In December of 1997, I graduated from college and set out into the world to land my first full-time job. My mom, a middle school art teacher of 35 years, told me she had recently learned from her financial advisor that there was a new retirement savings option called a Roth IRA.
She explained that I could save up to $2,000 per year after taxes, and that it would grow tax-deferred over the course of my career. And that eventually I could take tax-free distributions from the Roth IRA in retirement.
I opened my Roth IRA, and my mom made the first deposit to help get me started. From then on, saving was my responsibility. I set up a bi-monthly transfer from my checking account. Each time I got paid, $83 would automatically transfer into the Roth IRA which is also how I learned about the powerful concepts of dollar cost averaging and the time value of money. I also realized I’d taken a significant leap in my own financial empowerment.
Understanding financial challenges faced by women
I was fortunate to have my mom’s advice, which helped me gain a great deal of financial empowerment as a young woman. I told all my friends about my experience with that Roth IRA, and that’s when I discovered I have a passion for helping people gain financial literacy.
Women can be faced with unique or unusual circumstances that make financial planning even more important for us. While we’ve come a long way since the 60’s, when women weren’t allowed to open their own bank accounts, we still can be presented with financial challenges or setbacks.
- Career. Women continue to face a gender pay gap, on average earning 80 cents to every dollar a man earns. Women are also more likely to take a break from their career at some point, putting them at a financial disadvantage.
- Homeownership. Single women outpace men as first-time homebuyers. They are also more likely to choose to live alone and typically spend half of their income on housing. Twice as many single millennial women plan to own a home. Knowing how to effectively manage money is critical when trying to pay a mortgage while also save for retirement, especially if you’re taking on full expenses of their own household.
- Divorce. A significant percentage of marriages end in divorce, which are often expensive. Legal fees, child custody issues and the division of assets can take a toll on a woman’s financial situation.
- Retirement. Women tend to live two years longer than men, and should plan for this for this in their retirement income planning.
Taking control of your financial plan
Being able to effectively manage and plan for these kinds of situations is key to women’s financial security. I encourage my friends and clients to take charge of their financial destiny because it’s essential to achieve their goals and dreams.
- Start today. The time value of money is an important concept in retirement savings. Even if it’s small, start contributing on a consistent basis right now. If you have an employer-sponsored plan like a 401(k), find out if your employer matches your contributions and make the minimum contribution to get the match.
- Make a plan. Set a monthly budget and commit to the discipline of sticking to it. Save first, spend second. Move your money to savings first and spend what’s left, not the other way around.
- Be involved. Even if you have a partner that takes the lead on managing finances, proactively engage in financial discussions including those with outside advisors.
- Get help. Don’t be afraid to ask for help. Your bank is a great place to start, and can give you access to a whole team of experts who can help you with everything from basic financial literacy to customized financial road maps.
Embracing financial empowerment
In the car on the way home from basketball last week, my son was telling me about all the books my mom has bought him over the years. He suddenly stopped and said, “Wait a minute, where does Grandma get her money from since she doesn’t have a job?”
My response may have lost his attention somewhere between Roth IRAs and pension plans, but it did give me a moment of reflection. I felt proud to think of how my mother took control of her own finances, made a plan, and engaged trusted advisors along the way, and how she inspired her own daughter to do the same.