Women are becoming more financially savvy and becoming business leaders faster than ever, encouraging other women to learn about businesses and finances.
It’s no secret that women still earn less money than men even when they do the exact same work. For every dollar a man makes, a woman earns 80 cents. The difference amounts to thousands of dollars annually. Research revealed that in 2018, women earned 85% of what men earned.
Since they earn less and live longer than men on average, women need to be extra smart about money. Lesser lifetime earnings mean having to get creative with income in order to manage to pay the bills, save for retirement, and afford certain wants.
For most of us, financial independence is having a stable job. However, having a steady income is not sufficient. You need to learn how to manage it, save, and grow your income. Here are some important money lessons that every woman should know.
Always Have an Emergency Fund
It is not uncommon for people to be stuck at a bad job, a bad apartment, or an otherwise bad situation that they could get out of if they had some money set aside. Well, that is what the emergency fund is for. Samantha Barry, editor-in-chief of Glamour, agrees that this is perhaps the most valuable money lesson there is.
You could lose your job or fall ill and need extra money. If you don’t have an emergency fund set aside, you will likely fall into debt. No one knows what the future holds and unpredicted situations are always a possibility. Having a fallback fund, something you can count on, gives you financial stability and a certain freedom to leave a job that makes you unhappy, for example.
Plan Your Budget and Stick to It
Budgeting can be hard, especially if your income is not sufficient to cover all your bills, needs, and wants. However, it is essential if you want to learn how to live within your means and save a little something for your retirement.
Are you familiar with the 50-30-20 rule? This rule was coined by Elizabeth Warren back in 2010 and it is a rule to live by when it comes to budgeting. What this rule suggests is dividing your income into three sections: needs, wants, and savings.
Firstly, you need to calculate what your income is after taxes. Then you must sit down and divide your income into these three sections. 50% of your income should be used to pay for your needs (bills, rent, mortgage, utilities, healthcare, groceries, transportation), all the things you really need.
30% of your income should be allocated to the second section. Your wants include things you enjoy such as shopping, personal care, travel, entertainment. It could be visiting your favourite hairstylist or going on a trip, for example. Or it could be the money you spend on dining out.
The remaining 20% of your income should be set for savings and paying off debt such as credit card and student loan debt.
Creating a budget is easy but sticking to it is the tricky part. If you can manage to do that, then you’ve mastered one of the essential financial planning lessons.
Start Thinking About Retirement on Time
It is estimated that a typical retirement costs about $738,000. Most people barely manage to save a small fraction of the amount. In fact, about 9% of Americans manage to save about $300,000, according to the study.
The situation becomes graver when we consider the fact that women live longer than men. (81% of centenarians are women). That means they need to save more money to last through their retirement.
However, given the fact that women often earn less than their male counterparts, this is especially difficult. Research indicates that nearly half of all women enter retirement widowed or divorced. A study showed that women aged 65 or more are 80% more likely to be impoverished than men of the same age.
Studies also show that a great number of women don’t really think about retirement. And those that do save, save significantly less than men. Even though the situation is slightly different for millennial women compared to baby boomers, women still don’t like to think about money. But women surveyed in a study said that they fear their savings won’t last until their end days.
Women and men also have different lives and women are far more likely to take long career breaks and leave the workforce altogether to take care of their loved ones. All this affects their financial wellbeing. Taking time off means missing out on opportunities to get a raise and earning less money overall.
For young women, thinking about retirement might sound like a distant future, but the sooner you start saving for your retirement, the closer you are to achieving financial security at your golden age.
Don’t Be Afraid to Invest
Less than half of millennial women feel confident enough to invest, a study shows. Why? Mostly because they don’t understand how it works and they generally lack understanding of money. That is why financial self-educating is a must for a working woman.
According to research, most women keep their savings in cash and don’t invest it in anything. Those that do start investing tend to do it later in life. They are convinced that they simply don’t know enough about it to safely invest but that is so very wrong.
In fact, you don’t need to be an expert in order to invest money. And you also don’t need to be wealthy to do it. Investing a small amount monthly can help you set up an emergency fund, afford something you’ve always wanted but never could, or simply save more money for your retirement.
By Rebecca Brown
I’m Rebecca, a translator and avid traveller, a book worm and horror flick enthusiast. My job has given me the amazing opportunity to travel to dozens of countries around the world, and writing on Rough Draft gives me a chance to try to showcase some of them.