Financial Planning for Women

Importance of Financial Planning for Women

Financial planning for women is a necessary part of their everyday life. Unfortunately, most women naively stay clear of all financial planning. However, here are some pertinent reasons why women should get involved in monetary management.

Achieving Financial Freedom

The primary reason to enter into financial management is to achieve financial independence. Financial independence gives you the freedom to live life on your terms.

A financially secure woman does not have to depend on others for her livelihood. Hence, it also increases self-esteem and self-respect in women.

Taking Career Breaks

Any woman may wish to take a career break. However, if she does so, there will be no steady income. Hence, she will need to plan for this period. Moreover, a career break may also involve additional expenses like educational expenses for the improvement of skills.

Preparing for Emergencies

Life is full of emergencies. From health to loss of life to accidents, there is no shortage of negative experiences. Hence, women will need to have a contingency fund to cope with these unexpected curveballs.

Spending on Higher Education

Further, a woman may wish to go in for higher education to gain a better work position. She may also want to switch careers and will need the requisite education for it. Hence, to plan for these eventualities, sound financial planning is necessary.

Marriage and Parenthood Bills

Marriage and parenthood are two major milestones in every woman’s life. Nowadays, in two-income households, women contribute financially to their children’s upbringing and no longer rely on parents to foot their wedding bills.

Hence, it is clear why women and financial planning should no longer be divergent themes.

However, women may not be aware of how to plan their finances. Below is a guide of the components that go into financial management.

5 Major Components of a Financial Plan

Now, let’s get started on the crux of financial planning for women. Some of the major components of a financial plan are:

Setting Financial Goals

Financial goals determine what you want to achieve with your money. One can have short-term, mid-term or long-term financial goals. These goals can be buying a house, travelling abroad, enjoying a particular lifestyle or hobby. Having a financial goal is the first component of a financial plan.

Identifying Your Baseline

When you start your financial planning, the second component is to determine where you presently stand. You can do this by calculating your baseline or net worth. Subtract your assets from liabilities, and you will have an idea of the baseline from which to start. Assets are bank accounts, investments, real estate, valuables, etc. Liabilities are credit card debts, loans, mortgages, etc.

Budgeting Your Cashflow

The third component is analysing what you are presently doing with your money. For instance, where are you spending your cash, and how are you supporting your lifestyle.

Moreover, it also helps to budget yourself. Once you create this estimate, you can extrapolate it. Accounting for inflation, you can estimate how much cash flow you will require for the next 10-15 years.

Retirement Plan

What women do not realise when they plan financially is that they live longer than men do. Hence, on average, they will require more money to face a life without a salary. Therefore, preparing for retirement is an essential component of creating a financial plan.

Emergency Fund

As mentioned before, emergencies can strike at any time. Ideally, prepare to cover for around 6 months of income-less existence when you create an emergency fund. Save this money in liquid instruments so that you do not have trouble accessing it.?

With the above components, you can easily set about creating a financial plan. Hence, financial management for women is vastly simplified.

How to Create a Financial Plan?

As a part of financial planning for women, learn to create a financial plan for yourself. Follow these steps below, and make your own!

Step 1: Write Down Your Financial Goals

Using a spreadsheet or Excel, you can list down your financial goals. A financial goal is what you hope to achieve with your hard-earned money. The goals come in short, mid, and long-term intervals.

Ask yourself these questions:

• What are my financial goals for 6 months to 5 years (short-term)?
• What are my financial goals for 5 to 10 years (mid-term)?
• What are my financial goals for longer than 10 years (long-term)?

Once you have a plan, you know the goals for which to save or invest. Hence, it makes the whole financial planning for women more target-oriented.

Step 2: Create a Budget

To create a budget, you will need to allocate funds for the following:

• Housing expenses such as rent, mortgage, maintenance, repairs, phone, utility.
• Healthcare such as dental, vision, medication, supplies, etc.
• Transportation such as vehicular expenses, gas and oil, repairs, maintenance, etc.?
• Food such as groceries and dining out.
• Personal expenses such as clothing, gifts, personal care, etc.
• Entertainment expenses such as travel, sports, hobbies, pets, etc.
• Savings towards financial goals and insurance.

The sum of all these makes up your budget. Subtract this value from your take-home pay, and you should have extra money to put towards your financial goals.

Step 3: Plan for Taxes and Debt

In the third step, plan for the taxes you have to pay and the loans or debt you must clear. Clearing off debt should be one of your priorities. Allocate some of your money to clearing off loans so that you can enter retirement without any debt on your platter.

Step 4: Prepare for Emergency Fund

Plan a contingency fund, in a liquid investment option, without any lock-in period. You should be able to access the money at any time. Hence, save aside money regularly to tackle those emergencies your insurance won’t cover.

Step 5: Plan for Retirement

Retirement may look like a long way off, but the only money you will have is what you have saved. Therefore, even those who plan to work post-retirement should also prepare for life when they have a subdued income source.?

With these 5 steps in mind, create a financial plan for yourself. As you can see, it takes foresight and self-knowledge to prepare for the subsequent stages of your life.