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The evidence of how women were, and continue to be, disproportionately impacted by the pandemic is staggering and continues to be felt and seen every day. In fact, a study that was conducted more than one year into the pandemic found that 1 in 4 mid-career women took on credit card debt to pay for basic necessities.
Now, as the pandemic challenges everyone to shine a spotlight on wellbeing, engaging in financial wellness practices has become even more critical to the overall quality of life. This includes paying off debt and getting to a place of financial security and freedom. And while everyone’s financial journey is different, there are actionable steps advisors can take to empower their female clients’ financial futures and health.
Short-term priorities
Establishing and executing goals, both for the short and long-term, is a great place to start to help clients get their personal finances in order. There are foundational elements to financial wellness that provide immediate benefits, which make them excellent short-term priorities.
Build your budget
Remind clients that the biggest obstacle on the road toward financial security is being unaware of what they don’t know. Level-setting is a first step to helping them achieve their goals. For example, not knowing exactly how they’re spending their money hinders the ability to proactively plan their financial futures. Help them take the time to track down recurring costs (such as subscriptions, utilities, groceries, etc.) and tally up how much they spend. This can provide instant gratification and tame runaway anxiety by helping them understand their budgeting blind spots and it will give them a complete picture of how their hard-earned income is spent.
There are numerous ways to build a budget (so long as it accurately reflects spending), but one easy way to sort expenditures is by necessity. Group the essentials – rent or mortgage payments, groceries, utility bills, etc. – together first and make sure they can cover those expenses. Then move on to entertainment and leisure spending. Help your clients prioritize where they’ll spend their money and where they’ll need to adjust or cut back to achieve financial goals. Ensure their budget shows a realistic financial picture of the life they lead.
Establish your emergency fund
A recent survey by investment app Betterment found that 41% of women lack an emergency savings fund, versus 28% of men. This vulnerability and exposure to risk, from mundane maintenance to serious unemployment setbacks, create extremely difficult positions from which to recover.
While a best practice for one’s emergency fund is to save enough money to cover three months’ worth of daily expenses, starting with small increments is a step in the right direction. Remind your clients to not let “perfect” get in the way of good. Encourage them to start saving now, even if it’s only a little bit from each paycheck, and they’ll build a safety net faster than they can imagine.
Deal with debt
People assume debt for a variety of reasons, all of which are equally important to address. Perhaps your client’s debt comes in the form of having student loans to pay for college (women carry nearly two-thirds of the nation’s student loan debt, or close to $929 billion), or maybe they don’t have a cadence for regularly paying down credit cards. Regardless of how the debt is accumulated, it doesn’t take much to know how toxic debt can be to your client’s financial security and mental health.
When dealing with debt, it’s helpful to go in with a plan – while paying off any debt is preferable to nothing at all, you’ll want to make sure your clients are going about it in an efficient manner. There are two main schools of thought – pay off the debt that carries the highest amount of interest first, since the longer debt is carried, the more it hurts the bottom line. However, the high-interest debt is likely larger than lower-interest debt and will take longer to pay off, which can feel discouraging.
That’s why some financial professionals advocate for paying off a smaller debt first. With this approach, the relief clients feel from getting rid of one of their debts encourages them to tackle the rest of their debt, including the larger obligations. Introduce your clients to the “snowball method” of debt repayment by focusing on paying off smallest debt balances first while making minimum payments on all other debt. Once a smaller balance is paid off, clients can take those funds previously allocated and put them towards their next smallest balance. This method is essentially “snowballing” their payments towards their next balance and continuing this cycle until all of their debt is repaid.
Long-term priorities
Once clients have a handle on immediate personal finance priorities, which deserves to be celebrated, help them set their sights on the longer-term goals that will propel them further toward their goal of financial security.
Track toward “milestone” moments
The portion of clients’ personal budgets dedicated to savings can be broken down further into specific goals. While most people know they should have an emergency fund to rely on in case their income unexpectedly shrinks, they also likely have plans for their futures. This may include larger financial milestones, like saving for a house or car, or luxuries that are important to their overall quality of life, like travel.
While the price tag and time to save for these goals may be greater than your client’s short-term priorities, the fundamentals remain the same. When helping them put together a budget, ensure they can cover the necessities and prioritize adding funds to their emergency savings. From there, they should allocate a certain portion of funds toward these longer-term goals. Depending on how long it will take them to save, you may want to encourage them to put the money in a certificate of deposit (CD) or money-market account instead of a savings account. While money placed in these financial instruments isn’t as liquid and would incur a penalty if withdrawn too soon, they earn more interest and could be a good option if your client’s goal requires a few years of saving.
Get ready for retirement
Making sure your clients have enough money for retirement is likely one of your biggest responsibilities, and one of the most stressful – 60% of women are worried that they won’t achieve a financially-secure retirement. And while saving for retirement is more difficult today than ever, the obstacles are far from insurmountable. Considerations to help your clients keep in mind are:
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Start early: It’s a worn-out cliché, but the greatest asset younger workers have is time. The earlier they can start saving for retirement – even if they don’t feel like it is nearly enough – the better.
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Diversify the portfolio: A strong savings plan for retirement should incorporate different financial tools to maximize money while shielding from downturns as much as possible. IRAs, 401(k)s, annuities – everything should be on the table for clients and their financial professional to discuss.
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Maximize contributions: If your client has an employer-sponsored 401(k) at work where the employer matches contribution, make sure they are laying aside enough money to meet the maximum contribution level. In other words, if their company says they will match up to 5% of what they contribute to the 401(k), if your client’s finances allow, encourage them to commit 5% to the 401(k) so they don’t leave money on the table.
The past few years have held a lot of surprises for the world in general and women in particular, but helping your client set financial goals and putting a plan in place to achieve them can help them take control in a world where the only constant is change.
Amanda Carstens Steward serves as SVP, head of marketing and corporate communications at Athene. She is responsible for the strategy for Athene’s marketing and communications team as well as working with the Athene leadership team to achieve the company’s vision and goals.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.