Carnegie Investment Counsel Blog

Financial Planning for Women: 3 Pitfalls to Avoid

Posted by Carnegie Investment Counsel on Dec 15, 2022 2:00:00 PM

Financial Planning for Women

Fifty years ago, a woman couldn’t open a credit card without her husband co-signing. While we’ve come a long way since then, women still face certain financial challenges. Financial planning for women must account for these challenges in order to avoid the issues they might create. Here are three of the biggest pitfalls women must consider when creating their financial plan and tips for how to avoid them.

 

Pitfall 1. Underestimating the Gender Pay Gap

You’ve probably heard of the gender pay gap; though it varies by state, on average, women make 30 percent less than men doing the same jobs. In a single year, the difference may be thousands, which while a lot, is rarely life changing. The problem is that diminished earnings also mean less opportunities to pay off debt or invest, compounding the gap. 

To drive home the difference, let’s say a woman and a male coworker both start at a company when they’re 30 and work there until age 60. The male coworker annually earns $6,000 more than the female. Over time, this adds up to a difference of $180,000 over the career course (not even taking into account that promotions and raises would likely only widen the gap). The difference only grows when considering how this could impact investments.

Let’s say when the woman starts at the company, both she and her male colleague invest $10,000. The woman invests $100 a month and her male coworker invests $250 a month (only a portion of his larger earnings). After 30 years, assuming an annual return of 10 percent, the woman would have $371,887 and her male co-worker would have $667,976

So, what can financially savvy women do?

First of all, make sure they’re compensated fairly. If wages are public, compare earnings to coworkers. If wages aren’t publicly accessible, women can research what the typical salary is for their position. If they think they’re underpaid, they can consider asking for a raise, though it should be done thoughtfully. As with any request for a raise or promotion, it’s wise to highlight accomplishments and value. If earning more in a current position isn’t possible, it may be worth considering finding a job elsewhere that offers better compensation. 

Additionally, women may consider saving a larger percentage of their earnings. Working with a financial advisor to create a personalized financial plan can help make the most of every dollar earned.

 

Pitfall 2. Waiting to Plan for Retirement 

Planning for retirement is one of the most important aspects of any financial plan, but for women there may be extra challenges to consider. 

First of all, women have a longer life expectancy than men, and therefore may need to cover more years of expenses. Additionally, many women leave the workforce or work part-time in order to care for children, this means lower lifetime earnings, which can result in lower Social Security payouts in retirement or fewer pension benefits

This doesn’t mean women have to give up on retirement goals entirely, but it does mean they will need to start retirement planning early and check in often. If a woman leaves the workforce or goes down to part-time, she should make sure to factor this change into her long-term financial plan. In these situations, women may decide to save more, open an IRA or work longer.

 

Pitfall 3. Not Taking an Active Role in Managing Your Money

For married women whose spouses have more experience with managing finances, letting their spouse handle everything may keep women from being an active participant in their own finances. That’s not to say a spouse shouldn’t handle the finances for a family, but it can become a problem if financial decisions become siloed. Major financial decisions, including an agreed upon budget, long-term goals and major purchases, should all be decided on together. 

For women who feel out of the loop in any aspect of their finances, now is the time to start taking a more active role: Ask questions, take over certain responsibilities or simply have more conversations about money with their partner. 

Taking an active role also applies to working with a financial professional. Women should always feel comfortable asking questions and playing an active role in the relationship. If a financial advisor balks at this, that person is probably not the right advisor.

 

Reviewing Financial Planning for Women 

Yes, women may have more financial challenges to overcome, but with the help of a good financial advisor and a solid financial plan, they can create a roadmap that helps them address these common pitfalls. Our advisors are always available to answer questions. Reach out to us today. 

 

Need a Financial Advisor?

If you are currently looking for help with financial planning, contact us. We are happy to schedule an introductory meeting at your convenience.

Book an Appointment

 

Topics: Financial Planning

Carnegie Investment Counsel

Written by Carnegie Investment Counsel

Carnegie Investment Counsel is an Registered Investment Adviser (RIA) providing personalized financial guidance to help you preserve and grow your wealth, so you are freer to enjoy your life. As your fiduciary, we are obligated to place your investing success ahead of our returns.

    carnegie top 4 things 2021 version-1

    Looking to hire a Financial Advisor?

    Enclosed in our eBook are four questions we recommend you ask any prospective group you review. Plus, you'll learn: 

    • The difference between fiduciary and suitability standards
    • Learn how some advisors may not be required to work in your best interest
    • Be aware of various types of hidden costs
    • The importance of third party custodians
    • The difference between fee-based and fee-only

    Download Now, It's Free

    Recent Posts

    Subscribe here for monthly blog updates!