From a financial perspective, women have come a long way in recent years. They currently possess about $10 trillion of the country’s wealth. What’s more, it’s estimated that females will control about two-thirds of overall U.S. wealth by 2030. However, on average, women still earn only 84% of what men make. So, strides are still needed to bridge the gender wage gap.
Here are eight practical steps that women can take to empower themselves and get a stronger grip on their financial resources. This guidance may be helpful for women who are entering the workforce for the first time or are newly divorced — as well as for those who just want to manage their money more effectively.
- Take Charge
Women need to be intimately involved with their finances, whether they live alone or share wealth with someone else, such as a husband or partner. Women shouldn’t solely rely on their other half to handle the finances.
The best way to become more involved is to check your accounts regularly. Apps and other technology-based tools can help by providing instant access to accounts or alerts about the latest developments.
- Establish Personal Credit
The road to financial independence begins with a good credit rating. If you’re new to the workplace or have been riding on a spouse’s coattails, you may be virtually invisible to the financial world. If you plan to borrow money — say, to buy a car or house — you must get in the game as soon as possible. Here are some tips to help establish your credit:
Become an authorized user on another person’s account. You can piggyback on a parent’s or spouse’s credit rating. Just be sure you’re not linking up with a poor credit risk.
Open your own accounts. Opening a bank account and putting responsibility for utilities in your name will start your credit history. A secured credit card, where you must pay a security fee, is another way to establish credit.
Pay bills on time. Making prompt payments will help qualify you for credit cards, leases and loans.
In addition, it may be beneficial to develop a relationship with a creditor. If you’re unsure where to start, your tax and legal advisors can introduce you to a reliable banker in your local community.
- Manage Debt
If you fall into the trap of charging expenses or taking out loans you can’t afford, you may accumulate excessive debt that could impair your financial goals. With interest rates for some credit cards in double digits, a molehill can quickly turn into a mountain.
What can you do if you’re drowning in debt? Start by paying off loans with the highest interest rates, if possible. Depending on your situation, it might make sense to consolidate several debts into one with a reasonable interest rate.
- Start a “Rainy Day” Fund
It’s prudent to always expect the unexpected. During your lifetime, you’ll probably encounter unforeseen emergencies — including health issues, house or vehicle repairs, and job loss — that require immediate access to cash. If all your wealth is tied up in illiquid assets, such as real estate and retirement accounts, this could cause a cash crunch.
To guard against a financial catastrophe, experts generally recommend saving enough cash to sustain you through at least six months of challenging times. But the more you can sock away, the better. At a minimum, you should save enough to get by for a period of three months.
- Set Specific Goals
Long-term planning is the key to financial security. Fortunately, women are more likely to set goals than men, who tend to concentrate on current investment performance. Consider the following goals:
Home ownership. Early in your career, you’ll likely have to pay rent (or live with family members) because you can’t afford the down payment for a home. But home ownership provides certain tax benefits while you build up equity. Then you can eventually sell your primary residence and generally exclude most or all the gain from tax.
Child care and education. Having kids can be expensive, especially if you work. On average, U.S. working parents who pay for full-time child care pay a monthly cost of $631 per child, but 21% are paying more than $1,000 a month per child, according to a recent survey by Harris Poll.
Additionally, women with children may want to set money aside for college costs. Consider setting up tax-favored accounts — such as Section 529 plans — to accumulate savings on a tax-deferred basis.
Retirement. It’s important to plan how you’d like to live out your golden years and how much you’ll need to accumulate to enjoy that lifestyle. Women face unique challenges during retirement. For instance, statistically, women tend to live longer than men. And because females may be paid less than men, they’re often entitled to lower Social Security benefit amounts in retirement than men. To offset this discrepancy, consider increasing your contributions to retirement savings accounts, such as personal IRAs and employer-sponsored 401(k)s and other qualified retirement plans.
- Protect Your Nest Egg
If you’re able to build an investment portfolio and retirement accounts, it’s important to shield these assets from potential market downturns. This includes making smart use of investment principles, such as asset allocation and diversification.
You should also consider life and disability insurance coverage. The latter is often overlooked. The U.S. Centers for Disease Control and Prevention estimates that roughly 36 million women in the United States currently suffer from a disability.
- Carve Out a Lasting Legacy
You can leave your mark by passing sizable wealth to the younger generations, by utilizing wills, trusts and other estate planning devices. An estate planning professional can help devise a plan to maximize asset growth and minimize federal estate taxes, as well as state inheritance and death taxes, if applicable. The sooner you start planning your legacy, the more likely you’ll be to achieve your wealth management goals.
- Work with a Trusted Financial Advisor
Even if you’re active in your financial affairs, you’re still going to need a helping hand at times. Don’t settle for just anyone or attempt do-it-yourself financial planning. An experienced financial professional can help navigate investment options, manage financial crises, advise you about wealth management strategies and provide tax advice.
Get a Grip
As a group, women do face unique financial challenges, but things are changing. Take time to consider your financial future now so you can improve your chances of avoiding pitfalls and capitalizing on opportunities.
