Updated on 07.22.14

Guide To Financial Independence For Women

While everyone defines financial independence a little differently, there are some common denominators that apply to all of us. It means you’re able to completely support yourself without the help of outside parties, including family, friends, partners or excessive debt. It means relying on your own steady income and taking control over your own finances. It means knowing where you want your finances to be and implementing a feasible plan to achieve those goals.

When you are financially independent, you are the sole architect of your financial future.

These days, an overwhelming number of young women are still financially dependent on others. Some borrow money from their parents or relatives and treat credit cards as cash in their hands. Married women are at times completely unaware of their family finances, relying on their spouse not only for income but also to design their family’s financial blueprint.

While managing finances with your family or partner is totally normal, women still need to take an active role. Data shows that nine out of 10 women will be solely in charge of their own finances at some point in their lives, so it’s vital to plan for when you may have no outside support. Unfortunately, many women are not yet financially independent.

Why do women face additional challenges when it comes to achieving financial independence?

Simply put, women have a higher chance of outliving their financial resources. There are three general reasons why:

  1. Women generally have a longer life expectancy than men (five years longer on average). What does this mean? Women need more saved up for retirement and to gain full understanding of their finances so they can take control when they’re alone.
  2. Women spend fewer years in the workforce due to child-rearing or part-time work (The Women’s Institute for a Secure Retirement reports that, over their lifetime, women typically work 12 fewer years than men). What does this mean? Women have less time and money to contribute to retirement plans, savings, and investments.
  3. Women (still) generally receive less pay than men. What does this mean? Women have less money to save for retirement, emergency funds, investments, and other financial vehicles to live comfortably and debt-free.

In addition to these reasons, consider these statistics on American women:

  • According to the Organization for Economic Cooperation and Development (OECD),
    women possess a lower level of financial knowledge than men
    . Financial literacy is most scarce among younger, less-educated and low-income women as well as widows.
  • In another study by Financial Finesse, a survey found that 65% of women have control of their cash flow (as opposed to 83% of men), 45% of women have an emergency fund (64% for men), 54% of women are comfortable with their non-mortgage debt (71% for men), and 48% of women pay their credit card balances in full (70% for men).
  • According to the U.S. Census Bureau, the poverty rate for women ages 65+ is 16%, compared with 9% for men ages 65+.
  • 87% of American elderly in poverty are women.
  • Per the Council on Contemporary Families, approximately 37% of women ages 65+ live by themselves, as opposed to 19% of men ages 65+. For women ages 75+, this percentage jumps to 47%.
  • Historically, women are widowed at age 56, and about 25% of widows are poverty-stricken two months after their husband’s death.

What are the consequences of these realities? Women contribute less to their retirement and savings funds, struggle to escape the debt spiral, and are unable to rest assured they’ll live securely during their last decades.

As you can see, whether you’re working full- or part-time, are a single mom, or make a comparatively low salary, it’s imperative to start planning now. Even if you’re doing significantly better than average you can take steps to boost your financial knowledge and take a more proactive role in your finances.

This guide will serve as a springboard so you can get on your way to financial independence. As you go through these steps, remember your situation is unique and may necessitate some alterations. Always seek counsel from a financial or legal professional as it applies to you.

Step 1: Understand Your Cash Flow

The first step to taking financial ownership is to know where your money is coming from and where it goes. This step requires diligence and consistent updating, but it’s an illuminating and empowering exercise that will enable you to truly understand the activity of your hard-earned money.

*TIP: Use Mint.com, a secure online tool that enables you to input all your financial accounts, including your checking/savings accounts and credit cards, to track your income and expenses over the long term. You can set budgets, and track your assets and debts over time. Mint.com sents you regular updates on your monthly spending along with alerts to keep you on your toes, like if you’re spending too much at retail stores.

Alternatively, you can complete the below exercise to get an idea of what your cash flow is each month:

Salary + bonuses (before tax) =
Pay from extra jobs (before tax) =
Interest on savings =
Interest on income =
Scholarships =
Other sources of income =

Federal, state and local taxes =
Tax on interest income =
Tax on investment income =
Mortgage or rent =
Retirement contributions to 401(k) or IRA =
Insurance (health, home, auto, disability, life) =
Car loan payments or public transportation costs =
Student loan payments =
Groceries =
Gas and electricity =
Cell phone/landline =
Gas, car repairs, maintenance =
Eating out =
Nightlife =
Clothes and shoes =
Home décor & furniture =
Home repair/maintenance =
Laundry/dry cleaning =
Internet =
Child care =
Bank fees =
Hobbies (including video streaming services, magazines/books) =
Gifts =
Vacations =
Grooming =
Gym fees =
Charitable contributions =
Pet care =
Miscellaneous =


Now that you’ve calculated your monthly cash flow, determine the areas of spending you can cut down on so you can achieve your goals.

Step 2: Determine Your Goals & Set Your Budget

Calculate what your goals are, such as buying a home or your target retirement fund. Your goals might start with paying off credit card debt or saving for your three- to six-month emergency cushion—it all depends on where you currently stand.

Next, figure out how much you need to save in order to achieve these goals. Do you plan to buy a house? Estimate how much it might cost you. Remember the down payment is typically 10-20% of the total price of a house, and you’ll pay an extra 1-5% to bank for closing costs. Do you need a new car? That down payment is 10-20% of total car price plus monthly payments. Do you need an extra $2,000 for your emergency fund?

Make a list of your savings and debt-payoff goals.

As a general rule of thumb, aim for the following targets:

  • Debt (including student, car, and home loans and credit cards): Make it less 20% of your monthly take-home pay.
  • Housing: Make it less than 30%.
  • Savings (including emergency fund, medical/dental fees not covered by insurance, etc…): Make it at least 10%, but the more the better!

After that, reprioritize your expenditures so you’re able to start saving!

Below are some cost-cutting tips to get started:

  • Instead of purchasing books, borrow from your local library or ask friends for theirs.
  • Get rid of your cable subscription and catch up on your favorite shows online.
  • Make gifts instead of purchasing them.
  • Eat out less and make food at home.
  • Instead of going out with friends, host a potluck and craft cocktails at home.
  • Pay attention to online and print coupons and advertisements for grocery deals.
  • Unplug all electricity-sucking devices when they’re not in use to lower your bills.
  • Instead of joining a gym, take advantage of nature by hiking, running, or playing sports. Remember taking care of your health and avoiding medical/dental fees is also a money-saver!
  • Take advantage of online deals and thoroughly research flights and hotels to ensure you keep your vacation costs as low as possible. If you’re really tight on cash, plan a staycation instead and stay local, which will dramatically reduce the transportation and lodging costs.
  • If you cannot make monetary donations to your favorite charity, ask if they offer volunteer opportunities, such as grant writing or event planning for fundraisers.

Step 3: Eradicate Debt

If you’re buried in debt, eliminating it should be one of your top priorities, if not the #1 priority.

*TIP: Remember, not all debt is created equal. Exorbitantly high-rate credit card debt is not the same as a low-interest consolidated student loan, which tends to have reasonable monthly payments and longer payoff terms.

Start with these debt-eliminating tips:

  • Pay off the highest-interest debt first. This is usually credit cards.
  • If you can, don’t just pay the minimum, as you will never be able to escape the downward interest spiral.
  • If you have enough savings, dip into your savings to pay off high-interest debt so you aren’t losing money from interest payments.
  • Transfer debt from high-interest rate loans to those with lower interest rates.
  • Call your lender and ask them to consider lowering your interest rate.
  • For student loans, consider consolidating them or asking to extend the repayment plan (so you pay over the course of 20 years instead of 15, for example).
  • Don’t borrow money with credit cards.
  • Always pay on time and pay off the entire outstanding balance every month. You do not want to pay late fees on top of your repayments!
  • Don’t use cash advances. Rates are much higher, as much as up to 28%.

Step 4: Save!


Per the Transamerica Center for Retirement Studies, 59% of women are merely guessing the amount they need upon retirement and lag behind men when it comes to contributing to their 401(k) plans. On top of that, 45% of women work part-time, as opposed to 24% of men, which means they have fewer chances to fund their retirement accounts.

If you’re already contributing to a retirement account, see if you can increase your amount by cutting costs. If you haven’t, start here:

  1. Check with your employer to see if you can enroll in your company’s 401(k) plan. If your employer matches contributions, you should absolutely max out this plan before any others.
  2. If you don’t have access to an employer-sponsored plan or want to open a second account, choose an IRA (Roth or Fully Deductible).
  3. Open a partially deductible or nondeductible IRA.
  4. If you’re self-employed, look into a SIMPLE, SEP or Solo 401(k).
  5. Consider life insurance, which is when you make a lump-sum or series of payments in exchange for income upon retirement. However, interest rates are on the lower end so make sure to compare it with the other options.
  6. Save even more via bank accounts, money market funds, and other savings vehicles.

Still have a job? If you’re spending more than you make, consider delaying your retirement age, spend less immediately by reducing or cutting costs, and save more.

Already retired? You will need to make more drastic and immediate lifestyle changes. Consider adjusting your standard of living, such as living with a roommate instead of by yourself to split rent costs.

Healthcare Costs

Since women typically outlive men, they need to budget more for healthcare costs for use in their retirement years. These include co-pays, deductibles, medication, and assisted-living services. Include this in your savings plan.

Emergency Savings

There are other reasons besides retirement you need to save for. Most importantly, stash away a three- to six-month emergency fund just in case. This will help you in short-term emergency situations, such as a car repair, medical costs not covered by your insurance, unexpected laptop malfunctioning or loss of a job. If you have some funds saved for these little mishaps, your monthly budget won’t be too thrown off and you can stay right on track.

Make plans for the unexpected!

Housing & Car Savings

You’ve already estimated how much you’ll need to get the house and/or car you want. Based on when you plan to purchase a home or a car, fit this into your budget so you stow away the right amount every month and reach your goals on time.

Savings Vehicles

General Savings Accounts

  • Basic savings account: A traditional savings account with your brick-and-mortar bank. Offers relatively low interest rates. $250,000 is protected by the FDIC.
  • Online savings account (OSA): An OSA is mainly funded and managed on the Internet. Because they don’t need actual branches, OSAs are able to offer higher interest rates and lower fees. $250,000 is protected by the FDIC.
  • Money market account (MMA): MMAs are FDIC insured and typically impose a higher minimum balance with limited withdrawals. They are known to offer relatively higher interest rates.
  • Certificates of deposit (CDs): A CD is a savings certificate with a maturity date that enables you to earn interest. There is a fixed interest rate and is insured by the FDIC. The term usually ranges from one month to five years.


Putting your money work for you by investing it is one of the best ways to beat inflation and reap the benefits of compounding to grow your money.

There’s a reason why Albert Einstein referred to compound interest as “the greatest mathematical discovery of all time.” Compounding is when your money accrues not only on the earned interest but also the principal, allowing your investment to grow at an exponential rate. The key to compounding lies in time and earnings, which is why you should invest as early as possible — even if you don’t have thousands to invest.

There are many types of securities you can invest in. The most popular are:

  • Stocks: Each share of a stock represents ownership in a corporation and part of the corporation’s assets and earnings.
  • Bonds: Bonds are IOUs. You loan your money to the government, a city, or a company and they repay that loan with interest payments.
  • Mutual funds: Mutual funds are investments that comprise a mix of stocks and/or bonds.
  • Exchange-traded funds (ETFs): ETFs are essentially like mutual funds. The key difference is that ETFs do not have a fund manager and offer lower investment fees.
  • Alternative Investments: Futures, options, FOREX, etc.

Diversification is the key to smart investing. Unless you’re already a savvy investor and are comfortable with higher-risk investments, start by maintaining a mix of assets, such as stocks and bonds. This way, in the event that one security declines, the loss can be offset by the stability of other assets in your portfolio.

*TIP: If you’re new and want to get into investing, take the abovementioned concept of diversification and start with securities like mutual funds and ETFs. These types of securities are usually more diversified than buying a single stock, but there are still many options, so do your homework.

*TIP: Check out WealthFront, which is great for novices. They allow you to automate your investments, which are fully diversified and rebalanced periodically. Their minimum account size is $5,000, and they manage your first $10,000 for free and the rest for 0.25% per year.

Step 5: Protect Yourself

Consider Professional Guidance

Some people are simply more financially savvy and confident with how they use their hard-earned money. If you’re not part of that camp, you might want to consider working with a professional financial adviser to help you with your entire plan or at least a few aspects of it. Ask around for referrals or visit CPF.net (the Certified Financial Planner Board) to find an adviser who’s met all of CFPB’s requirements for certification, including passing a comprehensive exam.

Nurture Your Credit Score

Even if you’re married, keep your own credit score healthy. Creditors do not consolidate your scores—they look at them individually. In the worst-case scenario, you do not want to be in a situation where you are divorced and have a low credit score, which will hinder you from taking out low-interest loans if you need it.

Check your credit report and evaluate it for any errors. You can request a free report every year from one of the three credit bureaus, Experian, TransUnion, or Equifax.

Stay on Top of Housing

If you’re renting, make sure to read all parts of your rental/lease agreement so you understand how and when you’ll get your security deposit back, what the yearly rental increase looks like, what happens if you terminate the lease early, and more.

If you’re on the market for a house, shop diligently. Look for the best rates online and even in your local newspaper. Look into FHA and Freddie Mac & Fannie Mae rates. Taking the time to look for the best loan options can save you thousands of dollars over the years.


When you enter the state of married bliss or co-living, make sure you know where you stand. Organize titles to property, such as your house and car. Recognize that excluding your name on a title means you will no longer have ownership in the event of a divorce. Consult your financial and/or legal adviser to ensure you’re safeguarded upon a split.

Tips For Financial Independence

Prepare for the worst. No matter how comfortable you feel now, whether you’re single, married, or living with a partner, always plan your own financial future as if you were already on your own.

Spend less than you earn. After minimizing the costs of your necessary expenses, such as utilities and car payments, don’t overspend on items or services you can do without. Remember retail therapy only gives you a temporary sense of satisfaction.

Automate savings and retirement. Take advantage of online automatic transfer features. For example, if you decide you need to save an extra $300 per month for your emergency fund and a down payment on your future home, log in to your bank account and set up auto-transfer from your checking to savings account for $200 every month. Do the same for your retirement accounts.

Check in on your investments. Check to see how well your portfolio is performing. If you’re well-versed in investing, make adjustments as needed. If you’re working with a financial adviser, check in with them especially if you don’t see growth or see a decline.

Organize your financial files. Create separate folders for credit card accounts, tax returns, insurance policies, bank statements, retirement accounts, investment account statements, wills & trusts, your birth certificate, your marriage certificate/prenuptial agreement, divorce certificate, real estate titles and deeds, and your auto/lease agreement.

Stay in the financial know. Reading does wonders for your gray matter in general, but take some time to read up on personal finance and professional development every once in a while. Fill your mind with knowledge, new trends, and best practices to stay ahead of the financial game.

Boost your earning ability and stay marketable. Whether or not you currently have a job, think ahead. Hone your skills, ask for more challenging responsibilities, build relationships with your colleagues and supervisors and check to see if there are any certifications you can add to boost your professional value. Join your industry association and constantly network. You never know you will think of you later when an opportunity arises.

Invest time to build a new career. If you’re considering a career transition, start now. Take courses (there are plenty of free classes online) or check to see if your local university offers extension courses for certification. Volunteer, intern, and network.

Find a career mentor. As you network, secure a mentoring relationship with an influencer in your desired field to help you guide you through your career–even if you may be staying at home to take care of your children. If you can find someone who has experienced a similar situation, such as maternity leave, even better. This person can help you make the right decisions as it comes to staying employable regardless of where you are in your life.

About this resource:

Created on: July 22, 2014

Updated on: July 22, 2014

Edited by: Mike Jelinek, Michael Gardon

Research by: Sarah Ban, Michael Gardon

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