Personal finance for women empowers communities to gain economic independence through savvy money management. Learn how to get out of debt, structure a budget, and plan for your future with these clever financial tips for women.
Personal finance for women gives you the tools you need to manage and grow your wealth. It also boosts your self-esteem as you become more economically secure. So, what is women’s personal finance, and why does it matter? Here is what you need to know.
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According to studies, women are more likely to repay loans than men. They’re also better investors and less likely to get turned down for unsecured personal lines of credit. Meanwhile, women are at an 80% greater risk of becoming impoverished by retirement. So, what’s the deal?
Much of the problem could stem from a lack of good information and practical financial advice. For example, a study of over 300 published articles revealed some startling facts. More than 65% of the literature taught women fiscal responsibility through coupon-clipping and limited spending. But articles aimed at men discussed investments, power moves, and acquisitions.
Skeptics might assume that our society focuses more on educating men about finances than women. Female audiences typically receive discount codes, bargain pricing, and sales jargon. At the same time, the average woman still makes less than the average man – 82 cents on the dollar, to be exact.
Poor financial literacy plus a lower-paying job equals strife in many cases. Yet, having financial independence means liberty and justice for all. So, learn personal finance for women and set the pace for your future – no holds barred.
Financials can be challenging to understand because of the complex terminology. That means people often become overwhelmed or confused before getting started. And while you don’t need an economics degree to build generational wealth, some basic knowledge is crucial.
Review these terms first:
A budget is an organized list or schedule that determines how you plan to allocate your cash. It outlines where, when, and how your money flows in and out of the bank. Thus, it helps you track spending, make investments, and create savings in real-time.
Debt is how much you owe to various creditors. It consists of borrowed funds that you’re still repaying. So, include medical bills, student loans, mortgages, vehicle notes, and credit cards to calculate your obligations. Then work to pay down debts and keep more money in your pocket.
Interest is the extra money you pay on loans. It acts as a security to the lender, and the amount usually depends on accrual. However, banks can also apply interest to your accounts. And over time, your savings could grow.
APY stands are “Annual Percentage Yield.” It represents the interest rate that your bank account accumulates throughout the year. Each financial institution is different. But you can earn a significant profit if you keep your cash at the right spot.
A 401k is a retirement and savings plan offered by an employer. Contributions to your 401k are automatically withheld from your paycheck for you and dispersed into funds of the employee’s choosing.
Roth IRAs are a type of retirement account. You deposit funds based on a percentage of your income. And you can use IRAs to build financial independence while enjoying tax-free economic growth.
Annuities are insurance products that provide consumers with guaranteed income for life. However, you may need a financial advisor to help you establish and maintain one.
A basic understanding of standard financial terms gives you the power to make smarter decisions. So, don’t stop there. Dig deeper to develop an intuitive approach to personal finance for women.
Economic experts all say the same things about building financial independence. They suggest getting out of debt, establishing an emergency fund, and learning how to budget money. But economists don’t regurgitate lousy information for the sake of popularity. They give the standard advice because it actually works. And here is why:
Don’t start making significant money moves until you have a backup plan. A leading wealth expert, Dave Ramsey, suggests having no less than $5,000 in emergency cash. Plus, he says women should create savings as quickly as possible. That’s because females typically live longer than men and manage more health problems than the average Joe.
You don’t have to scramble to get everything together. Just look at your previous bank statements to determine where you could cut spending. For example, how many unnecessary subscriptions do you pay each month? That money might be better sitting in a high-yield savings account instead. So, examine your finances. Then shave the areas that don’t necessarily contribute to your financial health.
NOTE: Emergency funds are crucial because they prevent us from making difficult decisions.
Looking at a mountain of debt can be overwhelming and disheartening. And the thought of paying it off might feel like a million miles away. But you can tackle old debts using the snowball method. Here’s how it works:
- Calculate your monthly income and subtract the expenses.
- Determine what’s leftover after you pay all the bills.
- Snowball the surplus into your outstanding debts to pay them off quicker.
- Start with the most negligible obligations to remove them from your budget and credit report.
- Avoid borrowing more money until your debt-to-income ratio is at least 30:70.
Another effective strategy is the debt avalanche method. And it goes a little something like this:
- Create a budget and calculate your debt to income ratio.
- Begin paying the most significant debts with the highest interest rates first.
If you owe more than you make in a year, consider debt counseling. You can also think about filing bankruptcy for a fresh start or entering debt repayment programs for more time. Either way, try not to do anything until you consult a financial advisor.
Budgeting money is an essential part of personal finance for women. So, gather your recurring debts and keep them organized. Then track how much you spend each month on necessities, luxuries, or otherwise. And if you can, create a comprehensive spreadsheet to monitor your fiscal behaviors over the year.
There are several ways to budget your income. However, many women choose one of the two following methods:
- The 50/30/20 Technique
- The Zero-Based Budget
Both budgeting styles help you prioritize your needs over wants. And they can each contribute to future financial freedom. However, the results can vary depending on your discipline. So, let’s look at each one more closely:
The 50/30/20 Budget Method
The 50/30/20 method of budgeting allows you to establish financial security without living like you’re broke. You use 50% of your income for basic living expenses such as housing, food, and utilities. The next 30% goes to pay for your wants. And the remaining 20% is for the savings account or investments.
This technique only works if you understand the difference between wants and needs. For instance, you need safe housing. But you don’t necessarily need a six-bathroom estate in the sprawling countryside. You also need reliable transportation. However, you can get from point A to point B without driving an expensive sports car. The 50/30/20 method forces you to reevaluate your lifestyle.
The Zero-Based Budget
The Zero-Based Budget is more structured and disciplined than the 50/30/20 method. That’s because it forces you to use the first 50% of your income on everyday living costs. But the rest of your cash goes toward paying off large debts such as mortgages, student loans, and medical bills. The other 50% of your salary must also contribute to your retirement. So, there’s never much leftover for flagrant spending.
NOTE: This approach works best for small business owners, entrepreneurs, and heavy investors.
Many women struggle to make ends meet and keep extra cash for a rainy day. And while having a savings account is great, having one that accrues interest is even better. Putting your funds into a stale institution means you do all the work. But high-yield accounts do some of the work for you.
Eventually, you’ll see more significant numbers on the bank statements. Then you can use those surplus funds to invest in volatile stocks. Learning how to invest capital is one of the most critical lessons of personal finance for women. And fortunately, there are countless budgeting apps to help you track spending, move invested capital, and determine your next plays. Check a few of these out when you get the time:
In the meantime, brush up on your knowledge about brokerages. The reason is that a brokerage can handle complex investment portfolios on your behalf. Experts intuitively understand global stock exchanges and can do most market research behind the scenes. Brokers also analyze various industries to determine where your money will grow the most.
Brokers don’t just work with stocks, either. They offer various services to support personal finance for women in the workplace. Discuss estate planning, retirement options, and modern money management skills to establish fiscal peace of mind. But remember that brokerage firms don’t work for free. So, you must allocate funds for professional services if you use them.
The Rule of 72 is one of the best-kept secrets of personal finance for women. It estimates how long an investment will take to mature (or double) by assuming a fixed APR and minimal additional contributions.
The R72 consideration is wise for new investors. Plus, you can use it to calculate the compound interest return on many accounts. For example, let’s say you invest $100,000 and want to know how long before it’s worth $200,000. Now let’s also assume your annual ROI is 7%. You’d divide 72 by 7 to determine the length of time it would take for your investment to double (10.29 years). For more information on how this works, consult a financial advisor.
Credit is generally defined as a contract agreement in which a borrower receives a sum of money or something of value and repays the lender later, generally with interest. It’s essential to have a good credit score. Your credit score is used to judge your reliability and financial risk. Yes, it’s important financially, but it also can affect things such as your ability to get a job, qualify for a loan, and can actually save you money.
Like the emergency fund mentioned earlier, having decent credit is a safety net. When life inevitably happens, you’ll have the security you need if you have a high credit score. Factors that affect that score are payment history, the length of account history, and credit card activity. Make your payments on time to avoid taking any hits. After having established healthy credit, you will be able to simplify your life when purchasing a home or a new vehicle.
If you don’t have any credit, take these steps to establish yourself.
- Become an authorized user
- Opt for a secured card
- Open a store card
Let’s say you have good credit and want excellent credit use take these actions:
- Avoid applying for multiple lines of credit. Each application affects your credit health.
- Ask for higher credit limits (But don’t actually spend to your limit)
- Check your credit. Like your finances, your credit is in your control and needs to be reviewed.
If you have poor credit, you can work on your score solo or hire a firm to help you. However, credit repair companies cannot remove anything from your credit report. Plus, they’re not doing anything you cannot do yourself (i.e., paying your bill).
Females are not fiscally illiterate, although many publications might suggest otherwise. With good information and intelligent money moves, personal finance for women becomes more natural. Modern ladies are making strides to become financially independent despite the hurdles. And you should be well on your way to doing the same after reading this guide.
About the Author
Sibongile Ngako believes that multifaceted women can accomplish tremendous things with compassionate support. As the VP of Consumer Compliance and Head of Global Compliance at Affirm, Inc., she leverages her expertise and authenticity to empower women in all aspects of life. Sibongile focuses on promoting inclusivity in the workplace as an ally and advocate of female perspectives. Her dedication to professional equity earned her the GRCB Spectrum Award in 2017.
Harvard-educated and family-oriented, Sibongile maintains a grounded and balanced approach to social justice reform. Her team strives to make a positive impression despite popular opinion. Her motto: “If you focus on making a meaningful impact, your reputation will follow.” Ngako fortifies her zeal for women’s empowerment through mentorship and company-sponsored URG and DEI programs.