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One in five people in Britain experience financial abuse and women are more likely to experience abuse then men. Even in households where the money is shared, women go without items to a greater extent than their partners. (source) Financial independence for women is critical for an equal society, and for personal empowerment.
We are all somewhere on the journey to financial freedom, from taking our first steps towards financial awareness, through financial empowerment and all the way to total financial independence.
Wherever you are on this journey, just the fact that you care, that you want to be empowered, is something to celebrate!
Below are the 7 steps to take for financial independence for women. Wherever you currently are on these steps, continue to work through them: This is the essence of financial empowerment!
How to become a financially independent woman in 8 steps:
1. Understand Your Finances
The first step to become financially empowered is to understand your finances. What money do you have coming in? Where does it go? Do you have debt or financial commitments? Dependents?
Do you have savings? Investments?
Is your money pooled with your partner? Do you have an allowance for personal spending? Who pays for what in the household?
It’s common for women to use their income to manage the household. To buy food, clothes for the kids and other ongoing expenses while the man pays for things like the mortgage, electricity and buys larger items.
Understanding your current financial situation is not always fun. It can be scary if you are not used to looking at money, but it is absolutely necessary, and you can’t take any other step on your way to financial empowerment and independence without this.
If you are single, you only have yourself to overcome, and if you need support going through your finances there is absolutely no shame in asking for help! You don’t know what you don’t know, and this is your time to learn.
If you are in a couple, hopefully your partner will appreciate you taking an interest in your and the family finances. Talking about money is healthy. Making financial decisions together is healthy. If you find that your partner is hesitant in letting you understand your finances, this should set off warning bells in your head.
Keeping your partner in the dark about their own finances is the first step toward financial abuse.
The Domestic Abuse Report 2019: The Economics of Abuse found that in women who have been abused:
- One third reported that their money had been controlled by their abuser.
- A quarter did not get money for essentials.
- Over 40% were in debt as a result of the abuse.
- For over half, the abuse had impacted their ability to work or their earning potential.
Physical and financial abuse don’t always go hand in hand, but understanding your finances is the very first step to empowerment. If someone is hindering you, get help.
2. Take Control of Your Finances
Now that you have a clear picture over your finances, of what you have coming in and where it goes, it’s time to start controlling your finances.
Do you have money in your own name?
If the worst happened (your partner was in an accident, you lost your job, you had a divorce) would you be covered financially?
The second step on the way to financial empowerment and independence is to make sure that you are in control of your finances. You have money in your own name that you can access. And savings in your own name for emergencies.
You know the passcodes to any mutual accounts.
You know what insurances you have and what they cover.
If you don’t have any savings, either have some transferred from a shared account or start saving! Make a budget, a list of money coming in and money going out and make sure there is a gap.
Prioritise what you spend your money on in a way that works for you. That ensures that you live your best life today, as well as in the future.
3. Pay Off High Interest Debt
If you have high interest debt, such as credit card debt, car loans or other consumer loans, chances are high that you are paying a lot in interest.
This will make financial independence almost impossible as you will be paying more and more for the things you buy, leaving you with less and less for yourself.
Any loans with interest above around 5% are an emergency and you need to pay it off like your hair is on fire!
I’m not talking about mortgages and alike here mind. I’m perfectly fine with you keeping your mortgage and any other lower interest debt, the key however is to not pay more than you have to for things, and make sure that you can grow the gap between your income and your spending.
4. Make a Retirement Plan
The final step of financial independence is the ability to retire. To have enough money that you can chose to no longer work. If you want to.
At this point, many of us squeezes our eyes closed, cross our fingers and try not to think about it!
That is, however, not the path to financial independence for women (or men).
Retirement is something we have to plan for. We need to understand how much to save in order to be able to retire when, and how, we want to.
Will the state pension be enough? Do you have a workplace pension or other pension savings?
How much is in there?
How much should you have saved now in order to be able to retire later?
You need to spend some time understanding this in order to make a plan, ensuring that your choices today take you to the future you want. A future when, at some point, you become financially independent and therefore have the option to retire.
5. Financial Independence for Women: Invest
52% of women have never held an investment product. That’s a scary number, and one of the reasons why financial independence is much more difficult to achieve for women than for men.
Money held in a savings account with a low interest rate will be worth less and less every year because of inflation.
Money invested in something like a low-cost index fund will grow every year. If you get a 10% return on your investment, your money will double every 6 years.
Investing can be passive, and once everything is set up it can be completely automated. As long as you stay in the market long term, your money will grow and this in term will give you options. And in time, complete financial independence.
6. Align Values and Long-Term Financial Goals
So, why do you need all this money? Other then possibly retire at some point, why should you go through all this?
Financial empowerment is all about making choices. About creating a world where you become resilient and can weather life’s ups and downs from a position of strength.
It is also about living a life in accordance with your values.
To have the opportunity to reach your long-term goals – and your wildest dreams.
What do you want your life to look like in the future?
Do you want to travel, to move to the countryside or quit your job to write a book?
By imagining the life you want, you can make changes today that takes you closer to that reality.
Considering how much you are saving and investing: When are you likely to be able to quit your job and write that book?
Will you be able to pay for your child’s university?
Consider your savings rate, how much of what you earn that you save and invest each month. Are you on track for your long-term goals?
Is there anything you can change today that can take you one step closer to that goal?
7. Reach Total Financial Freedom
Total financial freedom is when you can live off your investments and no longer is dependent on anyone to maintain your current lifestyle.
Not your partner or husband.
Not an employer.
Not the government.
This is when you can fully choose how you spend your time. What your life looks like. If you want to continue working, travel the world, or write that book. Or all three!!
How much Money do I Need to be Financially Independent?
As a rule of thumb, if your money is invested you need 25 times your current expenses to live off those investments forever. Another way of putting it is that you can withdraw 4% of your investments each year without running out of money.
If you live off £40 000 a year you need to have 25*£40 000 = £1 000 000 invested.
If you live off £30 000 a year 25*£30 000 = £750 000 is enough.
Make a life that you love, a life where you have enough of everything that is truly important to you. Keep the cost of that life as low as possible and invest the rest. Before you know it, you will have reached total financial freedom.
You will be a financial independent woman.
Full financial empowerment.
Financial Independence for Women
The path to financial independence is the same for men and women. However, in our society women are not encouraged to take control over their money. To be financially empowered.
We are taught to be risk averse. To keep the household going. To save for a rainy day yes, but to invest your money and plan for a financial independent future. Not so much.
And we can. The path to financial independence for women is as much a part of equality as not having to suffer sexual harassment or crushing that glass ceiling. Financial independence is women’s ultimate empowerment.
And it’s within your power. You can take control over your money. And you can create a life that you don’t even dare to dream about today.
Your life as a totally financially independent woman.