Your Guide to LGBTQ Friendly Financial Planning

The first step in the process of creating a healthy financial future is drawing up a financial plan. A financial plan is a comprehensive picture of where your finances currently stand, your financial goals, and the strategies that will help you achieve those goals. 

It’s composed of four categories:

• Savings and income
• Assets and liabilities
• Risk management
• Retirement

Creating a financial plan that covers these four areas means you will have covered the majority of issues in your financial life.

The first step in the process of creating a financial plan is deciding what your financial goals are. What do you want your money to do for you? Setting clear goals can make the process of saving money easier as you’ll have a target to hit that inspires you. A financial goal could be buying a house, saving for the retirement of your dreams, starting a family, paying off debt or student loans, or simply worrying less about money. You can focus your financial plan on one or more goals for your finances.

Some action items you can take to support your financial plan can include building an emergency fund so a sudden expense isn’t a crisis, taking on your highest-interest debt, investing to strengthen your savings, and building your retirement fund. Over time, each step contributes to a healthier financial life.

You can make a financial plan yourself, or you can work with a financial planner to create one. While working with a financial planner does come with an added cost, the expertise and guidance they offer can give you additional security and peace of mind to your financial life – well worth the cost.

While everyone should have a financial plan with those four components, there are special challenges to take into consideration for members of the LGBTQ community. Each chapter of this guide will cover one of those areas and what LGBTQ people should know as they plan for a stable and healthy financial future.

Savings and income are the positive side of the financial equation – it’s about what money is coming into your life, and storing it away to achieve your financial goals. Income is any money you have coming in – from a full-time job, part-time gig, government benefits or assistance, and so on.

Unfortunately, there is a gay pay gap – on average, heterosexual people make more than LGBTQ ones. That can mean there’s less money coming in, and also less to put into savings once your needs are met. This is why it’s especially important for members of the LGBTQ community to have a clear picture of their current financial state – while it can be intimidating or uncomfortable to look at your finances if you are struggling, having an accurate view can help you start planning for a healthier future.

When creating a financial plan, you should begin tracking your cash flow – what income you have, and what expenses as well. Seeing where your money goes is the first step to creating a realistic and effective spending plan[JA1] [as2] [as3] . It can also uncover some areas where you could save more without creating too much stress or hardship.  How you spend your money reveals what you value in life.

Assets include anything that you own, such as a house, car, retirement accounts, checking accounts and investments, and so on. Rented property and household goods are typically not included as assets.

Due to the gay pay gap, many LGBTQ people have not had the same opportunities to build assets by buying a home or investing significantly in their retirement funds. And many live in high-cost urban areas, which increases living costs and makes it more difficult to afford to buy a home instead of renting, which cuts down on assets. But, this does not mean it is impossible for LGBTQ people to build these assets.  It just means you have to be very intentional about how you plan for the goals that are important to you.

Liabilities, on the other hand, are the other side of the balance sheets. They are any debts that you have, including credit card debt, student loans, personal loans, mortgages, and any unpaid taxes. If you’re married, debts that are jointly owned are also included in this list. Since LGBTQ people tend to make less and often have less support from their families due to homophobia, they can have more liabilities such as student loan debts that can negatively affect their financial balance.

It can be hard to look at this complete picture of your current financial state – you may feel you have too few assets and too many liabilities, especially as you get closer to retirement age. However, this statement is not your financial future set in stone. If you feel overwhelmed with where to begin so you can achieve your financial goals, working with a financial planner can be a huge help – check out chapter 6 of this guide for everything you need to know.

Even in the healthiest financial life, there are always elements of risk. The stock market can tank and send a sound investment strategy to pieces, losing a job can hurt even a higher earner, and damage to a house or car can impact assets. Planning to manage the chance of those risks is the purpose of many types of insurance. For example, home and car insurance protect those assets, disability and life insurance protect your income for you and the people you care about, and long-term care insurance protects your ability to be cared for in your later years.

This last type of insurance, Long Term Care is one that many LGBTQ individuals and couples lack. In the LGBTQ community, it’s common for people to plan to care for their chosen family – friends – instead of having biological family members take on that task. But if your partners are around your own age, they may not be able to provide all the care you need if they require care themselves. And since fewer LGBTQ people have children than straight or cisgender people, planning for your own future and avoiding the risk of being unable to afford needed care is vital.

Risk management can even be as simple as aiming to build an [JA4] emergency fund to help you weather an unexpected crisis without going into debt. It’s a good rule of thumb to aim for at least three months of living expenses in your emergency fund, but any amount of money is a start to financial stability. If your emergency fund isn’t where it should be, don’t panic and don’t let that stop you from starting. Instead, take small steps to reach your big goals. And of course, the more money you’re able to save for retirement, the more confident you can feel about any risks as you age as well.

Managing risk can be challenging to tackle if insurance is not affordable for you, so it can be helpful to talk to a financial advisor about other ways to keep your financial future safe and secure even if something does befall you and your assets.

Many people of all sexual orientations worry about having enough money to support themselves and live their dreams in retirement. But these worries are particularly acute for LGBTQ people because they tend to earn less money over their lifetimes and have less money saved for retirement as well. In fact, LGBTQ couples have a median retirement savings of $66,000, while straight couples have $88,000.

And the gap doesn’t stop there – LGBTQ couples also save less of their paychecks and are less likely to have a will or a 401(k). All this can add up to more financial anxiety about having sufficient retirement savings to last through a lifetime. 

But there are plenty of ways to help bridge this gap and ensure your own retirement is financially sound, even if it’s not too far off. In 2021, IRS catch-up provisions allow people who are 50 and older to contribute up to $7,000 per year in IRAs and $26,000 in 401(k)s and 403(b)s[JA5] . If you are eligible for a 403(b), you can also save more if you have worked for your employer for 15 years or more.[JA6] [as7] [as8]  These contributions can help you catch up to make sure your retirement savings will be sufficient. And when you have maxed out contributions to traditional retirement plans, you can also consider options like annuities as well.

Consulting with a financial planner can seem like a reach when you’re on a budget, but over the long run it can be more expensive to not have one at all. Working with a financial planner can help you decide on the best strategy to save for retirement, whether it’s 10 years or 40 years away, and give you peace of mind about your future.

When you’re looking for a financial planner to help you create a stable, safe future for yourself and your family, finding one that understands the challenges facing LGBTQ people and couples is important. And the financial planning world is not a particularly diverse one, so it can be tough to know whether a financial planner truly knows how to give investment and planning advice based on their knowledge and experience for LGBTQ people.

That’s why it can be a good idea to look for a financial planning firm that specifically focuses on LGBTQ-friendly financial advice. They can help you understand how to design an estate plan that fits your lifestyle, create a financial plan based on your current circumstances and what is important to you, and save for retirement.

 3 Financial is one of Honolulu’s most experienced [AS9] financial planners for LGBTQ people, couples, and families. Our financial advice comes from me, a Certified Financial Planner, and our fee-only fiduciary model means you’ll always receive advice based on your best interests. And what’s more, we understand that finances can be an uncomfortable topic, so we approach every client with compassion and understanding. We’ll work together to achieve your financial goals and support you through every step of the planning process.

Contact us today to get started!