Today, women are graduating college and landing good-paying jobs more than ever. Women also play a significant role in their households’ financial decision-making. With more income and financial independence, however, comes a need to create a complete financial plan that helps you reach your goals. So, with that in mind, this article will cover four essential pieces every woman should include in her financial plan.
1. A monthly budget
A monthly budget lets you see where every dollar of your income is going. This allows you to make sure you spend less than you earn and ensure you have funds left for savings and investments. You’ll simply stick to the budget every month, with minor adjustments as necessary to make sure you’re not overspending. Additionally, budgets help you cut out unnecessary expenses. For example, you might be paying for a subscription service you no longer use or spend an excessive amount on restaurants each month. Your budget can help you cut these and save you money.
2. A retirement plan
Retirement may seem a lifetime away when you’re young, but saving as soon as possible gives you more time for your money to grow and compound. To make a retirement plan, you should determine when you want to retire, your estimated living expenses at that point in time, and your potential tax rate. This will help you calculate how much you’ll need to save by then and which accounts to use.
From there, you can select the retirement accounts that best fit your goals. If you have a workplace plan, like a 401(k), start there. Contribute up to the employer match if available, as this is free money. After you meet the employer match, consider a Traditional or Roth IRA. Traditional IRA contributions are tax-deductible, but distributions are taxed, so these can be good if your tax rate will be lower in retirement. Roth IRA contributions aren’t tax-deductible, but withdrawals are tax-free, so they can work well if your retirement income will be higher.
3. A life insurance policy
According to LIMRA’s 2022 Insurance Barometer Study, the percentage of uninsured women has gone up for the sixth year in a row. You should consider life insurance quotes as early as possible, even if you have no dependents, because you can often lock in a lower rate when younger. That way, if you need to add beneficiaries later, you won’t have to worry about a higher cost of coverage since you’ll already have a policy.
Term life insurance is an affordable policy that offers coverage for a fixed period of 10 to 30 years. On the other hand, permanent insurance is more expensive but lasts a lifetime and offers wealth-building opportunities through the cash value growth component. Part of each premium goes into this component, which grows tax-deferred.
You can borrow or withdraw from the cash value of a permanent policy. You may also surrender your policy and receive the full cash value misu surrender charges. Looking for life insurance online is often your best bet. You can get multiple life insurance quotes within minutes without leaving home. From there, you can compare quotes to get the best rate.
4. An estate plan
An estate plan determines how your assets will be distributed when you pass away. Again, this is important to do, even without dependents. Without a plan, the courts will decide how your assets will be distributed and they may not do so according to your wishes. Plus, lacking a plan can lead to fights among potential beneficiaries over who gets what.
If you have no dependents, you can always name other family members like parents, nephews and nieces, siblings, or even charitable organizations as beneficiaries. Of course, you’ll want to update this with every major life event, such as marriage, buying a house, and having children.
The bottom line
Creating a complete financial plan starts by creating a monthly budget to ensure you’re earning more than you spend so you can save toward your goals, primarily retirement. After that, you should create and regularly update an estate plan. Alongside that, consider getting life insurance quotes early on. These two elements will make sure your assets go to the right places if you pass away. Get these four elements together, and you’ll be well on your way to creating a comprehensive financial plan and feeling more confident with your money.