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How women can build their own financial future

Posted: 6 March 2020 12:26 pm
News

Finance expert Lisa Montgomery takes us through five steps women can take towards financial freedom.

Late last year, the Reserve Bank declared low wage growth in Australia "the new normal''. Wages increased by just 0.5% during the December 2019 quarter, matching the meagre 0.5% increase from the previous quarter.

Low wage growth affects the majority of Australians. It places pressure on household budgets, reduces consumer spending levels and limits economic growth. But it's particularly concerning for women.

According to the January 2020 Financy Women's Index Report, the gender pay gap currently sits at 14.02%. Full-time female employees earn $242.20 less than men per week on average, and around 25% are retiring with no superannuation.

Based on current trends, we can expect pay parity between the sexes to take up to 24 years to achieve.

Women have a longer financial race to run, but this shouldn't prevent us from reaching the finish line. We need to map out a plan, break down our goals and form good financial habits early. Below are some of the key habits women should prioritise to get ahead financially.

Set aside 10% of your salary

This may sound archaic, but if you start putting away 10% of your pay cheque early on, you'll end up with a decent-sized nest egg after a few years.

What you choose to do with the savings is up to you, as long as you put them to good use. The money might serve as an emergency fund to fall back on. You might choose to invest it in the stock market, or put it towards a business or side-hustle. The point of setting these funds aside is to give yourself options down the track.

Educate yourself on investing

There's a wealth of financial information to be found on investing. As women, we need to actively pursue it, be it online, in books or through podcasts. Become familiar with the pros and cons of various investment strategies. Recognise how to create equity or make your existing assets work harder. This is particularly important when savings interest rates are at record-lows.

You should know your risk appetite as well. Are you a high-risk investor or do you prefer to take a more conservative approach? Identifying where you sit on the risk pyramid is key to your investment portfolio.

Remember that buying a property isn't just for couples

Women can sometimes fall into the trap of thinking they need a partner to purchase property, but real estate isn't the sole domain of couples. If you can't afford to buy based on your salary alone, don't be afraid to pool resources with friends or family members. This way you'll get the benefit of combined borrowing power, the ability to enter the market sooner and the potential for good capital growth (depending on where you buy).

But tread cautiously – money and loved ones don't always mix, so be smart about how you manage it. Set clear goals for the property – will it be a short- or long-term investment? Will you rent it out or live in it yourself? What happens if someone wants to sell, or decides to get married? You'll need to form a contingency plan that covers all these bases. It's also wise to get a solicitor or conveyancer to draw up a legally binding contract. This can prevent things from getting messy down the track.

Negotiate your salary

Despite the gender pay gap, women are far less inclined to negotiate their salary or bonus (that's if we even expect one in the first place). Stagnant wage growth means it's more important than ever to be proactive about asking for a raise. It might not be the most comfortable conversation, but it's well worth it if you're successful.

There are a few strategies you can use for a successful salary negotiation. Pick the right time, like during an annual performance review. Come prepared with a list of your major achievements and what you bring to the company. Gather information about what other people in similar roles are being paid elsewhere. Be realistic too. Asking for 10-20% more than what you're currently making is reasonable. Asking for double your salary probably won't cut it.

Boost your super contributions

This is something many women should prioritise while they're younger, but often don't. In Australia, your employer is obliged to contribute 9.5% of your earnings towards superannuation. But this doesn't mean it's enough.

If you can afford it, consider making additional contributions to super. This might be the occasional lump sum at tax time, or by increasing your overall contributions to 15%. This can end up boosting your retirement savings by thousands, even hundreds of thousands of dollars.

You should also regularly review your super fund to ensure it's still performing for you. There are plenty of online resources that explain how funds are performing and what this means for your savings. Remember, you don't have to go with the super fund selected for you by your employer; you have the power to choose.

Lisa Montgomery is one of Australia's most respected consumer finance experts and commentators. She is the former CEO of Resi Home Loans and Head of Consumer Advocacy at Wizard Home Loans.

Disclaimer: The views and opinions expressed in this article (which may be subject to change without notice) are solely those of the author and do not necessarily reflect those of Finder and its employees. The information contained in this article is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort. Neither the author nor Finder has taken into account your personal circumstances. You should seek professional advice before making any further decisions based on this information.

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Images: Getty Images, Supplied (Lisa Montgomery)

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