Finance Considerations for Young Women

Please note this blog relates to the regulated firm of Evolution Financial Planning Ltd and should not be seen as commentary from any other party nor should it be regarded as a recommendation or advice.

Evolution Financial Planning is an Appointed Representative of TenetConnect Ltd which is regulated by the Financial Conduct Authority.

Is your money working hard or hardly working?

Young people are often stereotyped as being terrible with their money and frittering away their cash on lattes, take-aways and designer clothing. But this is far from the truth and whilst young people were hit hardest by the Coronavirus pandemic, Gen Z and Millennials are actually the best at saving their money. In the UK, 68% of Gen Z and 61% of Millennials budget and save their cash more responsibly than their older counterparts.

However, with 70% of stocks being owned by men, and women saying they will retire with 100k less than men, the gender gap in finances means that as a young woman, now is the time to get your finances in order and start making your money work harder.

The key financial considerations for young women include:

  • Starting where you are and establishing your current financial situation
  • Setting goals and making plans
  • Preparing for a rainy day
  • Building your credit score
  • Saving for retirement

Finance Considerations for Young Women – Starting where you are

Before you can join the starting line, you need to know where you are starting from, so the first financial consideration for young women is to access your current financial situation.

The following questions may help you to establish your current financial situation:

  • How much money do you have in your bank account, or across multiple accounts?
  • How much are you earning each month?
  • How much are you left with after you have paid all of your bills every month?
  • Do you have a budget? How much are you spending on a monthly basis?
  • How much are you saving each month?
  • Do you have any debts?
  • What about investments, do you have any money that you have invested?

Writing down the answers to these questions will help you to establish where you are financially, right this moment. If you don’t know the answers to some of these questions, have a look through your bank statements to find out what you are spending/ saving or how much debt you have.

It is absolutely essential that before you consider your financial goals and plans, you take stock of your current situation. From here, you will be in a better position to create realistic financial plans and goals, now that you know where your money is coming from and going to at the moment.

Finance Considerations for Young Women – Goals and Plans

Next, you will need to consider your financial goals. To do this, think about your vision for your life and the lifestyle that you want to have in the next 10, 20 and 30+ years. Your life vision could include climbing the corporate ladder, taking time off work to raise a family, building a business or retiring at 40. Having established your future goals, you can begin to map out the finances that you will need in order to make your goals a reality. Once you know the destination and the starting point, you can plan the steps that you need to take in order to have the finances that you need to make your future goals a reality.

Finance Considerations for Young Women – Preparing for a Rainy Day

Whilst it is important to plan for your future goals, so that you are able to make your money work harder for you, it is also important to build up a rainy day fund incase of emergencies. It was estimated that during the Coronavirus pandemic unemployment rates were double the pre-pandemic rates. The current pandemic has highlighted the importance of having an emergency fund because nobody knows what tomorrow will bring and if disaster does hit, having some money saved up can mean you have one less thing to worry about.

How much to Save for your Rainy Day Fund?

When saving for your rainy day fund, it is recommended that you would have 3-6 months of living expenses saved up. Depending on how much you worked out you are spending each month and the savings you have, saving 6 months worth of living expenses may feel like an impossible task. Break down the goal into smaller chunks and put together a plan to reach your goal by saving little and often – after all, a small emergency fund is better than no emergency fund! If you do need to take some money from your emergency fund, remember to top the fund back up again when you can.

Finance Considerations for Young Women – Building your Credit Score

Your credit score can affect whether you are able to take out a loan or get a mortgage and can also affect how much interest you pay on any money you borrow. For most young women, at some point in your future plan you are likely to want to borrow money, whether that is a bank overdraft, to buy a car or a mortgage on your first home. Having a poor credit score can therefore be a barrier in fulfilling your future financial plans and goals.

How can you Build your Credit Score?

You can find out your credit score using an online reference agency. If your credit score isn’t quite where you would like it to be, do not despair – there are steps you can take to increase your credit score. One of the easiest ways to increase your credit score is to prove your current address by registering for the electoral roll if you haven’t already.

As a young woman, you may have a limited credit history. You can increase your credit score by building your credit history through reliably making credit payments, for example ensuring that you are paying your credit card bill on time. Keeping the percentage of your credit limit that you use below 25% can also help your credit score, for example if you have a credit limit of £1000, you would want to aim to regularly use less than £250.

Finance Considerations for Young Women – Saving for Retirement

As a young woman considering your finances, saving for retirement might not be at the top of your life, in fact it might be at the bottom of your list! But, the maximum state pension in the UK is just £179 and most people say that they hope to retire on a larger pension than this. If you hope to retire with a larger pension pot than this, to fund the retirement lifestyle you desire, it is never too early to start putting money into a pension pot.

To give you an idea of how much you will need to save for your dream retirement lifestyle, take the age you started saving into your pension and divide it by two. The remaining number will give you an idea of the percentage of your pre-tax salary to put aside until you retire. One of the biggest benefits of a pension is that if you are employed, your employer will also contribute to your pension, so remember to include this in that percentage.

Considering your Finances as a Young Woman

With 70% of stocks being owned by men, and women saying they will retire with 100k less than men, it is never too soon to start thinking about making your money work harder for you as a young woman. The logical place to start when considering your finances as a young woman is at the beginning and you can do this by working out your financial situation right now. Once you know where you are starting from, the next step is to spend time considering your financial goals and then putting in place a plan to achieve those goals. Alongside the financial goals that will help you to achieve your dream lifestyle, you should also consider saving a rainy day fund, so that you have a buffer in case of emergencies. It is likely that at some point in your future plans, you could require a loan of some kind, so it is important that you start building your credit score so that this is not an obstacle. Lastly, as a young woman it is also important to include your retirement plans when considering your finances, so that you can start putting money into a pension and secure a comfortable retirement.

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