8 financial tips for women
By Lorna Tan
If you’ve only got a minute:
- Women generally live longer, so planning for the long-term financially is of paramount importance to ensure they do not outlive their nest-egg.
- Money parked solely in low-yielding savings accounts will be eroded by inflation. Investing allows money to work harder through the re-investment and compounding of dividends and returns.
- Credit cards can be a helpful financial tool. Understanding the mechanics of it and exercising the right kind of restraint on purchases can help you save money or earn rewards.
In the past decades, more women have been getting an education and entering the workforce. There are also more women holding management roles. All this harbours well for the fairer sex. With greater income potential, women now have the means to be financially savvy. Still, the journey to financial freedom starts with a plan. Financial planning allows women to map out their goals based on their present circumstances and future needs, as well as identify and close any gaps.
However, there are certain obstacles women may face, particularly those who take a break from their career to devote time to raising a family or be caregivers to the elderly. Studies showed that more women than men had at one point taken a career break. This could result in reduced opportunities for career advancement and lower lifetime earnings compared with their male counterparts. Furthermore, women generally live longer than males – on average by five to eight years - so planning is of paramount importance to ensure they do not outlive their nest egg.
Here are 8 financial tips for you to stay on top on your finances.
1. A man is not a financial plan
It is prudent for a woman to be financially independent and not rely completely on their spouses or anyone for that matter. As women tend to live longer, a bigger nest-egg is usually required to fund their twilight years.
This is partly because women generally live longer, and the family coffers would usually have little left over after spending on the children’s education and husband’s medical needs.
Therefore, it is crucial for women to be self-reliant on money management. By empowering themselves continuously with the financial know-hows, they will be able to make informed decisions and manage their finances well.
What can you do?
- Start planning for the long-term.
- A thorough financial plan eliminates uncertainties and helps you manage your money better.
- Get over any fear of financial jargon by empowering yourself with financial knowledge on budgeting, credit management, insurance, investing and planning for long-term goals like retirement.
2. Safeguard your interests: Be involved in your family’s financial planning
Some women prefer leaving financial planning to their more money savvy partners but fail to consider the consequences should unforeseen circumstances arise – death of their spouses. Who then takes charge of the finances? Are there sufficient funds to cover outstanding liabilities (for example, mortgage & car loan)? They might be in for a rude shock if little/nothing was done to cater for the needs of surviving family members.
Separation and divorce can also pose risks for many women as they could be left with far less when a marriage breaks down.
What can you do?
- Even if you decide that your husband should take full control of all financial decisions, it is prudent that you have access to the accounts and be kept abreast of the money flows and investments.
- Check if there’s a financial plan in place that deals with liabilities (mortgage and car loans).
- Find out what are the money sources that will fund these loans and the provisions for family members, and who are the beneficiaries if the breadwinner dies prematurely. Common estate planning tools include a will, Central Provident Fund (CPF) nominations, insurance nominations, and the Lasting Power of Attorney.
- Consider setting up a separate savings pool to fund your specific goals and ensure that you can maintain financial independence and quality of life regardless of what the future brings.
3. Gender pay gap: Don’t just save - make your money work harder for you
Women are more likely to depend on their children, husband and family members for financial support. Being more nurturing in nature, they tend to focus more on the physiological needs of the family and are more likely than men to be employed in temporary work as they usually take on the caregiver role in the family, often resulting in a significant pay gap from their male counterparts. This has an impact on the extent they are prepared for their golden years.
This gap means that women feel much less prepared for their future.
What can you do?
- Be mindful of not just saving but making your money work harder for you via other platforms.
- Have a plan to build up your savings, by being disciplined to set aside a fixed amount on a regular basis
- When it comes to investment, keep in mind that a balanced and diversified portfolio (which comprises cash and suitable asset classes) can help take advantage of opportunities to keep up with inflation, accumulate wealth and have a sustainable retirement.
- Understanding how the CPF schemes work will be advantageous too – especially if you’re a homemaker. For instance, if you have low CPF balances, your husband can top up your CPF account. Both of you will benefit from the extra interest that will be paid in the respective accounts and there is peace of mind as you would have your own source of retirement payouts.
4. Lower risk tolerance: Build confidence and start investing
Despite saving more of their income than men do, women often invest less of it.
And for those who do, they often tend to be more conservative and prefer less risky options than men. As a result, they are more likely to hold a higher proportion of their assets in cash or low-yield deposit accounts and might miss out on other attractive investment opportunities that can generate better returns.
Essentially, money parked solely in low-yielding savings accounts will be eroded by inflation. Investing allows money to work harder through the re-investment and compounding of dividends and returns.
What can you do?
Start by understanding the basics of defining your goals, setting aside an adequate emergency fund and understanding your risk profile before investing. At all times, ensure your investment holdings are diversified by keeping a balanced portfolio of cash and investments that suit your needs (a mix of equities and fixed income).
One way you can reduce the risk of investing, and avoid timing the market is to practise dollar-cost averaging. This means spreading out your investments over a longer period to enjoy the benefits of time diversification. For instance, $100 each month for a year, instead of $1,200 at one go.
You can start by investing in low-cost index tracking exchange-traded funds (ETFs) or funds. The DBS Invest-Saver and robo-advisory platform digiPortfolio are good avenues for regular investing into ETFs and unit trusts from as low as $100 a month.
And remember – always do proper due diligence and research, so you can make an informed investment decision.
Learn and educate yourself on the various investment options and instruments. Find out what is suitable based on your risk profile and the available capital. Do not let the fear of losing money or fear of the unknown deter you from investing. Understand that investing requires calculated risk-taking to generate a higher rate of return. Ultimately, the investment journey should be aligned to your values and long-term financial plans and goals.
5. Time in the market: invest over a long-term horizon
The old adage “it's not about timing the market, but about time in the market,” has been proven true over the years. Research shows that long-term investors who maintain a well-diversified portfolio will typically outperform those who try to capitalize on market turning points.
Building wealth is about buying quality assets – equities, bonds, or unit trusts – and allowing time to help you build value. Naturally, it is obvious to jump in at the lows and cash out at the highs, but no one can predict the peaks and valleys of market returns.
What can you do?
- Instead of timing the market which is usually difficult to get right, take a long-term view while expecting volatility along the way.
- Invest in tranches to reduce the average investment cost and stay invested to smooth out the effects of the market’s ups and downs over the long haul.
- Review your portfolio at least once a year and rebalance to align with changes in your investment goals and risk tolerance.
6. Female Illnesses & longer life expectancy: prepare for the unexpected
As women tend to outlive men, they are far less likely to have a partner to care for them in old age.
In addition, women are more prone to certain medical conditions like musculoskeletal problems and some critical illnesses such as breast/cervical cancers and/or pregnancy complications.
What can you do?
- Consider sufficient long-term cover in the event of the passing of your spouse.
- Have adequate insurance plans that cover female-related cancers, hospitalisation and critical illnesses.
- Be mindful to review and adjust coverage to prepare for rising costs of critical illness, disability and healthcare in retirement.
7. Shop smartly: choose your credit cards wisely
Apart from not having to fumble with cash and coins, many credit cards offer perks like retail points, airline miles, cash back or additional discounts so you can accrue some savings as you spend.
When used responsibly and strategically, credit cards can be a very helpful financial tool. Understanding the mechanics of it and exercising the right kind of restraint at purchases can actually help you save or even earn significant amounts of money in the long run.
When charging purchases to a credit card, you will be doing yourself a huge favour by selecting one that is more aligned to your lifestyle.
What can you do?
- For instance, if you dine often, select a card that offers rewards points or cashback for dining. And if you enjoy travelling, then opting for cards that aggregate air miles may work better for you.
- The idea is to gain as many benefits as possible from your transactions.
Pro tip: Check on credit card promotions when you shop and dine. At all times, inculcate the habit of not overspending during shopping trips or shop impulsively online.
Do note if your credit spending gets out of control, monthly payments and accumulated interest can become a problem. Always exercise discipline and spend within your means.
8. Set a realistic budget: use digital tools to set up a financial plan
A realistic budget can help you avoid the pitfalls of overspending. Setting up a budget and managing debt is a foundational cornerstone of prudent financial planning. It will impact all other aspects of financial planning including your day-to-day cashflow, building up your savings and emergency funds, securing sufficient protection for yourself and your loved ones, and any plans to grow wealth in the long-term.
What can you do?
Use digibank to set up a holistic financial plan. It helps you monitor your cashflows, identifies gaps and offers customised tips and access to insurance and investments, as well as map out your future retirement income streams.
Track your spending with the Money In & Money Out feature. Having a budget puts you in control of your money. It is always a good idea to prioritise saving over spending - that means setting aside money for savings first before allocating the rest of your money for expenses. (Tip: always “pay yourself first!”)
Digibank also allows you to sort your money inflows and outflows automatically into categories like transportation, shopping and so on, so you can set saving and spending targets and control them easily. In fact, you can start by tracking your spend on the go.
Last but not least, always remember to live within your means and never be in debt.
Ready to start?
Speak to the Wealth Planning Manager today for a financial health check and how you can better plan your finances.
Alternatively, check out NAV Planner to analyse your real-time financial health. The best part is, it’s fuss-free – we automatically work out your money flows and provide money tips.
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.