5 things every woman should know about their finances.
Disaster planning is unpleasant, as is thinking about your own death or the possibility your relationship might end. But not thinking about this stuff at all could land you in strife should a relationship breakdown occur, or worse, it could leave your partner or kids to do the thinking for you if you die.
Understanding your finances while you’re fighting fit and in a stable relationship isn’t going to jinx anything, but what it will do is give you clarity, confidence and certainty about where you stand and what your options are.
When you are in a relationship everything the other person does affects you, and you’ll also be affected if they die, get sick, have a business failure or if you separate. Panicking yet? Don’t, it’s manageable.
Knowing the extent of all debts, insurance cover and your general financial situation as a couple and individually is vital to your security. There are five basic foundations I recommend being across to ensure you, your partner and your children are protected.
1. Emergency fund
No, not your credit card. This fund needs to be a separate bank account, without key card access, that is your own. Term deposits or high interest saver accounts work well for this purpose. Set and forget with a direct debit from another account, and build enough savings to cover your expenses for three months.
If you suddenly lost your income, how much would you need to cover your mortgage or rent, loan repayments and other expenses? This buffer will give you time to calm down and breathe before planning your next move.
2. Spending and investment plan
How much do you actually spend? I have witnessed some gross miscalculations that, gone unchecked, could have seen some older women out on the street instead of off to the movies. Seriously looking into what you spend can be daunting, but the reality is – you’re going to spend money. And that’s OK. Understand your cash flow and avoid obvious pitfalls like unchecked splurging.To plan, create ‘pots’ of money for fixed expenses, discretionary spending, holidays and savings.
Using the tool on the Australian government’s Money Smart website, you can plug in your numbers to get an overall idea about your financial position.
There are three types of insurance I believe every woman needs to consider and control. These are at the core of securing your health and personal safety should the unexpected occur.
1. Private health insurance
2. General insurance including home, contents, cars, jewellery, landlord and business.
3. Personal insurance including life, total and permanent disability, income protection and trauma.
Several types of insurance are tax deductible so be sure to check when you file your taxes.
This is almost a no-brainer. Superannuation is the most tax-effective way to build your investments for the future. When you’re in a relationship, you need to understand who your beneficiaries are and how much each person would get in the event of your death and more importantly what would you get?
We are all going to die. Let’s not dwell on it too much, but just long enough to cover off some key issues. You need to consider an executor, powers of attorney, guardianship for children, letter of wishes, advanced health directive (instructions should you not be able to speak for yourself) and a setup to ensure your estate isn’t all lost in taxes. All adults – even the spring chickens among us – should have a will. If you have ever worked for an employer you will have some superannuation, and if it outlives you, it has to go somewhere.
Love has a way of dulling our alertness to staying in control of our own finances. So does motherhood and its foggy trench-warfare like way of disconnecting you from the basic parts of yourself – never-mind your bank account.
As much as we want things to work out, sometimes they fall apart and break. We all know someone it’s happened to. A 2017 report from the Australian Institute of Health and Welfare revealed a 52 per cent increase in older women contacting homeless agencies since 2011. The earlier you can get financial clarity, confidence and certainty the safer you will be going into the unknown. Think of it as your disaster plan. It probably won’t happen – but if it does, you’ll be ready.
Helen Baker is a licenced Australian financial adviser and author of On Your Own Two Feet – Steady Steps to Women’s Financial Independence. Helen is among the 1% of financial planners who holds a master’s degree in the field. Find out more at www.onyourowntwofeet.com.au