Managing your money in today’s world can be quite overwhelming. Interest rates are rising and crypto is all over the place. It seems increasingly difficult to determine how and where we should be investing our money. We often find ourselves suffering from analysis paralysis, over-thinking a situation to the point where a decision or action is never taken.
Sound familiar? Well, you’re not alone. Let’s try to simplify things a bit more for you and show you how to create good money habits as a woman in today’s world.
For women, managing our finances can be especially challenging when the world of finance was previously reserved for men in suits. It’s no wonder we sometimes lack a bit of confidence and struggle to know what to do with our money and who we should be listening to. But, don’t worry ladies, I’ve got your back!
First, let me tell you a little about myself. My name is Talya Plaatjies, and I started my career in the financial industry at the age of 23. My very first job was to educate and assist clients in making financial decisions around investing. I worked with many different people and noticed that men tended to be slightly more confident when it came to managing their finances. Also, they usually took on the head of finance role at home. However, it’s 2023 and women are most certainly taking back financial control!
Women need to look at their finances differently
While women may sometimes be less confident in making financial decisions, they are statistically proven to be better investors than men. Why you might ask? Well, women tend to be more risk-aware and make fewer impulsive decisions, which are key characteristics of successful investor behavior.
So, what do we as women need to know about our finances? Let’s get into it.
1. Women usually live longer than men
Women generally live longer than men, which means planning for a longer retirement. A popular way to start saving for retirement is through a retirement annuity (RA). An RA is an investment vehicle specifically designed to help people save money for their retirement in a tax-efficient way. Your employer might offer a retirement savings fund but if not, it might be a good idea to open one for yourself and try to contribute between 10-20% of your monthly income. If you are not sure how much you need to start putting aside for retirement, you may use this downloadable retirement calculator to figure it out.
In South Africa, the government encourages you to make use of a retirement annuity by giving you a major tax incentive. All contributions (up to a certain limit) that go into a retirement annuity can reduce your taxable income. Who doesn’t love tax savings?
This isn’t the only way to save for your retirement. You can also make use of discretionary investments, such as the Satrix Top 40 ETF in the Franc app or tax free savings accounts (TFSAs), to help you reach your retirement savings goal. You may need to be a bit more disciplined, as ETFs and TFSAs allow you to access your funds, unlike a retirement annuity where you can only access your funds after turning 55. Whichever you decide to invest in, the most important thing is to start sooner rather than later so that you can make use of compound interest and set yourself up for retirement.
2. Women are more likely to take career breaks
Before you retire, you will go through many different life stages. One of those might be having and taking care of children. Even though the world as we know it has changed, women tend to be the household's primary caregivers, which can affect their finances.
If you choose to have children one day, you may take time off work and be on a slightly reduced salary. It’s important to take this into account and build up an emergency fund for all the extra costs you might incur. The general rule of thumb for an emergency fund is saving 3-6 months’ worth of living costs – a good buffer for all the unexpected expenses that come with daily life. Having an emergency fund can take the pressure off while you focus on your family. Even better if you and your partner work towards building this fund together and discuss the different responsibilities that come with having a child.
A great way to build up an emergency fund could be through the use of a short-term, low risk unit trust fund like the Allan Gray Money Market fund on the Franc app. For an emergency fund you're not looking for major growth. You rather want a safe place for monthly contributions which will grow slowly and where you never lose your capital.
3. Women tend to spend more money on self-care
I can’t be the only one who feels like we spend more money on haircuts, nail appointments, and skincare than men do. Self-care has become an increasingly important part of our lives. It’s a way for us to take care of ourselves mentally, physically, and emotionally. While both men and women engage in self-care practices, studies have shown that women tend to spend more money on self-care than men. It’s important for us to plan and make space in our budget for these expenses. Especially if you’re someone like me who loves to treat yourself every now and then #noshame.
This kind of spending, however, is not a good idea when these expenses are preventing you from investing in your financial well-being. Check out this great article in the Franc Academy which speaks about living within your means and sticking to your budget. I know budgeting is a word we hear often and don’t put into practice but honestly, a budget can change your life. You need to know what is coming in and where it is going.
If you’re not a budgeting guru, don’t stress – there are simple rules you can follow, like the 50/30/20 rule. 50% of your income goes to your needs, 30% to your wants, and the final 20% to saving or investing. You can get into the fancy Excel sheets if you want to but following this simple rule can do wonders for your finances.
Goodluck! You’ve got this!
Managing finances can be daunting for anyone, but especially for women who historically have had less access to financial education and have been underrepresented in the financial industry. It's important for women to take control of their finances and make informed decisions. We need to educate ourselves by using resources like the Franc Academy and following @fashionably_financial on Instagram for more tips and tricks. If we actively educate ourselves, start budgeting, and invest in our future, we can work towards creating long-term wealth and financial security.