Being a single woman offers a certain level of freedom everyone always tells you to enjoy. However, the single life also comes with responsibilities that can be tough to carry alone. The biggest responsibility is handling finances. Unlike married couples who have either a shared income or shared decision-making for the future, single folks are on their own.
Single women specifically need to be prepared. The gender pay gap, the effect of the pandemic on women in the workforce, and changing norms around work-from-home culture can all affect a woman’s earnings and ability to save.
Financial planning for single women is essential to build wealth and create financial security. Follow these key concepts and your future self with thank you.
Financial Planning For Single Women: 6 Tips
First, look at your paycheck and understand how much you make pre and post-tax. If you haven’t done so, speak with your workplace financial manager to understand your options for saving.
As mentioned, the first place to start is at your job. Look for retirement plans where you can park pre-tax money and reduce your tax burden.
- If there’s a 401k option, opt-in. If there’s an employer match, look into putting aside the highest amount to maximize their match.
- Next, look for 403b and/or 457b. Both are pre-tax accounts, and the maximum for each is $20,500 per year. If you can, maximize your contribution to these accounts and save on taxes!
- Another is Individual Retirement Accounts or IRAs. Depending on your income level, you could qualify for a Roth IRA, a backdoor IRA or you can choose a Traditional IRA.
- If you have high health insurance deductibles, ask about a Health Savings Account (HSA). This is also a pre-tax account you can fund and withdraw from to pay medical bills.
Aside from retirement, you should also be saving for a rainy day. In other words, an emergency fund. The fund should have about six months’ worth of expenses to cover emergencies and unanticipated costs that life may throw at you. The money should remain untouched except in an actual emergency so that you never have to worry about being able to pay for it.
Consider keeping your emergency fund in a high-yield savings account or a high-interest rate bond fund. These are easily accessible, liquidable, and in the meantime, will make you some money.
Related Article: Everything You Need to Know About The Mega Backdoor Roth IRA
Investing can be scary, especially when you’re single. There is a lot of information on stocks, bonds, etc., and it’s not easy to risk your hard-earned dollars. However, you can invest in the market in a manner that is low risk, allows you to diversify, and still earns a return.
The simplest, low-cost way to enter the market is by investing in mutual funds and exchange-traded funds (ETFs). With both, you get access to hundreds or even thousands of company stocks. When you buy shares in a fund, you’re getting a little bit of each of the stocks within it. This not only greatly lowers your risk but also helps you easily diversify. These funds can bundle companies to represent the entire market, an entire Index (e.g., the S&P 500), or a specific niche.
You will pay a small management fee for investing in these funds; however, the amount is nominal compared to that of a financial manager.
The best way to invest is the classic concept of “set it and forget it,” and be sure to reinvest the dividends! Set up autopay so that you are investing consistently, and let the market do its thing. When years have passed, you’ll be sitting on solid returns and will likely be able to live off the dividends at that time.
The key to investing is to start sooner rather than later. The magic of compound interest depends on time in the market. So don’t delay getting started! Even a small amount set aside each month can significantly affect returns.
Another way to think about this: the money is still yours (and still liquidable – you can withdraw at any time if you need to). By investing early, you are paying yourself in the future.
Pay Off Debts
Make debt repayment a priority. The longer it takes, the more interest you end up paying.
Start with your highest interest loans (e.g., credit card debt) and develop a strategy to start paying them off. In the meantime, avoid adding to your debt and develop good spending habits. Focus on spending money wisely on things you really need or bring value to your day-to-day. On the flip side, work to ensure you stop spending on things you don’t need.
Do this for as long as it takes for you to become debt-free. It’s the quickest way to build a path to financial freedom and future long-term wealth.
Get Disability Insurance
Disability insurance offers protection and income if you cannot work for any reason. This is especially important in high-paying jobs, those that require physical skills to do the job, and you have a lifestyle that puts you at risk for injury.
Look into this and ask about “true own occupation” coverage. This coverage will pay out disability if you cannot work at your occupation, even if you can do other things. For example, if you injure your left hand and can’t work as an anesthesiologist anymore, but you can still work a desk job? You’ll be able to pull in the disability.
Become a Budgeting Queen
Maintaining your financial house requires consistent consideration of your earnings and spending. Budgets can help you get to where you need to be and stay the course.
There are various ways to approach this, but the end goal of a budget is to spend less than you earn. Frugal living habits can assist, but, importantly, you need to identify what matters to you. For instance, if you love fancy cars, go for it as long as it fits your budget! Then in other areas, work to remain more frugal and mindful of your purchases.
Budgeting apps can help you keep track of everything, or if you’re savvy, create a spreadsheet!
Consider Multiple Income Streams
When you’re a single woman, you can create a larger safety net for yourself by setting up different income streams. In the event of a sudden financial loss (losing your job) or change (getting furloughed), your other income streams can provide you with some financial security.
The most well-known avenue is to start a side hustle to bring in extra cash. Another option is to set up passive income sources, for instance, through real estate investing and rental properties.
Related content: 8 things to know before buying your first investment property
Friendly Reminders As You Earn & Spend
Once you’ve got your financial house teed up (saving, investing, insurance, a debt payment plan), you can rest assured that you have a safety net to lean on should life throw you a curve ball.
In the meantime, you’ve got to live!
Prioritize Experiences Over Things
Consider how you spend for fun. Are you buying more things? As mentioned above, if you have a particular passion, then, by all means, pursue it. But overall, it is always better to spend your money on experiences.
Use experiences to push your comfort zone. Studies have shown that experiences contribute more to our happiness than material goods, so consider what you prioritize and see if it needs any adjustment. Try new things so that you grow, learn, and ultimately create memories that last long past the experience itself.
Avoid Lifestyle Inflation
Lifestyle inflation is when you buy more and spend more to keep up an image or live up to the expectations of others. It is the quickest way to shoot your budget and financial planning in the foot.
Instead, live within your means and focus on quality over quantity.
As you move up in your career, and get promotions and pay raises, you’ll also want to upgrade your lifestyle. Choose your upgrades wisely.
In other words, choose upgrades that make your life easier, bring you true joy, or allow you more time to do the things you love and want to do. Some examples are:
- Hire help to clean your home so that you have more to relax
- Upgrade your travel (get an awesome travel credit card, etc.)
- A nice car (especially if you spend a lot of time commuting; allow yourself some valuable comfort)
- Clothes/jewelry/accessories – pick things that really represent you and who you are versus what’s trending. By staying true to yourself, you’ll be more likely to value and use the purchase long-term.
- Pay yourself first (save and invest for retirement, build your emergency fund, pay off debt).
- Diversify your income.
- Spend your money wisely (where it matters most to you).
- Try to stay frugal and live within your means.
- Allow yourself to experience life and have fun.
Always remember, there is no such thing as a get-rich-quick scenario. The people who are able to build wealth start investing and saving early, and they do so consistently.
The thing about finances is, if you’re doing it right, it will be tedious and unglamorous. So, stay boring, stay simple and watch yourself grow strong in your finances.
Featured image courtesy of Unsplash