Financial Planning for Women - How to Take Charge of Your Life (2024)

Here’s why women need a different financial plan than men, and how you can get started today.

Author: Kari Lorz – Certified Financial Education Instructor

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Why women need a different financial plan/strategy than men

It’s no surprise that men & women are just different from each other (on so many levels). One of the less obvious places (yet most important) is how we interact with money.

• The gender pay gap – Women are underpaid compared to their male peers in comparable roles. According to thePew Research Center, “In 2020, women earned 84% of what men earned, according to a Pew Research Center analysis of median hourly earnings of both full- and part-time workers.

  Based on this estimate, it would take an extra 42 days of work for women to earn what men did in 2020.”

• Women take more/longer breaks from the workforce– Women take time (more than men) to raise children and then care for elderly family members. This means that women get behind more on contributing to their employer-sponsored retirement plans. The average is 11 years away from work.
• Women live longer than men– According toStatista, for those in North America, on average, men live to the age of 77, while women live to be 81. Interestingly enough, that means that women will likely inherit money and assets twice (once from their parents and then from their spouse).

  That’s a double responsibility load to ensure that you handle your money in the most efficient way possible.

• Women experience more stress than men– According to theAmerican Psychological Association, “Women are more likely than men (28% vs. 20%) to report having a great deal of stress (8, 9 or 10 on a 10-point scale).

  While “women are more likely to report that money (79% compared with 73% of men) are sources of stress while men are far more likely to cite that work is a source of stress (76% compared with 65% of women). That translates into how we “want money”…

• Our wants are different– Now, this is a generalization, but women tend to want money in a different way than men. Women tend to focus on having money as a safety net, a sense of security knowing that they can take care of their family during hard times.

  “Even though women make less than men, women consistently keep more of their assets in savings vehicles like savings accounts than men do. Currently, women have an average of about 23.5% of financial assets in savings accounts and CDs. By comparison, men keep only about 15% of these assets in savings accounts and CDs.”(source).

  Note – this is liquid savings, which means that we are investing less than men…

• Women’s risk tolerance with investments is less –meaning that women are more warry of the stock market than men. “Men choose to take on more risk by investing in the market. On average, men keep a whopping 85% of their money in stocks, bonds, or mutual funds, while women play it a bit safer by placing 76.5% of their assets in stocks, bonds, and mutual funds.”

  This aversion to risk, while prudent, also means less room for potential growth. The result is that their retirement account balances aren’t as high as their male counterparts.

• The impact of divorce – Divorce is a painful, but switching from a dual-income to a single-income household brings additional challenges for women. A divorced woman typically experiences a 27% drop in her standard of living, largely due to her likelihood of raising children alone and the financial obligations that accompany that responsibility.

  Meanwhile, a divorced man’s standard of living improves by an average of 10%. (source)

These points add up to the realization that women cannot use a male cookie-cutter financial plan. Our wants and needs are different, and it’s time that we started being more practical, planful, and proactive with our money.

How women can build their money management confidence

Women are survivors; generation after generation have proven that we will persevere. To go from surviving to thriving with our finances, we need to get a plan together and put that plan into action. Steady and consistent, we can change our financial life.

1. Figure out what you don’t know –yes, this can be the hardest step, as how do you know what you don’t even know? Go to #2 for this…
2. Find your money gurus –who do you trust to learn from? (Hint: only learn from the best). Yes, the lady that does your hair is nice, that doesn’t mean she’s qualified to give you financial advice. You should stick with only a handful of people, as you don’t want to get confused with conflicting priorities.
   1. Jean Chtazky
   2. Suze Orman (for insurance & estate planning)
   3. Rachel Cruze
   4. David Bach (even though he’s a man, he’s very well versed in financial issues specific to women).
3. Spend a lot of time learning –read everything from your gurus. Take notes on what interests you, what confuses you, and what you know you need to do better at. Almost every financial expert has a plan of what you should do. They all tend to follow the same roadmap, with slight differences. Pick a plan and follow it and only it. Don’t switch plans; you’ll lose focus and progress.

   Facebook groups are a great place to find a community, learn about different topics, but be wary, as anyone and everyone has an opinion (the same with podcasts), and they all think they know “the best plan.” Ask questions, learn about options and ideas and take everything with a grain of salt.

   For myself, I love to learn about money, yet my brain does need decompression time too. I balance my reading list by rotating topics – one personal finance book, then one personal development book, and then one book just for fun! Here is my list of the best financial literacy books just for women!

4. Start working on the basics –you need a solid foundation to build your financial empire on. If you stink at budgeting, then don’t start by learning about investing. Gaining knowledge with the more fundamental money topics will be a stepping stone to being comfortable with learning about the more challenging topics.
5. Get comfortable with making mistakes –everyone makes money mistakes, even when trying their best. The main point is don’t let these mistakes derail you. Learn from them; what will you do differently next time? And keep going!
6. Know when to seek professional help –if your income and assets reach a certain level, over $1 million, then it’s time to consider using a certified financial planner. Most of us won’t get to this level; we can do things ourselves with DIY investing routes. Yet, many families could benefit from hiring an estate planning lawyer for legal documents.

Our personal finance expert survey showed that, in general, it only took them 1-2 years to get really good with their money. That’s such a short amount of time in the grand scheme of things!

Basic steps of financial planning for women

We talked a bit above about following your money guru’s plan. I know that following a program out of a book seems very generic. How could something so personal and essential be a basic plan? Don’t I need to hire a finance professional and get a custom roadmap?

Many people assume that a “financial plan” needs to be some document drawn up by a professional, a financial planner. This isn’t the case at all. You don’t need to spend a lot of money to have someone make you a road map.

All plans follow the same basic steps, but exactly how and how fast varies a bit. Some of these steps link out to another detailed post. Let’s go over the basics…

1. Identify yourfinancial goals(Stuck? start with yourpersonal core values.)
2. Get a working monthly budgetin place
3. Start and fill youremergency fund
4. Pay off all consumer debt, then tackle student loans
5. Develop a retirement savings plan & investment strategy
6. Developsavings plan for other savings– kids college, home buying, other large purchases.
7. Get the right insurance for your needs
8. Create an estate plan – get the legal documents
9. Review your plan once a year to make sure you’re on track
10. Work the plan!

Additional steps that may be needed

1. Proactively keep tabs on the job market and salary norms for your position – Ask for raises and don’t be afraid to shop around for better pay
   
2. If you’re having a baby you’ll need to plan for time off for maternity leave – How much will you get? TheFamily and Medical Leave Act of 1993(FMLA) requires 12 weeks of unpaid leave annually for mothers of newborn or newly adopted children if they work for a company with 50 or more employees.

   In order to get any pay while you’re on leave, your company must offer paid leave or provide temporary disability insurance as a benefit; such insurance pays about 60 percent of your wages for a short time period, usually 6-8 weeks.

3. Talk to your parents about elder care – Do they have a plan for how they want to live if they have needs that must be met by others? Will they go into a nursing facility? Will they move into your home, or you into theirs? Will you need to hire help, or will you or your spouse take time off work?
   
4. What is your plan for inherited assets – Women are likely to inherit twice in their life, from their parents and their spouse. How will you make the most of the money left to you?

Financial planning questions to ask yourself during a check-in

You should get everything set up, and have a financial binder for all your paperwork just for this purpose. Then audit your plan in six months, as during that time, you will have learned considerably more.

Are you on track? What do you need to tweak? Then every year, you should sit down for 1/2 a day and go over your plans, and documents and update your numbers.

When you do your annual financial planning review, make sure your debts are going down, your short-term savings are up, and your retirement accounts are going up with at least the industry average. Your overall net worth may change little in the beginning but that’s okay, just make sure you’re trending up.

You’ll also want to journal out a few more personal notes…

• Did I work on my previous year’s plan?
• Did I reach any of my financial goals?
  • What held me back?
  • What helped me move forward?
• Do I feel safe and secure financially? How can I feel more so?
• Was I happy with how I spent my money? Was it in line with my values? What needs to change?
• Did I have any big money mistakes? What did I learn? How can I prevent them in the future?
• What big things are coming up in the future that may impact my finances?
  • Kids going to college?
  • New home/car?
  • Moving?
  • Parents needing elder care?
• Am I saving enough? (this is a big one for most of us) How can I save more?

If you need help with reaching your financial goals, you should see if you are writing them in a way that automatically sets you up for success. Readhow to make SMART financial goalshere to help guide you!

Why women don’t have a solid financial strategy

Timereported, “More than one-third of the gender gap in financial literacy can be attributed to confidence, instead of a genuine gap in knowledge, the study found. This confidence gap correlates to less stock market participation among women, which is a key means of building wealth.

The study concludes that “women know less than men, but they know more than they think they know.” Because we think we don’t know things we continually delay financial decisions, hoping that it will just work itself out.

“A similarstudyby the Proceedings of the National Academy of Sciences found cultural beliefs about gender roles negatively impacted women’s self-beliefs regarding pay, which impacts everything from salary negotiations to women’s ability to build wealth. “

Fidelityreported that “Women of color, especially, face an even more disproportionate income gap because of generations of financial inequality. But that doesn’t mean women are inherently less capable of navigating finance and investing.”

Any of the details on their own are sad, but when taken all together, with the hundreds of other data points, they paint a bleak picture of our financial situation. With cultural norms, gender stereotypes, lack of opportunity, and the current financial corporate climate (hey 40+ white males), it’s easy to see that we’re not invited to the party. Oh, we’re not blacklisted from the party (they wouldn’t dare do that), but we sure didn’t get an engraved invitation.

Women & investing

Kiplingerreported that “In a study of investors at a large discount-brokerage firm during the 1990s, Brad M. Barber and Terrance Odean of the University of California at Davis found that women investors outperformed their male counterparts.”

“What’s their secret? Women investors are more likely to do research before they make an investment decision, rather than to gamble on a highflier. Once they decide on a stock, they’re more likely to stick with it. They trade less often, Barber and Odean found, and the less often you trade, the better your returns because you save money on commissions.”

So it’s not that our understanding of how investing works is subpar to males; we outperform them due to our cautiousness and research. We know that investing is a huge part of our retirement plan, we want to get it right.

Money advisor David Bach states, “As a rule, women make better investors than men. When women become investors, they generally devise a plan, and then they stick to it. In a word, they “commit.”

He continues, “Women have relatively few hangups about admitting it when they don’t know something. That’s why they can make better investors than men. It’s because they don’t have any trouble with the idea that they have to have an education in order to be successful… I see it in our investment seminars all the time. When women take classes, they study, read and ask questions; they learn more,” and consequently they do better.”

These quotes from David Bach were taken from his book,Smart Women Finish Rich.

Women’s financial future

It’s not all doom and gloom for the ladies. There are some very encouraging data points.

“Despite the near-term economic effects of the COVID-19 pandemic, women’s financial influence continues to grow, according to a new Boston Consulting Group (BCG) report. With the total wealth pool owned by women rising to $93 trillion by 2023, the 20’s are well-positioned to be a defining decade for women’s wealth. The report states that its growth over the next four years will be faster than ever before with future growth expected to accelerate.”

According to the latest State of Women-Owned Businesses Report byAmerican Express…

• American Express did a The number of women-owned firms in the U.S. continues to climb, and is now estimated to have surpassed 9.4 million enterprises-30% of all businesses in the country;
• The revenue generated by these enterprises is now estimated to stand at nearly $1.5 trillion and has increased by 79% since 1997.
• The number of women-owned firms is increasing at a rate 1.5 times the national average.

While encouraging, this also proves that we need to learn how to best manage our wealth.

If you’ve been dreaming aboutstarting your own business, then be sure to check these ideas & interviews on being awork at home mom.

“Take action! An inch of movement will bring you closer to your goals than a mile of intention.”

Steve Maraboli

What is financial literacy?

Financial literacy is the ability to understand and effectively use various financial skills to manage your assets and better your life. While financial illiteracy is the opposite, you lack the skills needed to manage your life. Skills such as…

• Budgeting
• Saving
• Retirement planning
• Investing
• Tax planning
• Estate Planning

Yet, the trouble is, when you don’t know something, you don’t know that you don’t know it. So for many, they have no idea what is possible for their life, so they stay stuck. Yet, not taking action is the worst thing that you can do with your finances.

What is financial illiteracy costing us?

According toThe Balance, “Financial illiteracy may cost the average American $1,634 in 2020 because they didn’t know enough about personal finance.” Between all the financial fine print, loopholes, confusing jargon, and just not paying close enough attention to the details, we are racking up quite the price tag of financial illiteracy.

Yet, what the dollar figure doesn’t show is the compounding of our lack of education. That figure is too scary for me even to want to figure out, so we’ll just leave at it “it’s a lot!”

The study also doesn’t break down their data on men vs. women, but here’s a clue as to who passed another study’s financial literacy test. According toAnnuity Org, “An American College of Financial Services literacy study of men and women between 60 and 75 found…

• 35% of men passed a quiz on retirement income literacy
• 18% of women passed the same test”

To look at financial literacy between the sexes another way, theAAUWreports some startling data points on student loan debt…

• Women hold nearly two-thirds of the outstanding student debt in the U.S. – close to $929 billion.
• Women graduate owing almost $22,000 in student debt, compared to $18,880 owed by men. Black women graduate with an average of $37,558 in student debt.”
• 41% of female undergraduates take on student debt, compared to 35% of male undergraduates, and more women take on debt for graduate studies as well.
• Women take about two years longer than men to repay student loans and are more likely to struggle economically as they do so. The situation is even more significant for women of color.

While these figures don’t conclusively prove that women take on more debt than men because “we just don’t know any better,” it could be possible that the scholarships, grants, and other funding are biased towards men.

At the end of the day

Financial planning for women is more important than ever (and getting more critical with each passing year). We, as the collective women, can’t afford to wait to “do better” later on.

I know learning about money can be intimidating, scary, and even depressing at times, but getting a plan together to manage your money better can set you free from all the worry. It’s up to you; you are in control. I know it doesn’t always feel this way, but trust me, you are the key to changing it all!

Articles related to financial planning for women:

• Why Financial Planning is the Proven Path for Everyone to Live a Better Life
• 31 Days of Financial Goals to Jump Start Your Bigger Bank Account
• How to Make a Family Financial Plan (Just Like an Expert)
• The Best Books on Money – Just for Women!

Financial planning for women is so important, don’t delay one more day in making your life the one you’ve always dreamed of!