Borrow Debt

5 Ways to Gain Financial Independence

Brian Welch  |  June 6, 2019

Women are starting behind the 8-ball when it comes to saving and investing. Here’s how you can kick things into high gear.

Financial independence — sounds great, right? It should be a goal for all of us, but it’s one that can be  especially daunting for women. Women not only earn about 80 cents on the dollar compared to the average man, they also live about seven years longer, and invest up to 40% less. It’s the quintessential challenge of having to do more with less.

So, how can women obtain and maintain financial independence? It all starts with the basics. If you’re ready to ensure you can always stand on your own two feet financially, take a look at these important first steps.

1. Get Out of Debt

Roughly eight in 10 Americans carry debt, and in at least one debt sector, the numbers are downright frightening. Women hold more than $900 billion of the $1.5 trillion in student loan debt, and according to Experian, women also open more credit cards than men.

Sure, debt can be managed, but it’s always best to avoid going into debt in the first place. Start by getting rid of excess credit cards — or not opening them in the first place. Really, how many do you need? Fewer cards may mean a reduced temptation to spend, and fewer annual fees to worry about.  Credit card interest rates can exceed 27%, depending on the card, and every penny you aren’t paying your credit card company, is a penny toward independence.

Let’s look at an example — if you have a $6,354 credit card balance with a 17.7% interest rate — (the average balance consumers carry and the average interest rate they pay) — it would take you nearly four years to pay off the balance if you paid $190 per month (3% of the balance), and you’d rack up $2,467 in interest payments alone.Think of what else you could have done with that money.

2. Create a Detailed Budget

Many people may build a budget based solely on their take-home pay and standard expenses (like rent or mortgage, a car payment and  utilities) but those costs are just the tip of the iceberg — and rarely the things that can send us into a tailspin of debt and overspending.

There’s also eating out, vacations, spending for birthdays, weddings, and other celebrations, new clothing, and other incidentals that always come up in life. It’s important to account for every penny you spend, and not fall into the trap of, “I’ll pay for it when the bill comes.” Overspending is one of the quickest ways to lose your foothold in financial independence. Always base your budget on all your spending over the last year. Then, stick to it.

3. Have a Savings Plan

Four out of 10 Americans don’t have enough savings to cover even a $400 emergency, and the median American household has under $5,000 in savings. For women, those numbers are worse. On average, women have saved half as much as men for retirement and invest 40% less.

Thankfully, women can start to bridge that divide by investing more. Setting aside just 10% of your gross salary is a good starting point. If you take the average Bureau of Labor Statistics’ salary for women of $41,912 annually, a woman would save about $4,200 per year. Over the course of 20 years, with just 2% annual raises and a 6% rate of return, that would add up to more than $175,000. No, that’s not enough to afford the retirement of your dreams, but it is enough to begin those steps to independence. And remember, as your salary grows, your savings will grow along with it.

4. Separate Your Money From Your Spouses’

Many couples have a joint account for bills, which can help streamline payments for day-to-day expenses for things like rent, groceries, and utilities. According to a recent TD Bank survey, three in four couples share an account of some sort, but maintaining a separate account that you manage privately can be a good idea. You’ll have your money to spend on what you want, when you want, and you’ll maintain a sense of financial independence. Having your own money can help build confidence around financial decision-making, and you’ll always be an active participant in your household’s finances. 

5. Have A Savings Account That’s Separate From Your Checking Account

Simply put, having a separate savings account reduces the temptation that you’ll dip into your hard-earned savings for day-to-day or unnecessary purchases. You’ve heard the phrase “out of sight, out of mind,” and it absolutely applies here. If all your money stays in checking, it’s very easy to reason that you can splurge with your “leftover” money.

Thankfully, having two separate accounts is no trouble these days — you can easily set up automatic deductions that will pull money out of your checking account and put it into savings without your ever lifting a finger.

Brian Welch is a freelance writer and former CPA. He writes about all things related to wealth and personal finance. He lives and works in Miami, Florida with his family and three dogs.

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