By Joanna Amberger, CFP®
Financial planning is one of the most effective actions a woman can take to ensure her future independence and happiness.
No matter whether you are young, mature, married, single, living on Oahu, a neighbor island, or the mainland, financial planning should be a top priority for you. A financial plan is a map to the future you’ve always dreamed about. It can help you achieve your short and long term goals in a number of ways.
In this quick guide, we’ll explain what financial planning is, why it’s important for all women to engage in financial planning, and how you can expect to benefit from financial planning. Then, we’ll walk through some of the barriers women face when working with a financial planner and how to overcome them.
Chapter 1
What is a financial plan?
Chapter 2
Why do women need to take part in financial planning?
Chapter 3
Financial planning benefits for women
Chapter 4
How to choose a financial advisor
Chapter 5
Why you should work with a female financial advisor
Chapter 1
What is a financial plan?
A financial plan is a living document that lays out where you stand now financially and where you want to be in the future. Based on those aspirations, a strategy is developed to meet your goals. You can create a financial plan on your own or with the assistance of a financial advisor. The latter can help you avoid making any costly mistakes, avoid overpaying in fees, clarify your goals, and evaluate the best way to achieve them.
A good financial plan is more than just a budgeting exercise or a hands-off investment strategy. It takes into account all your assets, your retirement savings, and your future plans – whether that’s purchasing a home, starting a family, traveling, or tying the knot. Working with a holistic financial advisory firm that offers everything from investments to estate planning services will help you create a comprehensive financial plan that addresses your dreams and lifestyle.
Furthermore, financial planning should be an ongoing process. Expect to make revisions to your plan as your priorities change and your financial reality shifts.
Chapter 2
Why do women need to take part in financial planning?
Have you ever gone to the grocery store without a list in hand or even a vague notion of what meals you wanted to make for the week? Probably you picked up a few pantry staples, maybe a few indulgences, but didn’t really get what you needed to make it through the week.
Wandering through life without a financial plan is a bit like going to the grocery store without a list. You may be able to cover your basic necessities, but otherwise must blindly mosey down each aisle, guessing at what you might need. You’ll return home with an assortment of semi-helpful ingredients, likely having spent more than you intended on excess food.
Having a financial plan means knowing what you need to do in order to produce the future you want to live in. It keeps you traveling down the most efficient path toward your goals.
The unpredictability of relationships
Some women may think they don’t have to worry about financial planning if their husband, wife, or significant other has always handled finances. But women who are married to men need to remember that they are statistically likely to live longer than their husbands, which means they need to understand their finances and prepare to manage their retirement accounts.
Widowhood aside, any relationship is subject to the twists and turns of fate. You never know exactly how your future will shake out; make sure you’re financially ready for any contingency and have enough financial independence to stand on your own two feet should the need or desire arise.
Risk aversion
Women make up a smaller portion of stock investors than men, yet they hold more of the wealth. That means millions of women aren’t putting their savings to work, missing out on potential gains.
It’s not surprising – up until recently investing had long been an old boy’s club women weren’t invited to. Women were not encouraged to pursue careers in finance and therefore weren’t taught investing principles. That has resulted in a lack of confidence among women and one of the reasons they invest 40% less than men.
Inherent in women’s hesitancy to invest is an aversion to risk and insistence on conservative investing styles. Studies show that women are much more fearful of incurring big losses and aren’t impulsive when it comes to investing decisions. That often results in paralysis when an opportunity arises and it means women could be missing out on big potential gains.
That’s where a sound financial plan comes into play. If you work with a financial advisor that knows your risk tolerance and time horizon they can craft a plan that won’t keep you up at night. Having a sound financial plan will help you stay the course when markets tank and prevent you from making rash moves when stocks are skyrocketing.
Gender pay gap
Women have come a long way since getting the right to vote, but there still isn’t parity in pay. For every dollar a man earns in 2020, a woman earns 81 cents. Men make more than women, plain and simple, which means women need to be extra vigilant as they save and invest.
In addition to grappling with unequal pay, women tend to contend with unequal domestic duties. For example, caretaking responsibilities, for both offspring and older relatives, are most often left to women. The consequence of this responsibility is typically taking time out of the workforce.
While away from their jobs, women can miss opportunities for promotion, as well as retirement contributions. Those missing contributions are exacerbated by the effect of compounding interest, which can mean tens of thousands of dollars lost.
Differing priorities
To make sure your priorities are accounted for, you need to be involved in your financial planning process, no matter whether engaging in that process as an individual or a member of a family.
After all, you are an individual with individual needs, and the best way to make sure those needs are understood and included in your plan is to advocate for yourself.
Chapter 3
Financial planning benefits for women
Women may assume they are doing enough by contributing to their company’s 401(k) or opening an IRA account. But financial planning and wealth management is much more complex, especially if you are aiming to maximize the amount of wealth you want to amass. There are taxes to consider, estate planning to think through, and how you’ll have enough money for a home, let alone retirement.
A financial plan provides an overarching strategy that takes into account the many facets of wealth management, providing tangible benefits along the way.
Benefit 1: Financial planning speeds up savings.
The nation collectively is doing a poor job of saving – be it for an emergency or retirement. But people who have a financial plan tend to save more than those who wing it.
Let’s say your plan calls for you to save 5% of your monthly salary for an emergency fund and retirement. If you establish that as a rule, you’re more likely to stick to it than if one month you save 10% and another nothing. Plans keep you on track and, as a result, you end up saving more than if you didn’t have one.
Moreover, a plan helps you save strategically. After all, it’s important not only to contribute to your savings regularly but also to make sure that the vehicles you use for your savings are the best options available. You don’t want your money to lose value because it’s in an account that can’t keep pace with inflation. Nor do you want to look back 15 years from now and realize that if you’d only made a few slight shifts to your investment portfolio, you could have saved twice as much.
Benefit 2: A financial plan can result in smarter investment decisions.
Investors tend to act on emotion, often buying high and selling low. It’s not surprising – many have their life savings tied up in the stock market. A big plunge in share prices is going to have a lot of investors cashing out of the market. But history has proven that is a costly mistake. Take the Great Recession of 2008 and 2009. Those who stayed the course recouped their losses and then some. You couldn’t say the same of those who ran for the hills as stocks plummeted.
Why were some able to withstand the near term pain for long term gains? A financial plan. Well thought out financial planning keeps you on a course for years, not weeks or months.
If the plan is solid and crafted by an experienced financial advisor, you won’t have to worry about the gyrations in the stock market. Stocks rise and fall, but if you stay the course over the long term you’ll ultimately come out ahead. With a financial plan, you’ll have the confidence to remain in a stock when everything around you screams sell.
Benefit 3: A financial plan helps you achieve your dreams and avoid your nightmares.
Do you want to retire by a certain age? Avoid becoming a burden to children? Achieve the peace of mind that accompanies financial security?With a holistic financial plan, you can not only identify what’s most important to you, but create manageable steps to attain what matters most.
Moreover, we all have worst case scenarios that keep us up at night. Perhaps yours is outliving your retirement savings. Or maybe you dread being cleaned out of your savings due to an unexpected illness or injury. The truth is that your worst case scenario might be a real possibility without a financial plan and the preventative measures it promotes.
Chapter 4
How to choose a financial advisor
In Honolulu alone, women have a lot of options when it comes to choosing a financial advisor. There are five traits that women can use to identify the best financial advisors for her:
- CFP – A CFP, or Certified Financial Planner, has demonstrated expertise in the financial planning field. Plus, they’re held to high ethical standards and required to participate in ongoing education. This designation signals to clients that they can expect to work with a financial advisor who is both knowledgeable and trustworthy.
- Fiduciary – Fiduciary advisors are required to keep the client’s best interest in mind when giving advice or providing financial planning services. This is incredibly important when paying someone to handle your money.
- Fee-based compensation – In addition to being a CFP, consider a financial advisor that is fee-based. That means he or she doesn’t get paid commissions for pushing a certain stock or financial product. Instead, they are paid a flat fee for financial planning services or a fee based on assets under management, which increases transparency. You won’t have to worry about hidden fees or any conflicts of interest when working with a fee-based financial advisor.
- Personality – Qualifications, experience, and certifications matter a lot when choosing a financial planner but you also have to click with the person that’s handling your money. Take the time to interview financial advisors before settling on one. You want a person that will answer questions, explain their ideas in a jargon-free manner, and are easily reachable.
- Communication – Some advisors will have an initial meeting and then hold check-ins annually while others will want to meet with you via phone or in-person monthly. Your confidence level will dictate if you prefer a very hands-on financial advisor or one that uses a “no news is good news” approach.
Chapter 5
Why you should work with a female financial advisor
In Honolulu alone, women have a lot of options when it comes to choosing a financial advisor. There are five traits that women can use to identify the best financial advisors for her:
- CFP – A CFP, or Certified Financial Planner, has demonstrated expertise in the financial planning field. Plus, they’re held to high ethical standards and required to participate in ongoing education. This designation signals to clients that they can expect to work with a financial advisor who is both knowledgeable and trustworthy.
- Fiduciary – Fiduciary advisors are required to keep the client’s best interest in mind when giving advice or providing financial planning services. This is incredibly important when paying someone to handle your money.
- Fee-based compensation – In addition to being a CFP, consider a financial advisor that is fee-based. That means he or she doesn’t get paid commissions for pushing a certain stock or financial product. Instead, they are paid a flat fee for financial planning services or a fee based on assets under management, which increases transparency. You won’t have to worry about hidden fees or any conflicts of interest when working with a fee-based financial advisor.
- Personality – Qualifications, experience, and certifications matter a lot when choosing a financial planner but you also have to click with the person that’s handling your money. Take the time to interview financial advisors before settling on one. You want a person that will answer questions, explain their ideas in a jargon-free manner, and are easily reachable.
- Communication – Some advisors will have an initial meeting and then hold check-ins annually while others will want to meet with you via phone or in-person monthly. Your confidence level will dictate if you prefer a very hands-on financial advisor or one that uses a “no news is good news” approach.
