its a very fine line but also one (BIG) thing keeping the wage gap wide. Know your worth, ask for more politely and respectfully, and keep pushing.
Build a side hustle for income diversity
One of the smartest things a woman can do for her financial independence is to build a side hustle. A side hustle is a secondary business that you can run in addition to your primary job. It’s a great way to make extra money, build new skills, and even explore different business ideas. And best of all, it’s something you can do on your own terms.
Income diversity helps protect you from hits in the other parts of your income, and is a CORE part of financial planning for women. Every woman should be thinking about it.
Build skills that will accelerate your career
A side hustle isn’t a good idea for everyone – if you’re working 70-80 hours a week at your main job in a complex industry, its going to be hard to find the energy. But it also might be a better financial planning strategy to accelerate your growth within your current role (if you like it).
Some skills that can help you do that: learning to code, taking on extra assignments, or even just becoming really good at using excel.
Find a financial role model
A great way to get started on your financial independence journey is to find a financial role model. A financial role model is someone whose story inspires you and whose advice you trust. She can be a friend, family member, or even someone you read about online. Financial planning for women has made so many leaps in the last ten years – you can find someone who inspires you.
Just remember there is probably some privilege baked into their story.
Expose yourself to financial matters in your family
If there isn’t anyone in your immediate family you can look up to, try to get more exposure to financial matters in your family. This could mean taking on the role of family CFO, attending a financial planning workshop, or even just reading a personal finance book together.
The goal is to start a conversation and get everyone thinking about money in a more holistic way.
Do I need a financial advisor?
Maybe. Here’s my thoughts on this as Chartered Financial Consultant who has taken a LOT of courses and passed the CFP exam.
A financial professional is a good idea if you have a lot of money (Investments north of $500,000) and lack either the time or the inclination to manage it.
If that’s not you, your better bet is to manage your own investments (totally doable), and invest your time and money in finding a good accountant.
Why? While I believe all women can do their own taxes… taxes are going to be your biggest investment expense, so a tax strategy for your investing is even more important than your investment portfolio performance. Also, accountants are more accessible and less expensive, so it’s easy to find a qualified professional you can afford. This is particularly true for single moms, who can take advantage of many tax credits. Learn more about tax filing statuses for women.
Do I need a financial coach?
You might! I think financial coaches can be great for bringing support, accountability and nichey insight into financial planning for women. Many of us like having a wingwoman to help take control and meet our financial goals.
As with financial advisors, the quality of coaching you get will vary widely. Make sure it’s not this persons first rodeo, and that you respect how they got to their knowledge. The school of hard knocks is more valuable than a CFEI, for instance. (I have one and its total bullshit).
Remember that with any coach or advisor, there are biases baked into their advice. A boomer who started his career in the 70s as a stock broker is going to have a totally different perspective than a Millennial black woman. They are both legitimate perspectives, but take it all with a grain of salt.
Can I get free financial advice?
Come on over to our forums! While we can’t give you advice because we don’t know your whole financial situation, we can help with insight and information to inform YOU to make the best financial decisions and meet your financial goals.