Importance of financial independence in women’s life: Women’s financial independence is an issue that may not be to the liking of patriarchal societies; Communities where men like women to be financially dependent on them. Let’s skip the reasons because in this article we are not going to talk about men’s desire for women to be financially dependent on them. What we consider in this article is the importance of women’s financial independence and the steps to achieve it.
What does financial independence mean?
Even if you have a trusted sponsor and you do not think it matters, you may one day lose your support. So financial independence should not be taken lightly. Financial independence in simple terms means not being financially dependent on anyone. So what happens then?
- You are in control of your finances: so you decide on your own money and do not rely on others to do so.
- Learn the knowledge of financial management, even at a basic level: With this knowledge you can make the right decisions and manage your finances .
- You can support yourself financially: that means you can stand on your own two feet with a job income, savings, investment or a combination of all three. You do not have to rely on your father’s money, your spouse’s expenses, government grants or loans, and so on.
Why should women have financial independence?
How long do you want others to decide your finances?
Financial independence is something that everyone should achieve and there is no man or woman. But why is financial independence more important for women? This is because men usually have no choice but to achieve financial independence; But women do not pay much attention to this issue, because since ancient times, they have always considered themselves dependent on men (in fact, this issue has been instilled in them). For this reason, most women do not view financial independence as essential.
It is true that no one knows what will happen in the future, but at least we can control the reaction we have to show in different situations in the future. How? With financial independence. If you are financially independent, you can plan for the future without relying on luck. People who are financially dependent on others can only hope that the future will be good for them; Especially women who face unique challenges. Ready to start? Let’s talk briefly about the financial challenges facing women.
What financial challenges do women face?
Women’s financial independence is an issue that has always been overlooked. Throughout history, it is full of men who have always considered women as their subjects. Women’s work included staying at home, cooking, cleaning, and raising children; While men worked, built houses, or went hunting. Of course, so far there is no problem because women themselves are very inclined to focus on housekeeping, child-rearing, and the like. Of course, these responsibilities have never been less important than working outside the home, and perhaps even more so.
But where is the problem?
The problem is that whether you are a housewife or an employee, we are still dealing with a by-product of this traditional thinking in the new century: “Men are the ones who manage money.” For generations, many women have relied on fathers, husbands, and other men in their lives (even brothers and children) to make financial decisions. Fortunately, this mindset is slowly changing. Many women today know they must be financially independent; Because without it, it is more difficult to achieve their dreams.
Some of the major financial challenges facing women include:
- Women often earn less in a job than men in the same position. In addition, women have to deal with a phenomenon known as the “glass ceiling”; An invisible but completely real barrier between a woman and her career success. This is an obstacle that limits many opportunities for women to advance and advance in their careers .
- Many women spend much of their lives raising children and taking care of household chores; So they have less time to work and earn money than men. Some women are even responsible for caring for the elderly in the family, which does not leave enough time for them to work and earn.
Why is women’s financial independence necessary?
Remember this sentence well: Financial independence is not a word of mouth, it is a necessity. but why? For a simple reason: Most women will inevitably have to manage their own finances at some point in their lives:
- Poverty rates for women over 65 are significantly higher than for men of this age;
- Many women, after divorce , widowhood, or even celibacy, will probably not have anyone to manage their money over the age of 65, so they need to learn how to do it much sooner;
- Life expectancy is higher in women than men. Many women whose father or husband has always made financial decisions. In their absence (due to death or leaving the family), they suddenly face a responsibility for which they are not ready.
If you are single, you may already be in charge of your finances; however, you will probably have to do this very soon. If you’re married, you still need to prepare yourself to know what to do if you suddenly have to carry the burden of managing your money. Do you have to get to a point where you have no choice? Why not plan for it sooner?
With foresight and preparation, financial independence will be the means to an end. If you get caught up in financial independence late, you will only use it to deal with unexpected challenges such as paying off debts, paying for medical expenses, sorting out expenses, and so on.
What are the steps to achieve financial independence?
To achieve financial independence, you must go through 6 important steps:
1. Specify your desires
As we said, the first fundamental aspect of financial independence is being able to make decisions about your money. What decisions? To answer this question, first, ask yourself:
- What do I want to protect in my life?
- What do I need to have peace of mind?
- What things in life are most important to me to achieve?
- What am I most worried about losing in life?
- What is the lowest cost I can lose?
The answers to these questions determine what decisions you need to make. Just like traveling. Don’t you have to specify the destination first wherever you want to go? It is the destination that determines which roads you should take, what supplies you need, and how long it will take to get there. The first step to financial independence is to choose the destination of your life.
Tips for choosing a destination
Choosing a destination is difficult, But you can turn it into something enjoyable. Do this:
- Make a list of your goals and always have it with you. Keeping them in mind is just a dream, be sure to write them down to make them look like a design. Study it from time to time and decide if what you want to do is what you want it to be and you have not changed your mind. Do you want some of them right now, and if not, will you release them later? Specify these items.
- When writing a list, stick to your goals . Most of us have a laid back attitude when it comes to painting a picture about ourselves. Maybe it’s because we often choose goals that seem normal instead of goals that are really important to us. do not be scared. Write down goals that make sense to you. Even if they are weird or very mundane. These are the desires of your heart, and we asked you to write what you want, not what you just need.
2. Take control of the cash flow
Do not spend unrestrained and without restrictions.
At this point, your wishes are specified. Some of your wishes may be:
- Retire and stop working;
- My children will be financially secure in the future;
- Have enough money for unexpected expenses;
- And… .
These are all great goals and you will need money for all of them. We said that the second basic aspect of financial independence is being able to support yourself financially. To do this and achieve the goals you have set for yourself, you first need to control your cash flow. What is cash flow?
Simply put, cash flow is the total amount of money you earn and spend, our own income and expenditure. Rest assured, if the money you spend is more than the money you earn, you will neither achieve your goals nor be financially independent. What awaits you in the future (and you are probably already under it) is debt.
Fingerprint calculation for cash flow
To calculate cash flow, you need to consider a number of factors, two of which are more important than others: revenue and expense. Revenue is always closely related to expenses. You will only achieve financial independence if your income exceeds your expenses. These costs do not simply include the ability to pay bills, taxes, and food. Remember your goals you wrote? They all cost money; So to control cash flow, you must first start by calculating the projected revenue and expenses. Next, pay attention to me. We want to calculate. Even if you have to, take a pen and paper (it’s worth the time).
First, calculate what your income and expenses are right now. To do this, both income and expenses are divided into two parts:
- Current income
- What is your monthly income without tax? Calculate both job income and income from other channels.
- Current costs
- How much do you pay for water and electricity per month?
- What are the daily expenses such as gasoline, medical expenses and the like?
- How much do you pay for insurance (including car insurance, home insurance, life insurance and Social Security (if optional)?
- How much debt do you have and what installments do you pay per month? (This can include different types of loans, different installments, credit cards – if you use them – and the like.)
Add all this and reduce your income. This is the number that remains for your goals. Of course, remember this is your current cash flow. For the expected cash flow in the future, you need to calculate how your expenses will change, for example after retirement:
- Expected revenue
- How Much Money Do You Make After Retirement? For example, social security, life insurance and any other rights you may have as income.
- Expected costs
- Are you currently paying taxes? Will your taxes be reduced after retirement when your income decreases or not?
- What costs do you have now that you will not have later? (For example, you have to pay for transportation to work today, but you will probably not be able to afford it after retirement, and your transportation costs will decrease.)
- What are some expenses that you do not have today but that you may incur later? (Social security insurance, for example, is something your employer may currently pay for, but if you lose your job, you will have to pay for it yourself.)
- The hardest and most important thing to consider: What will your medical and healthcare costs be after retirement? (Of course, no one may know this, but you should know by now that you will have coverage for this after retirement or you will have to pay out of pocket.)
Now add or subtract each of these 4 items that increase or decrease after retirement to the current expenses you wrote down earlier.
Finally, you have to combine 4 numbers 2 by 2:
- Total current income + total expected income after retirement;
- Total current expenses + Total expected expenses after retirement.
Final action and important reminder
Now compare these two numbers. Which number is more? Remember this is just an estimate and we do not want to calculate an exact number, as it is not possible. No one can predict what will happen in the future. Even inflation, which will be one of the most important factors influencing your income and expenses, is normally on the rise. However, this does not mean that it can not be reduced.
3. Eliminate debts
Remember we said you have to support yourself financially? Debts will never allow this. Have you ever encountered people who, despite having a lucrative job, can not afford to finance themselves? I do not mean that they are left in their food, they are left with only the smallest unforeseen cost. This is because they are very much in debt.
Did you know that women are more likely to be in debt than men? The reason is their unequal wages. They know that by raising money, they can no longer afford what they want. For this reason, they are more likely to seek loans and installments. Women are much less able to pay their debts. For this reason, getting rid of debt is a very important step towards financial independence.
Since the topic of debt reduction is a very broad discussion, we will briefly explain 3 useful methods:
Method 1: Turn bad habits into good ones
Debt settlement (debt consolidation), debt settlement, even bankruptcy are all words related to debt. Get those words out of your mind. The surest way to get out of debt and stick to it is to break the habits that make you indebted.
We live in a society that values material things. The latest model phone, expensive sports car, big house, the latest and most luxurious home appliances, and…. There is nothing wrong with wanting these things at all! But if you prefer the demands to the real needs, your work is worth it. You can write these as goals or desires, But you should only meet them if you can afford them. If you want to buy them now that you can not afford them, you will have to resort to borrowing, credit cards, installments, and similar methods. That only adds to your debt.
Method 2: Budget by controlling cash flow
Remember we talked about cash flow control? Another benefit of having such control is the ability to budget. By understanding the amount of revenue and expenses, you can budget; That is, make a plan for your money. When you have a separate budget for everything, you will not be shocked by the unexpected. Do you know budgeting?
Budgeting means dividing your income into different parts and, just like how many funds you have set aside, allocate a percentage of your income to those funds each month; For example, one for medical expenses, one for savings, one for unforeseen expenses, and so on.
Method 3: The order of payment of debts is effective in getting rid of them
Some experts say to pay off your biggest debts first. On the one hand, it makes you feel good, and on the other hand, bigger debts are bigger problems.
This advice is not a problem. But we have a more interesting solution, and vice versa. That means settling small debts first. This can be a daunting task when focusing on very large debts. You feel like everything you pay is not enough. At the same time, small debts are constantly accumulating and they will turn into large amounts over time.
4. Earn money, save and invest
Your capital must grow to overcome inflation
After controlling liquidity and eliminating debt, it is time to accumulate wealth. This is not to say that you can only do this by accumulating a portion of your income. You need to combine income, savings, and investment.
Income is earned by having a job. You, as a woman, face certain challenges in this regard. Women often work part-time because of family responsibilities, are paid less than men of the same age, and are usually more likely to be forced to leave work to care for the family. For these reasons, women need to be more committed to saving and investing than men, especially when it comes to retirement.
In today’s world, if a person just wants to continue his lifestyle after retirement (that is, without thinking about his dreams), he must have at least 70% of his pre-retirement income in the post-retirement period. what does it mean? This means that your income must grow so much through non-employment channels that when you retire, 70% of your income will still flow. With that in mind, you need to be very serious about saving and investing.
How should we do this?
In our country, retirement is possible with different insurances; For example, if you have Social Security insurance, you will receive a pension. Of course, to receive a full salary, you must have completed 30 years of insurance. Life and future insurances (such as Pasargad, Iran, Asia, January, etc.) are optional insurances that, in addition to accident coverage, pay your amounts after the payment period (10, 20, and 30 years) together or on a continuous basis. Of course, they all have conditions that are complex and we can not include them here.
“Do not put all your eggs in one basket.” This is one of the sentences you may have heard many times. Diversification means that you have to invest in different options and not put all your money in one channel; For example, you can keep some of your money in cash, invest some in stocks, some in real estate, some in gold, and some in digital currencies, as is the case these days. It is not an investment, it just explains how to diversify).
The important thing is to never, ever, ever invest your money in something high risk. When you are young, you have a lot of risk-taking power, and that puts you at risk. In our country, money is hard to come by. If you lose all your capital, it will be difficult to regroup.
Liquidity of an asset in simple language means that you can use it whenever you want; For example, cash has the highest liquidity because it can be used easily and at any time. Gold is also highly liquid. In contrast, real estate has the least liquidity. If you’ve already sold a house or land, you’ve probably realized how difficult it can be.
Inflation means an increase in the price of goods and services against a devaluation of cash. To understand its meaning clearly, let us give an example. According to the annual inflation rate of our country, which is 38.9%, the egg, which is supposed to be 1000 Tomans today, will reach 1389 Tomans after one year; It means that you can not buy an egg for another year for 1000 Tomans for another year. In comparison, in the United States, where the annual inflation rate is 2%, if the price of a commodity is $ 1, it will be about $ 1 and 2 cents after one year.
Unfortunately, accurate calculation of inflation and prices in Iran is not easily possible. If your money is just cash and stagnant and you do not invest it, it will suffer a lot due to inflation. For this reason, we will explain with an example why the importance of financial independence after retirement is so great:
If you lived in a country that has only 4% annual inflation, even if we assume that it will remain the same until 30 years after you retire, the value of the cash you have today will be halved! So just saving does not get you anywhere. You need to make the right investments to grow your money and keep inflation at bay. Now imagine how much worse the situation will be in our country with inflation of nearly 40%!
- risk management
Another important point in investing is a risk. Even the smallest investments, such as gold, whose value is almost never lost, may be at risk of being stolen or lost. That’s why portfolio diversification is so important.
5. Plan for your assets
When planning your assets, you can feel financial independence with all your being.
This step is called a set of preparatory tasks for managing an individual’s assets in the event of his death or inability to make decisions. This set includes work related to inheritance and property tax settlement. The simpler definition is:
This planning is the best way to ensure that your loved ones will have a fair share of what you have worked hard to achieve. This is especially important for women. Women are instinctively created so that they do not really feel satisfied until the future of their loved ones is secure.
One of the most important documents you need to prepare is a will. The will states how your assets will be divided among your loved ones. If you do not do this yourself, the government will be responsible for distributing them legally. If you do not have an heir and have not donated your property to a charity or elsewhere, the government will confiscate it.
- Power of attorney
It is necessary to arrange a power of attorney because the will does not specify who will manage you and your finances in the event of a disability, or how you should allocate your property to your own treatment if you become ill. In this document, you must nominate a person who will legally decide on your assets. This person can be a trusted friend, a family member, or an experienced and reputable lawyer.
6. Get help from a counselor
This step is not necessary. You may be able to do these things on your own. However, because we are faced with a complex task if you feel it is difficult for you, seek the help of a financial advisor. This person, like a lawyer, must be trusted and practical.
With the help of this person you can:
- Take control of your finances;
- Support yourself financially;
- Learn about investing and how to manage your finances.
In summary, the formula for achieving financial independence is:
- Save a certain percentage of your income each month;
- Create an emergency savings account;
- Invest in a way that fits the goals and bears the risk.
Planning for financial independence requires practice. Work now and plan for financial independence.
Are you ladies who are financially independent? Maybe you are in the middle of the road and will reach your goal in the near future! In your opinion, what is the effect of women’s work and other duties that have been defined for them by traditional customs and beliefs? What useful solution do you know?
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