Women face a unique set of hurdles to reach financial independence. We need to take time out of our careers to raise children. After returning to the workforce for a short period of time, we often then withdraw to care for aging parents.
Some years later, we retire on substantially less super than our husbands, who we will probably outlive.
We then spend the remaining years of our lives struggling to manage our meagre pension and living a life of poverty.
If this sounds bleak to you, it is imperative that you become financially independent. Financial independence allows us to live the life we choose for ourselves, and to enjoy that life with security and comfort as we age.
Learning and mastering the art of financial success is about getting to a place where your money works for you, and not the other way around.
Follow the practical steps outlined below and get started on the road to financial independence, at any age.
Age 20 – 30
1. Budget
At this age, you are likely to be starting out in your career, with a graduate wage and a large student debt. Despite that, even small steps put into motion now will get you on track towards financial wealth later in life. In fact, these are the years that can really make a difference in the long term.
Determine what financial freedom means to you and set a very clear target, with intermediate milestones to get there.
Plan your budget and start tracking the flow of money in versus money out. Use a simple tool, such as Money Smart’s Budget Planner or seek professional help.
Find ways of living on less, such as living with a flat mate, giving up your daily latte and taking the bus to work.
Once you’ve established how much disposable income you are left with at the end of each pay packet, put some aside for investing, some for spending and some for paying off debt.
2. Control debt
In Australia, your HECS debt will likely be deducted directly from your salary. If you can put any additional money towards paying it down, do so.
Avoid getting further into debt by limiting the number of credit cards that you own and reducing the limit. Dodge the temptation of AfterPay altogether and always pay with cash.
In his article, How To Invest In Your 20’s: Financial Advisors Share Their Best Tips, for Forbes online, Jeff Rose warns twenty-somethings to be wary of the fear of missing out. He stresses that it “…can lead to spending money you don’t have, racking up debt, and of course putting off “boring” responsibilities like saving and investing for the future.”
Yes, your friends might vacation in Bali or have a flash car. Chances are they are living on borrowed money and will pay for it later.
Keep your short and longer-term goals at the forefront of your mind and stay focused on the end game. If emotional spending is a problem, find ways to get your habit under control.
3. Make your move
Establishing yourself in your career takes a little time, but there are ways of fast tracking your success.
According to the female workplace researcher, Catalyst, employees with a senior mentor can earn as much as $7,000 more per annum than peers. Join a networking association for women, for professional connections and career advice.
Go where you are needed and wanted, rather than staying in a position where you feel undervalued and underpaid.
Be active on social media and make it easy for recruiters to find you and be impressed by your accomplishments.
4. Negotiate
A study conducted by George Mason University and Temple University researchers found that people who don’t negotiate their salary early on in their career can expect to lose an estimated $600,000 in earnings.
The study looked at participants who negotiated an increase in their starting salary of just $5,000 and found that “Assuming an average annual pay increase of five percent, an employee whose starting annual salary was $55,000 rather than $50,000 would earn an additional $600,000+ over the course of a 40-year career.”
The sooner you learn to negotiate your salary, the better chance you have of closing the gender pay gap.
If your employer can’t increase your paid salary, push for bonuses, such as a car allowance, paid parking, private health insurance or vacation time.
Non-salary gains reduce out-of-pocket expenses. Put the savings towards paying down your debt or investing in your financial future.
In the study mentioned above, more than fifty per cent of participants who chose to negotiate received at least one additional non-salary gain. See Harvard Education’s Top 10 Negotiation Skills You Must Learn to Succeed for some tips on negotiating.
5. Invest
It’s easy to be discouraged by your starting salary and feel that you don’t have enough disposable income to invest. However, during these early years you have advantages, perhaps more so than any other stage of life. These advantages are freedom and time.
For most, twenties are free from the financial responsibilities that traditionally come in later years, such as spouses, heavier mortgages, children, and aging parents. Your money is your own.
Time gives us the ability to be more aggressive with investments, simply because you have the time to withstand the turbulence of the stock market and ride out any ups and downs.
Time is the key ingredient behind compounding interest, allowing you to transform even small amounts of savings into financial freedom.
An initial deposit of $15,000, with a regular monthly contribution of $300 at an interest rate of 7.0 per cent earns more than $800,000 in interest. That will give you over one million dollars, or $1,032,115 to be exact, despite an investment of just $144,000.
Conversely, delaying the start by twenty years, or until age 40, reduces the interest earned to $129,859, or a total saving of only $216,859.
Speak to a financial advisor and take advantage of time and freedom while you have it.
You may be advised to start with Exchange Traded Funds, Stocks, Mutual Funds or alternative investments. No matter the advice, always seek a second opinion and diversify.
Age 30 – 40
1. Maintain financial control
According to the Australian Bureau of Statistics, the median age at marriage for females in 2016 was 29.9 years. One in three marriages last an average twelve years before ending in divorce and almost half of those cases involve children.
Don’t fall victim to the mentality that divorce will never happen to you. While you may be one of the lucky ones who never experiences divorce or single parenthood, prepare yourself financially for the worst-case scenario.
Don’t take a back seat in your family’s financial wellbeing or hand the reins over to someone else.
Maintain financial literacy, keep your credit score positive and assist in managing your shared portfolio.
Ninety per cent of Australian women will end up single at some point in their lives. If you do end up falling into that category, you’ll be more equipped to prosper financially on your own two feet.
2. Keep skin in the game
In most families, the responsibility of child-rearing falls to the female. We take time of our careers – often when they are just beginning to take off, to spend time at home with small children.
Many women planning to return to the paid workforce find they are forced out by the cost of paid childcare and a substantially lesser wage than our male counterparts.
The average female spends as much as twelve years less than men in paid work. Based on 2017 figures at the average Australian female weekly wage of $1409, this amounts to a staggering $879,216 in lost earnings, not to mention investment potential.
Progressive employers may offer paid paternal leave, in which case you should consider this as an option. Sharing the time spent out of the workforce can significantly lessen the ‘Mommy Penalty’.
The repercussions of lost earnings don’t just affect lower-income level women.
Taking time off can big a huge blow to financial security, not only in terms of career momentum, but also in lost wages.
A Harvard study of female MBAs found that those who took eighteen months off earned 41 per cent less than male colleagues.
Before stepping away from your career altogether, Harvard economist, Claudia Goldin, suggests women should “consider negotiating flexitime working arrangements”.
Speak with your employer about working from home, part time or even on a contract basis. If this is not feasible, consider finding flexibility elsewhere, or through freelancing.
3. Nurture your super
With more time out of the paid workforce than men, women typically earn 42 per cent less in superannuation over the course of their lives. This means less funds to retire on and can have a devastating impact on our ability to live comfortably and securely as we age.
Take steps to recoup as much of this lost earning potential as possible. When you do return to work, salary sacrifice to a super fund, shop around to find the best performer and roll over any funds you may have sitting in multiple accounts.
According to SunSuper and based on average fees, a member aged 39 with 3 external super accounts could spend $15,540 in additional fees by the time they retire. This may not seem like much, but it could be the difference between private or public health care in your retirement years.
You can roll over multiple Super accounts using the ATOs free online tool.
4. Calculate the costs of education
A study by RMIT University in 2014 Women and money across the generations, found that for 80% of women, our top priority is providing for our family’s daily needs, and as many as 73% of women list ‘Providing education costs for my children’ as a top priority.
A recent article in the Sydney Morning Herald, Private Schools, Costly Private Pain, stated that nationally one third of all school children are privately educated, with that burgeoning to almost 45 per cent in our major cities.
Despite this, “Only half of all families with children at private schools can meet the fees from their disposable income. The rest are drawing down on savings or taking on debt. About one-in-six families were paying school fees with credit card debt.”
This is possibly because many parents underestimate the hefty costs of private tuition and don’t begin saving soon enough.
Fees range wildly in price. Some institutions offer a sibling discount, so it pays to do some research. Choose your preferred school and work out the fees for the number of children that will attend each year.
If you choose a private school with an annual fee of $12,000 for the first child and $10,500 for a sibling, the cost of educating two children for six years will amount to $135,000.
Education is a long-term savings goal and you should begin saving for your children’s education while they are still small.
Find a high interest savings account and make regular contributions, taking advantage of compounding interest. Use a savings calculator to determine how much and how often you will need to contribute to meet your education goals.
Encourage teenage children to contribute and make saving for their education a family goal. Utilise automatic direct debits to make this a non-negotiable habit.
5. Get insured
Australian females are particularly at risk of under-insurance.
Income protection and life insurance is a necessary expense if you are going to ensure that your family and household costs are covered in the event of an accident or illness.
Ensure that both you and your partner are adequately insured, as is the family home and car. Speak to your employer about including insurance in your salary package.
You should have three to four months’ salary put aside for emergencies. Keep important documents, such as insurances, passports and rental leases in a well-organised file, with the presumption that a third-party may need to locate them easily.
6. Pay down debt
You likely have a mortgage, a car loan and multiple credit cards by the time you hit your thirties. Research ways of paying off your debt as soon as possible.
Consolidating debt is a money-saving tactic that can free up thousands of dollars of additional funds.
Use these funds to pay off your home loan faster or invest. Speak to a professional financial advisor for more information about using the equity in your home to invest.
Age 40 – 50
1. Mentor
At this stage in life, you will hopefully be more established in your career. Utilise your knowledge and experience and reap the mutual benefits of mentoring a younger colleague.
It’s easy to see the benefits of being a mentee, but Michael Page, a leading management recruitment service, believe that a professional mentorship offers reciprocal benefits. It cites tangible gains, such as receiving recognition as a subject matter expert, and added exposure to fresh perspectives, ideas and methods.
Mentoring gives an experienced employee the chance to develop their personal leadership styles and to gain recognition as a coach. “The ability to develop talent is highly valued,” says Catalyst’s Anna Beninger. In fact, managers with protégés earned an average of $25,075 more a year than their non-mentoring peers.
2. Get promoted
In an article featured on Road to Wealth, HR expert, Martha Finney, urges women to “Bust the myth that older workers don’t have the most up-to-date skills”. She stresses the importance of having a strong social media presence and a knowledge of the latest tech trends affecting your industry.
If you feel lacking in any area, level-up your skill set with a short course online.
Stay current with industry trends and you’ll continue to be in a position where you can easily illustrate your experience and value to your organisation.
Now is not the time to be a wallflower in the office. You have limited time to continue earning a wage, so continue to make it count by negotiating an annual pay rise, going for a promotion and looking for additional ways to utilise your skills.
3. Risk-averse investments
While you still have between 15 and 25 years left in the workforce, at this stage of your life you should be focusing on moderate to risk-averse investments with a higher guaranteed return.
Ensure that your portfolio is diversified to weather the ups and downs of the stock market and seek professional financial advice to increase your chances of success.
Have your home revalued and investigate the possibility of borrowing against the equity you have accumulated from paying down the mortgage.
Consider an investment property strategy with a positively geared yield and start creating passive income streams so that you have additional methods of supporting your retirement, without having to trade hours for dollars.
Research the benefits of purchasing property with your Superannuation Fund and look for locations with high capital growth potential.
4. Accrue leave
“With parents living routinely into their 90s, a second round of caregiving has become a predictable crisis for women in midlife” wrote Gail Sheehy, in The Caregiving Boomerang.
Many women in this age bracket find themselves suddenly – and often unexpectedly, thrust back into the role of primary caregiver for a second time in their careers. Promotions and leadership positions are put on hold, as the added burden of caring for an ageing parent takes its toll.
According to an article entitled Balancing Elder Care and a Career by Laura Steele, “Caregivers experience higher levels of stress, have more health issues themselves, and report more conflicts with other family members or colleagues. Typically, this added burden leads to absenteeism at work, or an inability to fully focus on the job.”
In Australia, full-time employees are entitled to 10 days per annum of paid personal or carer’s leave. Part-time employees receive pro rata of 10 days each year, depending on their hours of work.
This leave entitlement starts to build up from the day employment commences, carrying over to the following year if not taken.
Accrue as much personal leave as possible. Contact the Fair Work Ombudsman should you have any questions.
Consider flexible working arrangements, such as part-time or a compressed work week to maintain both your income and visibility in the workplace.
Speak to siblings ahead of time about sharing the responsibilities and cost of caring. Document the agreement, even if only via email, ensuring that all parties are aware of the expectations. If one sibling cannot contribute to the day-to-day demands of caring, due to location or career demands, try to come to a financial agreement. Stand up for yourself and make sure that you don’t end up bearing the brunt of the costs, whether through lost income, career momentum or financial expenses.
ASIC’s MoneySmart website offers a list of Elder Care and Seniors Support organisations that may be useful.
Age 50 – 60
1. Downsize
ASIC’s MoneySmart has a Retirement Calculator that you can use to help you determine how much money you need to live comfortably throughout your retirement years.
Instead of focusing on a lump sum dollar figure, realistically calculate how much money you’ll need for daily living expenses while still enjoying life. Start downsizing your budget and your living expenses now to prepare for how much you’ll have to live on down the track.
Consider downsizing your family home if the children have flown the nest and using the surplus funds to reinvest.
Take advantage of tax exemptions for seniors that present considerable savings and lifestyle opportunities, such as superannuation Transition to Retirement (TTR) Strategy. Invest your annual bonus into shares or as an added contribution to your super fund.
2. Stay active
Eat well, stay active and take care of your body and mind.
Invest in your health now and you’ll save thousands in health care costs down the track. Get regular medicals, eat a variety of fruit and vegetables and maintain friendships.