- From fewer years in the workforce due to motherhood, to longer life expectancy, women often face numerous financial challenges that affect their ability to maximize their financial goals. Unbalanced gender expectations, shortage in savings and limited financial literacy can lead to lower lifetime earnings and ultimately inadequate resources.
- With thoughtful planning and strategies, women can create a path to achieve their financial goals, regardless of the unique hurdles they encounter. Building compassion, saving as soon as possible, and partnering with the appropriate professional will get you on the right track.
Women are now earning, controlling, and inheriting more money and assets than ever before. Despite these improvements, it is still challenging to balance building a career with the expectations of being a caregiver to their children and aging parents.
Leaving the workforce to care for a family is innately nurturing but may hinder women’s ability to save towards their 401(k) and benefit from their employer’s matching contributions. Conversely, daycare is costly, and parents may feel like they are missing out on their child’s development. This is the reality and sacrifice women face daily.
The decision to stay home permanently or temporarily can have an impact on women’s earning potential. Lower lifetime earnings can limit Social Security benefits, reduce potential pension income and retirement contributions, and result in a smaller nest egg in retirement.
A shortage in savings can become automated over time and create indecision and open-ended questions: How heavily do I rely on my partner’s income? What happens if we get divorced? How do I protect myself? These are all questions many women consider when making difficult life-changing decisions.
In addition to unbalanced gender expectations, women have a longer average life expectancy than men, yet many do not have a Financial Plan in place. Even with modest inflation assumptions of 2.5%, basic living expenses will increase dramatically during retirement, and women will need their resources to last 20-30 years longer than previous generations.
If you find yourself struggling to balance the demands of your time, you are not alone. Here are some strategies to help women feel empowered to take control of their financial destiny:
- Show Compassion for yourself. Re-entering the workforce can be less intimidating. Whether you’ve been out of the workforce for 1 year or 5 years, you can always re-enter the workforce with pride and gain new skills in a different industry. Transferrable skills such as time management, organization, and communication can be applied to many other industries. Prioritizing your family is a valid choice and does not require an apology. Negotiate your salary to offset the wage gap because you deserve to be paid fairly. Promoting yourself with the deserved recognition will allow you to earn more and save more for retirement.
- Build your confidence by leaning on each other. Women are more likely to have shared experiences in which to build a safe space and make the process less overwhelming. Share your stories and start conversations about financial literacy and education. Engage with people you feel comfortable with to collaborate and begin conversations. Listen to podcasts, videos, and financial publications to learn about basic investment terminology. Start with the Clever Girls Know Podcast, Habits to help you improve your self-discipline. This episode inspires women to master self-discipline, ditch debt, and learn more about growing your money.
- Save a little, as soon as possible. With longer life expectancy, women should start saving sooner during earning years and start investing in their retirement earlier.
- Set up automatic savings to build an emergency fund.
- Automate your saving for longer term goals like retirement.
- Map out cash flow and expenses for a clear picture of where your dollars are going.
- Establish a 529 account for your children as early as possible so you don’t feel constrained to fund heavily in the years closer to college.
For example, at a 6% college tuition inflation rate, assuming a moderate rate of return of 5.6%, you can set aside $1,000/ month for 18 years to fulfill 100% savings goal for $55K University. Save early in employer-sponsored plans to take advantage of the power of compound interest, earnings, and employer matches. Contributing $6,000 annually into a 401(k) plan at age 25 each year until 67, you can amass $1.19M at 67 with annual compounding ($258,000 in contributions and $934,000 in interest).
- Get the right financial advice & participate in the planning process. With the appropriate team of Financial Planners, you can prioritize your financial and personal goals and set timelines for accomplishing them. Partner with a qualified investment professional to evaluate investment products and strategies and help determine your appropriate asset allocation to meet your specific goals, which may evolve over time. They are a resource for you to understand how the economy and financial markets affect your portfolio. Women tend to be less aggressive investors, and it is normal to not know everything about the stock market. Understanding asset allocation on a high level and staying with a long-term plan through market swings will lead to better investment and returns.
Women should allow themselves to be in the driver’s seat and build a baseline plan to have the financial freedom they desire. Reach out to Crestwood today so we can partner with you to gain greater control over your financial life!