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5 Steps to Take Back Control After COVID-19

Mari Adam

CFP®, MBA, CRPC®, Sr. Wealth Advisor

Mar 26, 2021

Summary

Women have been disproportionately impacted by COVID-19, so it’s no surprise that the pandemic has changed how many women think about money. The past year has exposed how women often have more fragile safety nets. Now is a good time to strengthen your resolve to better prepare and protect your finances before the next crisis.

Women and Money: 5 steps to take back control after COVID-19

Women have been disproportionately impacted by COVID-19. Over 2 million American women have left the labor force since February 2020.1 Many have lost jobs in sectors of the economy where female employees dominate—like hospitality, restaurants, retail, and healthcare.2 With many women filling jobs that cannot easily be performed remotely, they have been forced to cut back their hours or exit the workforce entirely after losing childcare services. Women often have more fragile safety nets, and economic disruptions – like that caused by COVID – make women at all income levels feel vulnerable and exposed.

No surprise, then, that COVID has changed how many women think about money. The pandemic has strengthened their resolve to better prepare and protect their finances before the next crisis. Following these 5 steps can help women take control of their money and chart a successful roadmap toward Economic FreedomTM.

 

1. Take ownership.

95% of all women will be solely responsible for their own or their family’s finances at some point in their lives.3 Understanding money is critical; it’s what provides you with the means to quit a job, start a new business, exit an unhappy relationship, put your kids through college, help your parents, support yourself in retirement, or simply make your own choices.

It seems elementary, but the first and most important step toward taking control of your money is to stop outsourcing money decisions to others and take ownership of your own finances. Half of married women defer to their male partner when it comes to making or planning investment decisions.4 Surprisingly, that number is higher – not lower – among younger Millennial women, and even 60% of highly-educated women in technology fields admit they do not participate equally in money decisions.4 It’s important to keep in mind that money is all about having choices. Letting others make money decisions for you means giving someone else the right to make critical choices about your life. True financial freedom stems from taking an active and engaged role in your own money decisions.

 

2. Make a plan.

A financial plan is your money roadmap. Writing your own personal financial plan is not that different from planning for a cross-country car trip. You have to know where you’re starting from (that’s your net worth statement, which summarizes what you own and what you owe) and where you want to go (that’s the part spelling out your financial goals). When you arrive at your destination depends on how much you save each year (that’s related to your income and spending) and how fast your money grows (a function of how you invest and how much risk you’re comfortable with).

But here’s the bottom line: People with a written financial plan feel more confident about reaching their future money goals.5 They are also more than twice as likely to save on a regular basis toward those goals.6 Your advisor can help you prepare and implement a plan that puts you in charge of your key money decisions and your financial goals.

 

3. Get moving!

Protect yourself before the next crisis by setting up emergency reserves that can cover 3-6 months of your expenses. One of the big lessons of the COVID-19 pandemic is that most people just didn’t have enough set aside to cover lost income. Next, right-size your budget to spend less than you make. That will free up cash so you can save 10-15% of income each month, which is the recommended starting amount for women. Tracking your spending and making intentional choices about where you spend your money can help you save and invest. Make it easier to save by depositing funds directly into your IRA, 401(k) or personal investment account. Ask your advisor about the best way to save – Roth or Traditional IRA, 401(k), tax-deductible plan for your own business, 529 college plan, or individual investment account. And let compounding do its magic for you. The sooner you get started, the less you need to save.

 

4. Stop saving, start investing.

Did you know that women on average have only 32¢ in wealth for every $1 held by a man?7 Yet, women live longer and need more money than men, not less. There are concrete steps women can take to close the wealth gap. Fight back by maximizing your earning power and putting 10% or more of salary each year into your retirement savings. Carefully weigh time away from the workforce, as career interruptions can undermine your savings plan. The average woman caring for children or relatives misses out on 12 years of work, costing her hundreds of thousands of dollars in lost wages and benefits.8 Continue saving even if you’re a stay-at-home partner, using a spousal IRA for example, or set up your own retirement plan to capture income from a side gig. Most importantly, understand the difference between “saving” and “investing.” Saving without focusing on long-term growth won’t get you where you need to go, so talk to your advisor about building a low-cost, diversified portfolio that can grow to cover your lifetime needs. A “too-safe” portfolio may turn out to be the riskiest choice of all.

 

5. Invest in yourself.

Finally, make time for your financial well-being, setting aside time to monitor your plan and evaluate progress toward your goals. Invest in your education and earning potential. Women now earn the majority of advanced level degrees in the United States9 and more than half of women are the primary breadwinners in their household, using their talent and hard work to support themselves and other family members.10 Never lose sight of the importance of networking and positioning yourself for that next opportunity. For many women, that means starting their own business. In fact, 40% of U.S. businesses are women-owned11 and entrepreneurship has been a path to Economic Freedom for generations of women.

The Takeaway: As you tackle these 5 steps, remember that money is all about having the freedom to make your own choices. There is no better time than now to take back control of your finances, and prepare and protect yourself from tomorrow’s future challenges.

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Footnotes:


1 Maria Aspan, Fortune, February 5, 2021, “Nearly 80% of the 346,000 workers who vanished from the U.S. labor force in January are women”

2 U.S. Bureau of Labor Statistics, 2020

3 Family Wealth Advisors Council, 2015 and Putnam Investments, 2020

4 UBS, “Own your worth 2020”

5 Schwab Modern Wealth Survey, 2019

6 Savology, 2020 and Schwab Modern Wealth Survey, 2019

7 PayScale, 2020

8 Family Caregiver Alliance, 2015

9 Putnam Investments, 2020

10 Prudential “Financial Wellness Census,” 2018

11 Fundera, 2020

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