Why Financial Planning Is Especially Essential for Women

June 24, 2015

Connect Member

Helping women to make financially intelligent transitions: Your Money, Your Life...InSync


Women are especially prone to the nesting instinct: that primal urge driving us to rearrange, redecorate, and reorganize. We call in the carpet cleaners, unclutter our closets, and flip over the mattresses — or at least we think about it! Theorists say that this instinct first shows itself days or weeks before a woman gives birth, but I certainly know women who have never experienced pregnancy — and are not particularly driven by domestic impulses — who have felt overwhelmingly compelled to get their house in order.

But what about nesting for your financial house?

In these complex economic times, keeping one’s financial house in order is more important than ever. This is especially important for women. Why? Initially, it might be difficult to believe that our financial requirements are all that different from men’s. It is true that the general principles of financial planning are universal, but women face unique challenges that add up to different financial needs.

The odds are that at some point in your life, you will be solely responsible for your finances, whether you are single, married, divorced, or widowed. Women live, on average, five years longer than men, and the average age of widowhood, according to the U.S. Census Bureau, is 59. Add to this that a marriage has only a 50-50 chance of being successful. Because of these factors, you owe it to yourself to learn as much about saving and investing your money as you can.

Because women generally live longer than men, we need to save more for retirement. We need to start investing younger and more aggressively, and we need to evaluate our investments to be sure the rate of return is ahead of inflation and taxes. By doing so, we  increase the chances that we will have  retirement dollars to use  by the time we actually reach the retirement years.

Women tend to put off investing until later in life, losing some effects of early compounding. Couple this with the fact that women earn less than men on average, and are more likely to move in and out of the workforce to raise children or care for aging parents. These lower salaries equate to lower retirement savings and lower Social Security benefits upon retirement.

So what does this mean for you? Start now. If you have a financial plan in place and are married, be sure that you and your partner are both on the same page. Couples should prepare in advance so the surviving spouse will know what to expect and can navigate the legal and financial paperwork more confidently. Any woman needs, at minimum, a basic understanding of her family's finances and to be involved in the financial planning of her future. This means not only being involved in the daily details, but also in the long-term planning. This reduces your financial stress and will make you feel more in control.

If you don’t have a written financial plan, start from the beginning. First, get a snapshot of your financial picture by reviewing your income and expenses. Detailed information is important. It doesn’t matter if your income is $50,000 or $500,000, you need to have a clear picture of where your money goes. Take into account not only the big expenses — such as your mortgage and car payments — but also those daily excursions to Starbucks, hubby’s weekly golf outings, and your monthly sprees to the salon. How about your emergency savings? Has it kept up with your current living costs? Contrary to popular wisdom, credit cards should not be used as a disaster fund. With job security waning, it is important to have a financial cushion (a big, fluffy one!) to get you through any unforeseen crisis.

Next, review your insurance policies. Look to see if your insurance coverage will provide for the well-being of your family should you or your partner pass early or require long-term health care. A life insurance policy can not only replace income, but can also ensure that heirs are able to pay debts and estate taxes, fund future retirement savings, and support education costs. Long-term care insurance is an option to help you pay the cost of long-term health needs. Long-term care is not only costly; it’s also a very real possibility. According to the U.S. Department of Health and Human Services, someone turning 65 today has a 70 percent chance of needing some type of long-term care services and support in their remaining years. They also state that women will need care for an average of 3.7 years compared to a man’s 2.2 years. Purchasing a long-term care insurance policy while you’re young and healthy is one step toward insuring against financial catastrophe.

Finally, consolidate your accounts. Take a good look at your retirement and investment account statements. Do you have several different accounts in various locations? By consolidating six or seven accounts into one or two, you can reduce the number of paper statements and save on yearly administrative fees. Not only does this simplify things, it is easier to track the performance of your investments. If the statements are hard to read and your glasses don’t help, seek the guidance of a financial professional. An independent financial planner can translate financial jargon into plain English. Through collaboration and unbiased objective advice, she can design a financial plan that addresses your personal concerns and establish a path toward your goals and dreams.

Remember: When you start to review and reorganize, don’t forget about your financial house. Then sit back, relax, and order out!

Loretta Hutchinson is a member of the DailyWorth Connect Program. Read more about the program here.