In generations past, many women thought they didn’t need a financial plan. They relied on their husbands to handle that responsibility.
But from a financial planning perspective, that was a bad idea – both then and now. As a demographic, women have always outlived men so they were destined to manage their finances at some point in their lives. This might happen when they got out of school, before they got married, after a divorce, after their spouse died, or a combination of these situations.
“A man is not a plan,” says Kathy Longo, a financial professional and author of Flourish Financially – Values, Transitions, and Big Conversations (www.flourishwealthmanagement.com).
“Statistics show that all women are going to have to take the reins of their finances at some point in their lives – it has never been something that they should just hand over to their husband.”
Longo says women should build their financial confidence by:
Understanding spending. All spending can be divided into two categories – critical spending and “nice-to-have” spending, Longo says. “Critical or necessary spending includes everything you need to live, not everything you want to have,” she says. “Nice-to-haves aren’t necessary for day-to-day living. Understanding the difference between these two expenses will help you budget and know which expenses to cut back on, especially if you have a financial setback.”
Understanding debt. There is good debt and there is bad debt. “Good debt facilitates a goal such as a mortgage to buy a house or student loans to further one’s career,” Longo says. “Bad debt includes any debt with a high-interest rate such as credit card debt for things you don’t really need.” She says it’s important to beware of bad-debt purchases and have a plan to pay off debt as soon as possible.
Building an emergency fund. You can’t control when an emergency hits, but you can control being financially prepared for emergencies, Longo says. “Ideally you should have 3 to 6 months of living expenses stored away as your emergency fund. This can be overwhelming, so start working toward saving one or two paychecks for an emergency fund and go from there.” This can help you through one of life’s inevitable surprises.
Saving early. The earlier you begin creating and executing a savings plan, the more money you will have when you need it. “It is not just that you are building savings, but you are also getting growth on that money,” Longo says. “The sooner you can build a habit to “pay yourself first” the sooner you will see that savings balance grow which create possibilities for the future.
Gain confidence around your finances. It is never too late to take control of your finances and your life regardless of your sex. “But women, in particular, need to understand that the sooner they grasp their true financial picture,” she says, “the sooner they can start managing their finances to create the future they want.” It is much better to take an active role and interest in your finances than to wait for a transition such as divorce, inheritance, or being widowed. Focusing on the goals and possibilities your investments bring may be more comfortable than thinking about the dollars and cents, and equally effective.
Kathy Longo, author of Flourish Financially – Values, Transitions and Big Conversations, is founder and president of Flourish Wealth Management (www.flourishwealthmanagement.com).