Financial independence
This blog post is for everyone, but it’s especially for women. Our ability to bear children and the resulting impact on our careers, earning potential, on moving to part-time work or quitting the workforce altogether, means that we as women should pay particular attention to our finances.
There’s not a lot of emotion in the above and I want to keep emotion out of this deliberately, because if you’re a woman, you’re judged all the time for your choices. I’m not here to judge. Work full time, have 10 children, don’t work at all - it’s none of my business and entirely your choice in agreement with your life partner (if you have one).
But money is an important topic and even without the emotions involved, we don’t talk about it enough, we don’t learn enough about it in school, we don’t get involved enough and in the end we’re the ones missing out.
So here’s the thing: a man is not a financial plan. That’s the most important takeaway from this blog and it warrants repeating often.
I have spoken about this with my closest friend a lot and for both of us it was always clear that we would work, build our careers and earn our own money. But despite that goal it still took me longer than it should have, to get financially savvy and really take charge of my financial independence. Here, I want to share a few key lessons and recommendations to all the women out there.
Make a budget
You’re probably rolling your eyes now but hear me out. Unless you’re someone who loves detail and you have no idea where all your money goes each month, don’t worry about tracking every single purchase for months and months on end. It’s a good exercise to do but it isn’t a huge amount of fun. In my view it is enough to sit down for an hour or two and figure out the following:
Your fixed costs: what’s going out each month that you simply can’t avoid or influence? This includes rent, phone bill, utilities, subscriptions, groceries, etc.
Your variable costs: the option stuff like clothes, entertainment, eating out, travel, etc.
While some amounts in the first category will vary, these are pretty committed costs. That doesn’t mean they can’t change. Sure, you can learn to cook more economical meals and you can cancel a bunch of subscriptions (more on that later), but for now these are coming out of your account every months and you need to have enough money to pay for them. List each item in a spreadsheet and total them up.
Then your variable costs: This is the stuff you don’t have to spend money on. These are the things you want but likely could avoid, at least temporarily. Estimate how much you spend on these - be realistic - and add them to the spreadsheet with their total.
Now add your income and calculate the difference. Scary? Maybe, but here’s your savings rate. This is the amount you can save each month starting today. And over time you can work on increasing it as much as possible.
As you progress in your professional life and increase your income, you can more easily increase your savings rate as long as you keep your expenses in check.
Ideally you want to reach a savings rate of between 40-50%. For some that’s not possible because they have children, limited income opportunities etc., but that’s why I said ‘ideally’. The most important thing is to start. No matter whether you can save $10 or $1000 per month - just start.
Pay yourself first
As soon as your monthly, fortnightly or weekly paycheck arrives, put money aside to save and invest. If you wait until the end of the month, there won’t be anything left, I can guarantee you that.
In step 1 you figured out your savings rate. Let’s say it’s $100 per month. You have a number of options:
Put $100 under your mattress each month (not recommended).
Put $100 into a separate checking account. This way it’s put away but doesn’t produce any additional earnings. However, this is beneficial for building a habit and for achieving more short-term goals, like saving for Christmas presents, etc. It means you have put the money aside so you don’t spend it but you can also access it when the time comes.
Put $100 into a savings account. Not a bad idea, depending on your goals.
Put $100 into investments.
A mix of the above.
I’m no financial advisor and this is not financial advice, but here is what I do:
I put 65% of my monthly savings rate into risk-free options, including a savings account for medium-term financial goals and short-term goals (Christmas, potential vet bills, holidays). The rest goes into ETFs (ESG) and a lifetime ISA (UK specific). The ETFs are my way of ensuring a comfortable retirement because I don’t trust my government pension to be enough to live on comfortably.
As soon as my monthly salary arrives, my money gets divided between the various pots and I get the satisfaction of seeing it grow, while also knowing that everything left after savings and bills are taken care of, is mine to spend however I see fit.
Have an emergency fund
This is so so important - make sure to build an emergency fund. Depending on your circumstances, e.g. your living situation, the number of people financially dependent on you, your fixed costs, etc. you will need to determine how big your emergency fund needs to be.
My comfort level is that my fund needs to be large enough to cover any and all costs for everyone in my household for 5-6 months in the case of an emergency. The pandemic has shown us how quickly things can take a turn for the worse. Job loss, illness, expensive repairs can all happen very suddenly and it’s important to be prepared.
Build up your emergency fund and sleep easy. How large should it be? What’s your risk tolerance, what are your costs and - if you lost your job - how quickly would you likely find a new job?
Learn about investing
So many of us have never learned about investing in the stock market, in mutual funds, pension schemes, etc. I don’t know why this isn’t taught more extensively in school, but it isn’t so we have to take matters into our own hands. There are fantastic resources out there from books to podcasts and YouTube channels.
Here are some of my favorites:
US specific:
Germany:
A year ago I applied to participate in a mentoring program specifically for women. The program is all about financial independence, investing and ensuring that our financial needs are taken care of, no matter what.
It was money well spent, it was an intense 8 weeks and I learned a ton. I’m not hugely interested in all the details, but I wanted to learn enough to make informed decisions and to set myself up for success. There is no excuse for me not to save and invest and do things properly and thanks to the course I had the knowledge I needed to get things sorted. I also learned about financial products that are absolute rubbish, so I got rid of the one contract I had that - in my opinion - shouldn’t even be legal. Saved myself more money than the course cost, so I call that a win.
Learn about investing before you invest. Sure, you can always use a bit of ‘play money’ each month to put in the stock market but I also recommend you set up a solid plan for the long-term future so that when you retire - whatever age you might be - you’re not dependent on government pensions and you live near the poverty line.
Rethink your needs and wants
I’d love to live in a big posh house with a large garden and a swimming pool. But that’s out of my price range and just not reasonable. The more we earn the more tempted we become to spend that extra cash by upgrading our lifestyle.
I’m not here to judge anyone’s choices, I’m here to share my experiences and my approach because it works well for me and it strikes a nice balance between comfort and frugality.
I’m someone who wouldn’t say no to the luxurious stuff but who is far too frugal to pay for it herself. I like good quality things like clothes and shoes, but I don’t need a giant wardrobe full it them, because there’s only so much I can wear anyway. I’m no model or fashion blogger, so I am quite happy wearing the same things over and over again. I buy second hand, but good quality second hand and once I don’t love an item anymore it goes back to the second hand shop so someone else can benefit from cheaper, but high quality items.
I’ve come to realize over the years that there are things worth spending money on and things where it doesn’t matter if you buy the cheaper brand. I don’t care about the brand of pasta, for example, so we buy supermarket brands, but I do care about the quality of our mattress and sheets - I spend 7-8 hours per night in the bed, so it better be comfortable.
Assessing your needs (and ranking them) and understanding your wants and keeping them in check is a good habit to get into. Sleeping over a purchase before making it will often show you that you don’t even want it all that badly. Plus, have a look around your house and take stock of all the things you already have. Do you really need more?
Question what others are doing
Cars
This is a favorite hobby of mine. In my home country of Germany people tend to love their cars and it’s common that families have two of them. I owned my first car at the tender age of 35. Before that I never needed one ‘full-time’, so I shared with my brother, my parents and later rented one when I needed it.
Living in London meant I didn’t need one in the beginning but we ended up buying one during summer 2020 to give ourselves a chance for local trips and weekends away. We since changed cars because the first one turned out to be unreliable and we did invest a bit more in the ‘new’ one but it’s a 2018 model and very economical to run.
With a dog and as a couple that likes to hike and explore England and beyond, a car has been really important for us to get around and we don’t regret buying it.
If I was living by myself I certainly wouldn’t own a car and I encourage everyone to rethink their car choice, even if just for a moment. Cars are one of the most expensive line items on your budget, so assessing whether you need one (or two) is just a good exercise to go through.
Holidays/vacations
Another one is holidays: Sure hotels are nice, but I’d rather go on several trips per year and stay in self-contained accommodation where we can cook our own meals, have space and can hang out, than save up for one fancy resort trip per year where you have to stick to breakfast and dinner times, get dressed up just to go eat and have to fight others over the lounge chairs.
That’s just me though and if resorts are your thing, by all means. What I encourage you to do, however, is to just challenge yourself to think whether they are truly the holidays you enjoy or are they the expectation you have adopted from others about what makes a great holiday? You’re always allowed to change your mind.
Full-time, part-time, double income, single income
Everyone’s situation is different and unique and as a single person you’ll have to come up with the money for 100% of your expenses, which means budgeting differently but also gives you more choice in how you spend what’s left.
As most of you know, I’m not a mum myself, so I never had to face the decision of whether to work full-time or part-time or leave the workforce temporarily. Today there are so many options available and more and more employers are becoming supportive of flexible working and parental needs.
I want to encourage you women, no matter what your family situation, to please take care of your own financial needs and to not leave your finances fully in the hands of your partner. Make sure you can stand on your own feet financially and that your future financial needs are taken care of.
That’s your responsibility, no one else’s and while I understand the desire to stay home full-time or part-time (I loved that my mum was home full-time, it was amazing!), please don’t just jump into the traditional parental model just because it’s what someone else does. Think about the long-term implications and discuss them with your partner.
There are various approaches out there with online information available when it comes to splitting parental duties but also financial responsibilities. If you’re the one taking on more of the care work, discuss with your partner how they can support you financially during this time, e.g. by topping up your pension funds etc.
Again, I’m no financial advisor but there are plenty of competent people out there and many free resources available so use them to ensure you’re not left hanging when life throws you a curve ball, be it divorce, the death of your partner or simply you living into very old age without the funds to support yourself.
Use your double income while you can to build up a stable financial situation and ensure that YOUR financial products (investment, savings, etc.) are also in YOUR name. Again, it’s your responsibility where your money goes. And none of that should be overridden by ‘but we love each other’. Remember, we’ve said at the beginning to talk about this without emotion :-).
Increasing your income
Most of us work in paid employment with limited influence over the amount of our salary. Yes, you can ask for a raise and earn bonuses and that’s all great. But you can’t work twice the hours and expect to double your income. That’s why it’s a fun exercise to consider how you can increase your income to support your current lifestyle but also your future financial needs.
In my experience everyone has at least one talent they could monetize. Whether they want to is another question, but why not play with the idea? Why not think through the options and consider what you’re good at and how you could turn that into an income stream? Once you start coming up with ideas - no matter how tame or crazy they are - you’ll soon discover that more and more ideas pop in your head as you go about your days. Write them down and collect this list. You don’t have to act on it. But you could.
Another way, of course, is how you invest your money. The way I save and invest is definitely for long-term plans with the expectations that I will draw dividends when I retire. So there’s a few decades left until then. But there’s also the real estate market and I have a number of friends and family members who have invested in properties and use them as a regular and lucrative income stream.
Whether you build things, draw things, sell online courses or become an English tutor, there are so many options for increasing your income and I want to invite you to explore these ideas for yourself, however you see fit.
The verdict
Money is one of the most important and equally stressful things for many people to deal with on a monthly and daily basis. Having more solves some problems but creates new ones unless we keep our expenses down as income increases.
What I want to achieve with this blog is to encourage everyone, and in particular my fellow women, to take charge of their finances and become more responsible with their savings and spending.
Building good financial habits takes a bit of effort at first but pays off big time - excuse the pun. I promise you, if you take things into your own hands, increase your knowledge, assess your current habits and become more financially savvy, you won’t regret it.
Here’s to your financial independence!
