Do you know the biggest source of financial stress for most women? According to GOBankingRates’ women and finances 2023 survey, 38% of overall women polled said they struggle with being able to afford everyday expenses.
Difficulty in affording everyday expenses, like groceries, far surpasses other financial stressors. Only 14% of respondents said they worried about having enough money to retire while another 18% cited a lack of savings in the event of an emergency.
While covering expenses in your daily life is important, prioritizing only these bills is not meant to be a long-term financial plan for women. Here’s why it can be a problem to focus solely on basic expenses.
Why It’s a Problem to Only Prioritize Daily Expenses
It’s not uncommon for women to put immediate needs, like groceries and housing, first before tackling long-term financial goals they may have like paying off debt or saving for retirement. However, Holley G. Cary — CFP, vice president and senior financial planner at First Horizon Advisors — said the practice of emphasizing just short-term expenses over long-term financial planning can become a problem over time. In some situations, it even has the potential to lead to financial insecurity later in life.
What happens when women focus just on daily expenses? Here are some common problems which may creep up along the way.
- Missed opportunity to invest in their education and career development. Both of these investments, Cary said, can lead to higher-paying jobs and greater financial stability for women.
- Vulnerability to financial shocks. Women who only pay for immediate expenses may find themselves overwhelmed by unforeseen financial shocks such as medical emergencies, relationship loss or the loss of a job.
- Starting to spend more money. Since all spending is immediate and not delegated to short- and long-term goals, Cary said women may find themselves habitually spending more.
How To Use a Balanced Approach to Financial Planning
It takes time and preparation for women to get out of the cycle of prioritizing basic expenses and creating long-term financial planning habits. Here are a few strategies to ensure a balanced approach to financial planning, now and into the future.
Create a Written Plan
One of the simplest ways to shift your financial planning mindset is by creating a budget, or spending plan, and making sure it includes short- and long-term expenses.
Fixed expenses, like groceries and utilities, should be prioritized in a budget. Additional funds may be set aside for long-term financial goals like retirement. Once outstanding obligations are addressed, you may add discretionary spending and other lifestyle needs.
If you don’t particularly enjoy following a set budget, Cary said you can create a spending plan. A spending plan essentially plans for how you spend your money. Women who create a spending plan will be able to allocate their money toward their short- and long-term financial goals and find a balance between prioritizing immediate expenses and investing in their future.
Once you have a budget or spending plan in place for your financial goals, you can begin setting up automatic contributions to your retirement accounts or other savings plans. Cary recommends establishing an automatic savings plan in a high-yield savings account or money market account.
Automating savings, among meeting other financial objectives, can help women build an emergency fund. According to 17% of overall women polled by GOBankingRates, the lack of an emergency fund is their biggest financial regret.
“Generally, an amount equivalent to about six to nine months of expenses should be a good long-term targeted balance for emergencies,” Cary said. “While it requires discipline to work towards creating this fund, systematically saving into a liquid, higher interest rate account should accomplish this goal.”
Prioritize Paying Off High-Interest Debt
Sixteen percent of overall women surveyed by GOBankingRates said they owe between $501 to $2,000 in credit card debt. For those with credit card debt, or other forms of high-interest debt, it’s critical to prioritize paying it off in full. This helps you save money over time and free up your funds to reach other financial goals.
If you need an approach to minimize interest charges, Cary recommends moving your balance to a card that has an introductory 0% APR offer. Read the fine print before doing so to ensure you know what to do at the end of the rate period. Another available option may be to combine your debts into a single loan with a lower interest rate. Doing so may help lower overall monthly payments and create a lower monthly obligation.
Seek Financial Advice
A whopping 68% of overall women surveyed by GOBankingRates said they do not utilize any financial professionals.
While not a requirement for reaching your financial goals, working with a financial professional does have several benefits. These professionals can help you create a personalized financial plan balancing your short- and long-term financial responsibilities and goals. Additional guidance may be provided on subjects like investing, debt management and any other financial topics unique to your situation.
As a best practice, Cary recommends meeting with your financial professional at least once a year. If there are several significant life changes, you may meet up more often to review your financial plan together. “Keeping your plan current may involve revisions from time to time, as well as new projections and decisions.”
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