Every woman needs to know that a man should never be a financial plan. Women and men have different goals in life and financial planning for women is unique. One of the biggest challenges for women is meeting competing needs. Whenever I do an educational seminar on personal finance, men in the audience tend to be more interested in tips on market trends and what stocks to buy right now. Women ask questions about how to balance their goals of sending kids to college, retire comfortably and care for their elderly parents.
1. Pick the right financial planner – someone who understands your needs and that you trust. Overall, women don’t trust the financial services industry because they have experienced disrespect and condescension. Only 23% of financial planners are women. (1)
2. Invest with confidence. Don’t let fear run your investment strategy. For women, money represents security and they tend to fear putting any of it at risk. Women are more risk averse than men and more likely to dwell on potential losses than potential gains when investing.
- Invest in quality. The stock market historically returns gains over the long term. Choose solid companies and mutual funds
- Diversify your investments across cash, stocks, bonds and real estate. There is safety in numbers!
- Don’t be too conservative. Women have longevity risk. If you invest in money markets and CDs because you’re afraid of volatility, inflation is causing your investment to lose value. You will outlive your money. Be sure to have adequate equity exposure.
3. Protect your retirement. Financial planning for women provides peace of mind. Financial success is about protecting yourself and loved ones from uncertainty.
- Have a financial plan, which is your roadmap to retirement. It factors resources, expenses, assets, debt and goals. Contact a financial planner and get started on one. Assume you’ll need 80-90% of pre-retirement income during retirement.
- Make savings a priority. 41% of Americans spend less money than they make. 36% spend about as much as they make and 19% spend more than they make. Spend no more than 90% of your income. Use tax-deferred plans – contribute as much as you can but at least the company match, diversify your investments, never borrow and never, ever cash out early. (2)
- Have a budget and stick to it!
- Control your debt. The average American has $7,000 in credit card debt. The average fixed credit card rate is 13.02%. It would take about 300 months to pay this off. (3)
- Have emergency savings, roughly $10,000- $15,000
- Have adequate disability and life insurance in place.
Her are some key life events to think about:
- Marriage – how to share the management of finances
- Children – how to finance care for 20 years or more, education
- Divorce – 50% of marriages end in divorce
- Career turning points – work or stay home; starting your own business
- Widowhood – Female Baby Boomers are likely to be widowed by age 67 and remain so for 15 years or more. 9 out of 10 women will be on their own at some point in their adult lives. (4)
- Caregiving – The need to care for elderly parents is becoming the norm, using your time, energy and resources.
- Retirement – How will you finance the potential 30-year span during retirement?
- Estate Planning – Decide how you will leave the world a better place and assure the best future for your loved ones.
4. Don’t be naive. Know your spouse’s finances and retirement plans. Many times, the man makes financial decisions. Sometimes these decisions are not in the best interests of a financial plan for women, such as early retirement benefits or lower survivors benefits on pensions (and I did just say that 50% of marriages end in divorce).
5. Set limits on helping the kids. Moms don’t like to tell their kids no. More than 80% of women who are married or divorced will have to help one of their children in crisis. Even if kids don’t need a bailout, college is expensive. Have conversations early on and set realistic expectations. Remember you can borrow for college, not for retirement! (5)
6. Plan for long-term care. 80% of men die married, while 80% of women die single. A financial plan for women needs to include expectations on who will help care for your medical and personal care giving needs. Most people buy long-term care insurance so they will not be a burden on their children. (6)
7. Have an estate plan, including an updated will, Health Care Proxy and Power of Attorney.
A 2013 survey found that 70% of Americans with children under the age of 18 admitted to not having a will. The main reason: They simply hadn’t gotten around to it. (7)
A will is important because it allows you to dictate what you want to happen with your assets and your children (and the investment of your children’s assets). If you die without a will, the state may step in and your property will be divided according to state law.