The wealth gap between married and single people has widened in recent years. As of 2019, married couples were worth nine times as much as single-family households, The Wall Street Journal reported.
Given this wealth disparity, it’s clear that it’s more difficult to achieve financial security on a single income — but with the right planning, it is possible. In this “Financially Savvy Female” column, we’re chatting with Jordan Sowhangar, CFP, vice president and wealth advisor at Girard, a Univest Wealth Division, about what single women should do to maximize and protect their finances in the short and long term.
Where should single women focus on putting their money to maintain their financial security in the short term?
While it is important for everyone to have a sufficient emergency fund, it is even more critical for single women. Their paycheck is the sole income providing for all of their needs in their household, which makes it that much more important to “back up” in an emergency situation. Whether it’s a total job loss or they are just unable to work for health reasons, single women must ensure they have enough in savings to cover themselves should they be out of work for six or even 12-plus months.
The dollar amount to aim for would be at least six months’ worth of expenses, but this should be the bare minimum. Twelve-plus months’ worth of expenses would be the ideal amount that single women should work towards having on hand at all times. This money should be held in insured, liquid accounts like traditional or online bank accounts that provide FDIC insurance protection, liquidity in the event they need money immediately, and if possible, a decent interest rate to also earn a little bit on their balances.
What should they do for their long-term financial security?
In the long term, it is crucial for single women to plan for retirement as early as possible. Again, their income is the only income coming into their household which means it’s also the only income they can use to start saving for future retirement. As soon as they are able to contribute to their company’s retirement plan, they should.
Even if they are not eligible right away for any match opportunities, they should still allocate a portion of their paycheck towards the retirement account offered. Once they are eligible for any match benefit, they should make sure they are putting in at least that amount needed to take advantage of the maximum “free money” available to them.
The more they can contribute earlier on, the more this money will compound and grow tax-deferred or tax-free until they need it. This money should also now grow at a higher average rate of return than their emergency funds, as it will likely be invested in vehicles like mutual funds, exchange traded funds, etc., that, over the long term, typically earn more than bank solutions.
What other steps should single women take to ensure they are in a good place financially?
Keep debt to a minimum. One way single women can derail their financial plan and disrupt their financial security is to take on too much debt. Smart debt, like taking on a mortgage to own your own home, is a good thing, but maxing yourself out on that mortgage is not. It is especially important for single women to not put themselves in a situation where they are “house poor.”
Credit card debt should be avoided whenever possible. Utilize credit cards strictly for taking advantage of any points opportunities that earn you more on what you buy, but then work on making sure you have enough to pay off that monthly bill in full, if possible. It is difficult to get out of credit card debt in a dual income home, let alone as a single woman with one income.
Look into disability insurance. Emergency funds are a great back up, but paying towards disability insurance, especially with the right policy, can significantly help a single woman should she find herself in a position where she is unable to work, or at least to the level she once was, due to disability/health reasons. These policies may help provide additional income and allow you focus on your health/other expenses you may face without additional worry.
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 will explore the reasons behind these inequities and provide 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.
More From GOBankingRates