4 Financial Planning Steps for Women
Just about every woman has gone through the frustration of watching their husband try to navigate his way to a party you're late for at a house you have never been to. You have no idea where you are, and neither does he. The difference is, you can admit it.
Men are notoriously bad at asking for help. Try getting them to stop and ask for directions or to call the plumber to fix that leaky sink they have repaired twice. So why is it that many women are comfortable with leaving their long-term finances and retirement planning to their husbands? If in the past you've taken a backseat to your husband in terms of your family's finances, it's time to get in the driver's seat. Here are four areas women should focus on.
1. Budgeting & Savings - There is no easier way to move yourself and your family toward financial freedom than tracking your expenses. Living on a budget is the best way to make sure that you are living within or below your means. Financial success comes simply from spending less than you earn. One of the main reasons most people overspend is because they do not keep track. Tracking your spending makes you not only enter each cost into your budget, you then have to reconcile them at the end of the month when your spending was higher than your income. Budgeting begins with savings. Set your savings goals first. Pay yourself first. Set a savings goal of 5% to 15% of income per month, then plan your spending around the balance. As difficult as it may seem, this strategy can and does work.
2. Investing - Once you’ve saved some money, you will want to put that money to work for you. Train your money to go forth and multiply. First, set up an emergency reserve account. This is a savings or money market account that is easily accessible and holds three to six months of expenses. It is important to remember that this emergency fund is not for growing wealth. It is more of an insurance policy to protect your wealth.
After you’ve established your emergency fund and as you are working to build it, look toward retirement. Save as much as you can in tax-sheltered accounts like a 401(k). Diversify these accounts using mutual funds offered in the plan across broad sectors. Look to invest in large-cap growth, large-cap value, small-cap, international, and bonds. Focus on keeping the expense ratio of your fund as low as possible and invest in index funds if they are offered.
Insurance, although not always exciting, is a necessary part of any good financial plan. None of us would think of driving without auto insurance or purchasing a house without fire insurance, but many will happily avoid life insurance or long-term care insurance. How comfortable would you be financially if your husband passed away tomorrow? Get involved and insist that their husband have some form of life insurance to help you if the worst were to occur. It is also important to make sure there is a long-term disability policy covering the breadwinner of the family. Disability is twice as likely as death.
4. Taxes & Fees
How would you like to get a tax-free raise of $5,000 this year? You can. Spend some time learning about ways to save on your taxes and cut your investment fees. It’s like putting money right in your pocket… tax free. A study done at Wisconsin University showed that the average person paid more than $5,000 a year in additional taxes and investment fees that they could reduce simply by becoming a bit more educated. Reduce your mutual fund fees to no more than .30%, avoid loaded funds, and avoid trading in and out of the markets and incurring huge trading costs. Eliminating these fees alone can significantly pump up your investment returns.
Get involved in your family's finances and, if you are already involved, learn as much as you can to maximize your results. Don’t be afraid to seek help from a professional when the need arises. Women offer strengths to the family finances that most men don’t have. Don’t be afraid to use them.