Financial Self-Care: Empowering Your Future Self

by | Jul 5, 2024 | Financial Planning, Smart Finances, Women and Finance

Studies show that women are very concerned about running out of money in retirement. Unfortunately, this worry can be justified, but there are many things we can do to take care of our future selves and narrow the looming gender wealth gap.

The gender wage gap says that women make 82-cents for every dollar a man earns. The gender wage gap can further be broken down by race. Asian women earn 93-cents, White women earn 81-cents, self-employed women earn 69-cents, Black women earn 66-cents, Latina women earn 57-cents, and Native women earn 55-cents for every dollar that a man earns. Some of the unique challenges that women face every day can have a compounding negative effect on their ability to successfully achieve their future financial goals. Women are often the caretakers in the family. This means taking time off work to care for children and/or aging parents. This time off means fewer opportunities for contributing to workplace retirement plans (for example, a 401(k) plan), and fewer opportunities for pay raises and promotions. They may also have to take money out of savings or take on debt during these periods, rather than saving and investing. Women statistically live longer than men, and therefore their retirement nest egg needs to be larger than a man’s in order to last longer. Divorce and death (widowhood) profoundly impact women’s future financial security, especially when they are not the financial managers in their relationships. 74% of women die single. The gap in net worth that starts with wages can get exponentially wider through all these additional factors. We call this the gender wealth gap.

So, with all the cards stacked against us, how can we find future financial security? It starts with taking action. Empowering yourself can be your #1 source of confidence when money is your #1 source of stress.

women on laptop

Getting in the Right Money Mindset

Society and stereotypes tell us that women are not as good at managing money. That we’re overspenders, poor savers, and if we would only spend less on lattes, all our financial problems would be solved. These are myths that are just not true. In fact, studies show that women are better investors than men! So, get in the right mindset and start checking items off the list.

Understanding Compound Interest 

“Compound interest is the 8th wonder of the world. [S]he who understands it, earns it. [S]he who doesn’t, pays it.” This is a famous quote by Albert Einstein. It gives you an idea of how important it is to have a basic understanding of compound interest. Earning compound interest looks like earning interest on top of interest (even while you sleep). The flip side, though, is where people get into trouble with debt. It is paying interest on top of interest. So much, that you struggle to crawl out from under a mountain of debt. Bottom line is with this understanding, you will minimize the amount of debt you are willing to accept because you have a better understanding of the consequences.

Build an Emergency Fund

Saving, investing, and paying off debt are always top priorities when developing a new financial plan. But it can all go sideways when unexpected things happen, such as losing a job, a global pandemic, or worse. So, at the same time you’re saving for retirement, saving for your kid’s education, and paying off your mortgage, you should be building an emergency fund that is at least 3-6 months of your average monthly expenses, in cash (preferably a high yield savings account, though there are other options). This emergency fund will keep your other goals on track when these unexpected events happen.

Protect Yourself

It is not just an emergency fund that will keep you on track. There are other ways to manage financial risk. Life insurance manages the risk that you will not be able to support your family if the worst happens. Car insurance manages the risk of having to buy a new car. Homeowners insurance manages the risk of having to buy a new home. Insurance has a very important role in protecting what you already have. 

Something else that is extremely important and increasingly difficult to protect is your identity. Every day we hear about a new hack or scam in the news. The best way to protect yourself is to first, check annualcreditreport.com (you can do this as often as weekly), and second to freeze your credit (all three credit bureaus) so no one can use your information to ruin your credit.

Look Into Your Crystal Ball – Healthcare

What’s the biggest expense in retirement likely to be? Healthcare. It’s also one of the most difficult to plan for because everyone’s crystal ball is always SO foggy. How long will you live? How healthy will you be? Will there be someone around to help care for you? How expensive will everything be when you need it? Why is long-term care so expensive and hard-to-find? Self-insuring (through a retirement nest egg) is an option that some clients choose.

Maximize Tax-Advantaged Investment Accounts 

The government wants you to be able to support yourself in retirement. That is why there are several tax-advantaged accounts available. There are a lot of rules and limitations for each, so check with your financial or tax advisor to see what is the best fit for you each year.

  • Traditional IRA – pre-tax or tax-deductible retirement account
  • Roth IRA – post-tax (tax-free) retirement account (there are many rules to follow to get the tax-free status; check with your financial or tax advisor)
  • Workplace Retirement Plans – 401(k), 403(b), TSP, etc.
    • The most important consideration for workplace retirement plans is whether or not the employer offers a matching contribution
  • Small Business/Entrepreneur Retirement Plans – SEP IRA, SIMPLE IRA, Solo 401(k)
  • Spousal IRA – for the periods when you are not working or you do not have income because you just launched a business, for example, the Spousal IRA allows your spouse to contribute to your IRA on your behalf.
  • Health Savings Account – a triple tax-advantaged account to help you save for healthcare in retirement
  • 529 Plans – generally referred to as “college savings plans,” they are so much more, to include up to a $35,000 Roth IRA rollover with unused funds (again, there are many rules to follow here so check with your financial or tax advisor)

Don’t Just Save, Invest 

Too often I have prospective clients bring me their current investment statements to ask why their accounts haven’t grown. The bottom line is that you must first, contribute funds to the account, and second, you must invest those funds in assets that are the correct fit for your goals and risk tolerance.

Have Candid Money Conversations 

Talk to your mothers, daughters, sisters, grandmothers and girlfriends about money. Talk to male allies about money too. How would you know if you are being paid the same as another colleague unless you ask? What you learn about money, tell others, especially your children. I wish I started investing when I was younger. Do you? I cannot go back in time, but I can help my own children understand the value of decades of compounding and growth. I will need them to take care of me, so it is in my best interest!

Conclusion

This is a lot of high-level information, and unlike me, you might not want to become an expert like a CFP® professional and manage your own future financial security. In that case, I recommend that you find someone to help you empower your future self. You should look for a fiduciary, someone who must do what is in your best interest at all times. You should find someone who you connect with, who you can build a relationship with, and who will understand and empathize with your goals and desires. I would love to be your guide. Schedule a complimentary call with me at https://calendly.com/bayviewfp-stacy/initial-consultation