Women often play a large role in their households’ financial decisions, and that includes making investment decisions.
Unfortunately, a recent Primerica study found that women’s financial confidence has decreased over the past year, largely due to the coronavirus pandemic’s disproportionate impact on the financial health of many women. Given this dip in confidence, it’s more important than ever for women to expand their financial and investing know-how, no matter their life stage or financial situation.
Women bring important strengths to financial decision-making. Often, women are conservative, patient investors who are willing to plan for long-term goals, as long as they have the financial knowledge to make informed investment decisions.
For every woman (or man) who wants to be more intentional about investing their hard-earned money, here are four key questions to consider.
What Are My Household’s Investment Goals and Limitations?
Consider carefully what goals you’re saving to meet. Financial goals can include buying a house, owning a car, financing college or funding retirement. Envision what you want your financial future to look like and set short-term, midterm and long-term goals.
Determine how much your household is investing each month. The number should definitely not be zero. To invest the right amount, think about how far out you are from each financial goal. The earlier you start investing, the easier saving becomes, especially for long-term goals such as retirement.
Is there anything that might get in the way of your investing? For example, do you have debt you have to pay down or an impending large purchase? These financial commitments shouldn’t prevent you from investing, but make sure to include them in your assessment of how much money you can afford to invest each month.
How Am I Allocating My Household’s Investments?
Know how much is in each of your household’s investment buckets. These can include your home’s down payment fund, your college or graduate education fund, or your retirement fund. It can be hard to know if you’re on track when you don’t know where you are on the path. Remember, what gets measured gets managed.
You can be allocated across different investment vehicles to spread out your financial risk as well as your potential for reward. Your current investment portfolio should maximize returns while appropriately minimizing your tolerance for risk. A financial professional can help you understand your risk ceiling and guide you toward smart decisions about how to allocate your assets.
It also can be valuable for you to consider your household’s debt-to-income ratio. In other words, the amount of your household’s gross income that goes toward paying off debt. Consider what kind of debt you have and make a consistent effort to pay it off.
A common method to do this is called “debt stacking.”
Here’s how it works: First, aim to pay off one of your debts. The one with the highest interest payment should be your target account. Roll that payment toward your next target account and continue this process until you pay off all your debts. Once you’ve paid off your debts, you can use the money you’ve been paying toward debts to invest instead.
Do I Have a Trusted Financial Professional?
People who have guidance on money matters are more likely to feel they can achieve their financial goals. In addition, they are also more likely to have a personal financial safety net in place. You don’t need to make six figures to work with a financial professional and come up with an investment game plan.
If you are in a relationship, be sure both you and your partner make contact and build rapport with your financial professional. That way, you can make informed decisions together that take into account each of your personal financial goals, risk tolerances and investment preferences. If you and your partner part ways, each of you can continue working with your financial professional to adjust your finances, goals and investment plans.
What Can IDo Differently This Year to Meet Financial Goals?
This is an important conversation to have with your financial professional and, if you have one, your partner. Doing so will help ensure that you stay on track and are saving and investing enough to achieve the goals put forth for yourself and your household.
Each year, audit the fees you’re paying on investments and see if there are ways you can reduce costs. Reassess your risk tolerance regularly and don’t forget to rebalance your investment accounts at least annually.
Do you know the answers to these questions? If not, it’s time to start learning the answers. Knowledge is power when it comes to maximizing your investments and financially preparing for your future.