Key financial questions women should ask at any stage of their lives
Editorial staff, J.P. Morgan Wealth Management
- Try to make sure you don’t outlive your money – women outlive men on average six to eight years, according to the Centers for Disease Control and Prevention (CDC). Having a plan in place in case you’re ever alone is worthwhile.
- 15% of your income is the recommended rate to be allocated to retirement accounts.
- After your basic needs are met, it’s crucial to determine what type of risk to take in making a diverse financial portfolio.
What do you want your money to do for you? Most of us hope that the financial decisions we make today will help us cover our wants and needs through retirement. For women, understanding how your money can best work for you can be even more critical: the gender wage gap, career interruptions and a longer average lifespan all mean that women may need to be more intentional about our financial planning.
Learn how to practice financial self-care
It’s never too late to start a budget. To build a solid foundation for your financial strategy, even before starting to invest, have a clear understanding of where your money is going today and consider the opportunities to save or invest more.
Complete an inventory of your finances by listing all of your expenses, and subtracting them from your sources of income; this can help you establish a starting point. Be honest with yourself about those extra purchases.
If you are spending more than what is coming in on a monthly basis, then have a look at where you might be able to cut back. If you have excess cash, this can be an opportunity to save or invest – more on that in a minute.
- Maintain an emergency fund. Try to have about three to six months’ worth of expenses readily available to you at all times. You can never predict when you may be faced with income interruptions.
- Address any money habits that may hinder your financial success. The money habits that you build over time can come from your upbringing, environment, education, profession and more. You may be overly cautious and hold on to too much cash, rather than putting it to work in the market. Or you may be overly generous and consistently prioritize expenses for your loved ones before investing in yourself. Some of the deeply rooted habits may be hard to break, but understanding the long-term consequences of not breaking them – which may include having to delay retirement or having to depend on others financially – could help you get the motivation needed to make a change.
How can I make sure I don’t outlive my money?
Around 32% of Americans are concerned that they’ll outlive their retirement savings. That’s over 100 million people. This anxiety is even more magnified for women, considering they are expected to outlive men by about six years. Additionally, women spend about 48% of their adult lives out of the workforce compared to 28% for men. Fewer total hours worked combined with less pay may result in lower retirement income for women retirees.
While there is no silver bullet to the retirement equation, understanding these obstacles and taking an active part in your planning is a good start:
- Estimate how many years you’ll spend in retirement. Researching your family history or looking up statistical averages online can help you identify your life expectancy range and therefore the number of years your savings may need to stretch.
- Review your saving and investing strategy to ensure you are maximizing your earnings opportunities during your working years. For instance, aim to consistently contribute at least 15% of your income annually toward retirement accounts.
- If you have a partner, review your individual and shared retirement goals. Do your individual plans take each other into account? Take some time with a calculator, or a financial advisor, to understand the track you’re on and make adjustments if necessary.
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Am I taking on the right amount of investment risk to meet my goals?
Many studies have found that women tend to invest too under-risked, which can compromise the success of their long-term financial goals. Coupled with their typically longer life expectancies, women may find themselves facing a savings shortfall as a result. While there are some studies that dispute this, it is important to keep in mind as you evaluate your appetite for risk.
The amount of investment risk that’s right for you depends on your time horizon, income, family situation and long-term goals. But in order to understand if you can – or need to – take on additional risk, make sure you first have your financial bases covered with an emergency fund and regular retirement savings contributions.
Then, you may want to take a close look – on your own or with the help of a financial advisor – at your current investment strategy and ask yourself: Am I comfortable with where I will be financially in 10, 20 or 30 years from now? If your current risk profile allows you to meet your goals, then it’s up to you to decide whether you want to be conservative or a little more aggressive with your investments. The more you educate yourself on various investments and saving options, the easier it will be to stomach additional risk.
How do I make sure my financial strategy accounts for my loved ones?
When it comes to family, money decisions can get emotional, fast. Women tend to view their finances in terms of what it can do for their families, so they are more likely to spend a considerable amount of their income or savings on their children, parents or other loved ones. But careful planning and open communication can help you find some balance.
If, for example, you tend to put away a big portion of your paycheck toward your child’s college fund, ask yourself: "Can I comfortably support myself through retirement or will my children be responsible for me? And would that be something I want?” If you are caring for aging parents, you may want to consider additional resources available for their care, like Social Security, before you tap into your savings.
If you can, aim to set up automatic payments to your retirement accounts; this can help ensure that you are consistently contributing to your future alongside your other priorities. For periods when you can’t contribute 15% of your income annually (life happens), do your best to contribute enough to make the most of an employer match, if available to you, or the maximum allowable amount to an individual retirement account, aka IRA.
Should I merge my finances with my partner or spouse?
As you may have guessed, there is no right answer here, but there are a few considerations that can help you think through your approach. While the considerations below are relevant to both partners and spouses, the legal and financial implications are generally more stringent for married couples and may differ based on which state you live in.
- Current financial situation, including any debts or other financial obligations, such as child care from a prior marriage. Start by taking inventory of all of your accounts, and see where it may make sense to keep things separate. For instance, issues on one of your credit accounts can affect your spouse’s overall credit score. On the other hand, an excellent credit score could help your spouse refinance their mortgage at a better rate.
- Financial goals. Are you planning to buy a house together? Do you have similar retirement dates? You may not agree on every single financial decision with your partner, and that’s fine. But agreeing on long-term financial goals, such as retirement or estate planning, could help boost your financial confidence as a unit.
- Personal comfort level with sharing your financial life. As much as you may love and trust your partner, do you prefer to keep a portion or all of your financial matters separate? Would a prenuptial or co-habitation agreement make this decision easier? This may not be the most pleasant conversation, but don’t shy away from raising this as an option. Speak with a legal or tax professional to help you understand the pros and cons of these various options.
Once you’ve decided on what portion of your financial life you’d like to share with your partner, if any, have a conversation about your common financial assets – such as a shared mortgage or investment account – and what would happen to them if you were no longer together or if one of you was no longer around. This isn’t an ideal way to spend a date night, but it can save you a lot of heartache in the future, especially for married couples. Women typically take a harder financial hit when it comes to divorces, and focusing on money during an emotional time is never easy.
Even if you prefer a hands-off approach to your financial journey, it’s important to be an active participant in the conversation and to have these conversations often, because needs shift over time and your goals may change.
Create an emergency budget
"Creating an emergency budget for your household will help you reexamine your spending patterns and identify what has changed or could change," recommends Maria Pollina, Executive Director of Consumer Bank Financial Management Journeys at JPMorganChase.
This starts by knowing with how much money you have coming in and making a list of all recurring and variable spending. Don't forget to include quarterly or annual payments like insurance or subscriptions.
Once you have the full picture, evaluate your expenses through the lens of "must-haves and nice-to-haves," Pollina says.
Consider canceling or pressing pause on auto-contributions you aren't using, like commuter expenses if you're working remotely or not working, as well as subscription services and memberships. If you are having cash flow issues, you may wish to pay the minimum due on debts right now instead of keeping up with an aggressive debt-payoff plan.
"Make a list of the bills you think you can negotiate," advises Pollina. "There are a lot of relief and discount programs." Check in with your mortgage bank, your credit card company and your car insurer, since many have pandemic-relief measures in place for customers.
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Editorial staff, J.P. Morgan Wealth Management
