The Women’s Guide to Financial Independence
Financial independence is the ability to maintain economic self-sufficiency without external support. This goal is of paramount importance to individuals from various backgrounds, with a special focus on women who have historically experienced marginalization in the labor market.
Examining the Financial Standing of Women Up Close
Despite significant progress, the ongoing pursuit of financial equality between women and men remains a vital endeavor.
Women exhibit a remarkable 84% higher proficiency in essential leadership skills than men. Nonetheless, the underrepresentation of women in the role of CEOs within the S&P 500 index remains at a meager 5.8%.
An impressive 85% of women are in charge of managing their families’ day-to-day financial matters.
In the realm of investments, women achieve a portfolio outperformance of 0.4% compared to men.
In C-Suite roles, women of color constitute a mere 3% of the total, while white men account for a substantial 66%.
Following the emergence of COVID-19, over 2.3 million women have exited the labor force, a number surpassing the 1.8 million men affected.
While research indicates that male clients often exhibit enthusiasm in adopting trending asset classes such as cryptocurrency, female clients typically display a more measured approach. They tend to meticulously assess investment opportunities and demonstrate a preference for longer investment retention periods.
Challenges Women Face in the Financial World
Attaining financial freedom is a potent expression of personal empowerment. However, several barriers hinder women from fully engaging and participating equitably in the realm of finance.
Citing data from the U.S. Bureau of Labor, women earned approximately 82.3% of the income earned by men annually, and this disparity is even more pronounced for numerous women of color. Challenges such as wage bias, household obligations, and limited access to financial resources are among the significant concerns faced by women.
Despite encouraging strides in the pursuit of gender equality, deeply entrenched societal norms pose formidable barriers. The subsequent compilation highlights pivotal obstacles:
- Low-interest loans – A low-interest second mortgage you’ll repay over the course of a few years
- Deferred-payment loans – A no-interest second mortgage you’ll repay when you sell the home or refinance or pay off your first mortgage
- Forgivable loans – A second mortgage you won’t have to pay back so long as you stay in the home for a certain amount of time (the exact period depends on the program) and stay up-to-date with your mortgage payments
Women are paid less than men
Based on data from the U.S. Bureau of Labor Statistics, an ongoing wage disparity exists between women and men, resulting in lower earnings for women in comparison to their male counterparts. This discrepancy is even more pronounced for women of color.
Children can disrupt a career
Working women who are also mothers commonly encounter a wage decrement of 4% for each child. This percentage escalates to 10% for women of color.
Women have less exposure to financial literacy
Courses leading to finance careers are often pursued less by women. A notable instance is the study of economics, where men outnumber women by nearly a 2:1 ratio.
Women live longer than men
Women typically enjoy a life span that's around 8% longer than men's. Consequently, a significant number of women will assume the responsibility of managing their own finances, especially as they outlive their male counterparts.
Strategies to Maintain Your Financial Independence
1. Unlocking Investment Opportunities
Investing isn’t just about generating income; it’s also a potent tool against inflation, ensuring your savings keep flourishing. Yet, many women underestimate the potential benefits of investments or doubt their investing prowess.
In reality, women are just as proficient as men in the investing arena, often achieving even more success with their portfolios. Surprisingly, a recent survey unveiled that merely 26% of American women participate in the stock market, despite nearly half holding a positive view of its potential.
Investing offers women a level playing field to amass wealth on par with men, presenting equal opportunities for financial growth.
2. Assess Your Expenditure Patterns and Establish a Budget
Budgets Enable Responsible Spending and Savings for Financial Objectives. According to studies, Single Men Had a Slightly Higher Post-Tax Income of Approximately $2,000 More Than Women and Also Exceeded Their Female Counterparts in Expenditures.
Contrary to Common Stereotypes, Men Were Actually Found to Have an Average Annual Post-Tax Spending of $42,000, Compared to Women’s $39,100. While Women Often Excel at Financial Management Beyond Stereotypes, It’s Valuable for Them to Analyze Their Financial Allocations.
Implementing Basic Budgeting Can Further Enhance Women’s Financial Management. A Useful Starting Point Involves Calculating Monthly Earnings and Categorizing Expenses to Differentiate Between Discretionary and Essential Expenditures.
Eliminating Your Debt for Financial Well-Being
Unchecked debt not only strains finances but also contributes to stress, adversely affecting women’s health and hindering their path to financial independence. As of 2020, consumer debt had surged to nearly $15 trillion. Implementing individualized approaches to tackle debt is essential in alleviating the burden of indebtedness.
To begin, women should consider incorporating debt management into their monthly budget. Two effective strategies for this purpose are the debt avalanche and debt snowball methods. The avalanche method advises prioritizing the repayment of debts with the highest interest rates first, while the snowball method recommends focusing on clearing smaller debts initially.
Irrespective of the chosen strategy, it remains crucial to consistently pay more than the minimum amount due.
3. Boost Your Financial Health with Savings, Emergency Funds, and Credit Building
As you craft your monthly budget, it’s crucial to allocate a dedicated portion for savings. The advice from many financial experts is to establish an emergency fund that can cover expenses for 3 to 6 months. This reserve acts as a safety net during challenging times, whether it’s a health crisis, job disruption, or a family emergency.
Additionally, building and improving your credit is a valuable financial strategy. You can begin by consistently paying off your credit card balances each month, which can positively impact your credit score.
4. Prepare for Retirement: Ensure a Secure Financial Future
Statistically, women tend to outlive men by 6 to 8 years, as reported by the World Health Organization. However, they often have smaller retirement savings, putting them at risk of outliving their financial resources. To ensure a comfortable and enjoyable retirement, it’s crucial for women to proactively save for their later years.
Explore the following key aspects of retirement planning:
| Common Approach | Details |
|---|---|
| Contributing to work-sponsored retirement accounts | Common plans are known as 401(k) or HSA. |
| Opening a traditional or Roth IRA | In 2021, the contribution limits for all combined Roth and traditional IRA cannot exceed $6,000 (or $7,000 for those age 50 and older). |
| Maxing out your work-sponsored 401(k) | Human Resources departments can provide more information on signing up. |
| Taking advantage of a Health Savings Account (HSA) | Families with a qualifying High Deductible Health Plan (HDHP) can contribute up to $7,300 to a tax-advantaged Health Savings Account. |
Bottom Line
Embarking on a journey toward financial independence is essential, particularly for women who have faced unique challenges in the workforce. To secure your financial future, it’s time to consider investing for retirement. Despite common misconceptions, women are equally adept at investing as men, with surveys showing great potential. By investing wisely, women can bridge the wealth gap and achieve their retirement dreams. Start by evaluating your spending, creating a budget, paying off debt, and building an emergency fund. Then, explore retirement planning options like 401(k)s, IRAs, and other investment vehicles. With commitment and the right approach, you can build a strong foundation for financial freedom in retirement.
Ready to take the next step?
Maximize your retirement savings – talk to a financial advisor.