According to a recent Bank of American survey, 51% of Gen Z adults are not yet financially independent — but many of them want to be. The survey found that among those who are not fully financially independent, 24% said they are prioritizing getting to that point. However, this can be more of a challenge for Gen Z women than men. The same survey found that Gen Z women are less likely to feel knowledgeable about investing (22% compared to 37% of men) and are less likely to have invested in the stock market over the last year (17% versus 25%). In addition, Gen Z women feel less knowledgeable about managing debt (56% versus 66%) and saving for retirement (35% versus 41%). But despite these gaps, there are steps Gen Z women can take now to achieve financial independence. In today’s “Financially Savvy Female” column, we chat with Faisa Stafford, a personal finance expert from the nonprofit Life Happens, about the top five things Gen Z women should be doing to make sure they are on track to achieve this goal.
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1. Get a True Picture of Your Financial Health
“Assessing your financial health is the first step in building a strong financial plan and achieving financial independence,” Stafford said. “To do this, I recommend you sit down and make a list of what you own (your assets), what you owe (your liabilities) and what financial products you currently have (this includes life insurance, disability insurance, etc.). Whether you’re in college, just graduated or have joined the workforce, getting a true assessment of your financial health is so important in helping you chart a path to reach your financial goals, including reaching financial independence.”
Once you have a clear picture of your financial health, it’s easier to see exactly what you need to adjust. When in doubt, you may consider enlisting the help of a financial professional.
“While it may feel like a big step to work with a financial professional, we are actually seeing a lot of young people meeting with financial professionals for the first time,” Stafford said.
2. Come Up With a Plan To Minimize Your Debt
Debt — specifically student loan debt — can be a major barrier for Gen Zers who want to achieve financial independence. Over 1 in 5 Gen Z adults cited student loan debt as the most stressful aspect of their financial lives, the Bank of America survey found.
“You should set up a debt repayment plan that is feasible based on expenses and money coming in,” Stafford said. “If you are someone with federal student loans who stopped paying them down during the pandemic, it’s important to remember that the emergency relief is planned to end on Jan. 31, 2022. You’ll want to plan for this in your budget now to ensure you have the funds to start repayments come next year.”
In order to minimize debt, you may have to become more disciplined with your spending and cut out any unnecessary expenses.
“For example, if you have any subscriptions or memberships that you aren’t using enough to justify the monthly expense anymore, cancel them,” Stafford said. “If you aren’t reading all of the magazines you receive in the mail or using the online software that you’re paying for, you’re losing money. Another tip is to cut down on unnecessary meals and drinks out. Those $5 coffees and $12 sandwiches really add up, so by making these meals at home, you can save more than you might expect. You can use the money you are saving to pay off your debts.”
If you have credit card debt, make paying this down your priority, as credit card debt tends to have higher interest rates than other debts.
“Don’t pay just the minimum payments on all your cards — you will find yourself buried in debt,” Stafford said. “Instead, take a tactical approach to reducing your debt.”
There are two main methodologies to debt repayment: the snowball and the avalanche method. The best method will depend on what works for you.
“The snowball method gets you a quick win by focusing on paying off your smallest credit card debt first and paying minimum payments on all other cards,” Stafford said. “Once you have paid off your first debt, you move on to the next largest card and repeat as necessary. It’s a great way to visually see your debt reducing as balances hit zero. The avalanche method gets you to focus on the highest interest debt first while paying minimums on all other cards, and gets you maximizing the impact of your repayment so that more goes to the balance and not interest. A financial professional can also help you put together this repayment plan so that it works within your budget and timeline.”
3. Build Your Emergency Fund
“It’s important to have money set aside for when life throws you an unexpected curveball,” Stafford said. “Don’t worry if you don’t have that much saved — or any at all right now; starting when you’re young is the best way to build this safety net. I’d even recommend putting that money in a separate account and keep building it up in case you need it during a life transition, such as switching jobs, changing apartments, graduating or moving to a new city.”
You should aim to have three to six months of living expenses saved in an emergency fund, but when you are just getting started, every little bit helps.
4. Invest In a Life Insurance Policy
If you have other people who depend on you, investing in life insurance can give you that extra peace of mind.
“Life insurance protects your loved ones in case anything happens to you,” Stafford said. “It guarantees that your loved ones receive financial support if you’re gone, and can be hugely impactful in covering funeral expenses, supplementing lost income and anywhere else financial support is needed. I typically recommend that everyone has a life insurance policy that equals between 10 to 15 times their gross income.”
5. Start To Save for Retirement
“Even though retirement may feel far away for Gen Z, it’s never too early to start saving for it,” Stafford said. “When you are assessing your financial plans, set goals for how much you should save now and how much you should plan to save in the future. The best time to save for retirement is when you’re young and don’t have as many expenses.”
To make saving for retirement a habit, Stafford recommends that Gen Z women set up a 401(k) through their employers, if they offer it, so automatic contributions are deducted from their paycheck before taxes.
“A good rule of thumb is to aim for 15% of your income to go to your retirement plan,” she said. “That may seem like a lot right now, but even if you just put in 1% this year and 2% next year, you are on the right path. Every little bit helps. I also recommend that they max out their contributions if they can, and definitely take advantage of any and all ‘matching funds’ their employer offers. This is like ‘free’ money and you don’t want to miss out on it. For those of you who don’t have an employer-sponsored 401(k), IRAs and Roth IRAs are where you can start your savings. Again, the more you automate your own savings — and any matching you get from an employer — the more on track you will be for your future retirement.”
GOBankingRates wants to empower women to take control of their finances. According to the latest stats, women hold $72 billion in private wealth — but fewer women than men consider themselves to be in “good” or “excellent” financial shape. Women are less likely to be investing and are more likely to have debt, and women are still being paid less than men overall. Our “Financially Savvy Female” column explores the reasons behind these inequities and provides solutions to change them. We believe financial equality begins with financial literacy, so we’re providing tools and tips for women, by women to take control of their money and help them live a richer life.
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