Research shows that women spend more time researching investments and tend to take appropriate risks, leading to better outcomes. They avoid chasing ‘hot tips’ and prefer long-term holdings, staying calmer during market downturns to avoid locking in losses. These traits make women better investors and set them up for future success. However, certain factors can still weaken their financial positions and leave them vulnerable. Understanding and addressing these issues is crucial for securing their financial stability. Let’s unpack:
Your marriage contract (or lack thereof)
Your marriage contract sets out the financial consequences of your relationship and it’s absolutely critical that those who are married understand the impact the contract has on their financial futures. We are often astounded by how little understanding people have around their marriage contracts and the financial implications should their marriage come to an end. In particular, couples who are married in community of property are at higher risk when it comes to debt. This is because couples married in community of property share a single, joint estate in equal, undivided shares – including all assets and liabilities acquired during the course of the marriage and before the date of marriage. This means that debt incurred by a financially irresponsible spouse can bind the joint estate, making both spouses legally responsible for repaying the debt. Should the couple choose to divorce, it is good to know that the Divorce Act makes provision for the forfeiture of assets by one party (for instance, the financially irresponsible spouse) in favour of the other where it finds that one party unduly benefited in relation to the other, although note that the onus lies on the spouse bringing the claim to prove that the other spouse unduly benefited.
Conversely, the absence of a marriage contract can also place couples at risk such as in the case of those who choose to live together as life partners. This is because in terms of our law, there is no such concept as a ‘common law partnership’, and no legal status is conferred on couples who choose to live together outside the tenets of marriage. Further, cohabiting partners have no legal duty to support each other financially which can leave the economically weaker spouse prejudiced when the relationship comes to an end. That said, there have been some notable legal advances towards protecting the rights of cohabiting couples, with some mechanisms still being tested in the courts. The most prudent mechanism available for cohabiting couples is to enter into a cohabitation agreement that sets out the financial consequences of the relationship.
Not generating an income
If you’re considering becoming a stay-at-home parent, it’s essential to plan for your financial future. Stepping away from formal employment to raise a child means your retirement funding will be paused during your time at home. In the best scenario, your retirement savings will simply be on hold, but if you need to withdraw from these savings to cover child-rearing costs, you could lose the capital you’ve accumulated, essentially starting from scratch when you resume working. Transitioning from earning your own income to relying entirely on your spouse can be a significant mental shift and may impact the power dynamics in your relationship. Therefore, it’s crucial to have open and honest discussions with your spouse about how this arrangement will work and how to safeguard your financial future in case the relationship ends.
Being dependent on your child’s maintenance payer
As a single mother, relying on your child’s father for monthly maintenance can be risky, especially if his payments are inconsistent. Unreliable maintenance can leave you in debt and struggling with monthly bills, and you may waste time in maintenance courts, impacting your career and income. To protect yourself, it’s crucial to have adequate emergency funds. Keeping three months’ worth of maintenance payments in an easily accessible account is advisable. This financial buffer provides protection against late payments and gives you time to seek relief from maintenance courts if needed. Having this safety net ensures you are better prepared to manage your finances and maintain stability for you and your child.
Not having your own retirement plan
Avoid relying on your spouse to fund for your retirement. Investing towards a comfortable retirement requires careful planning, time, and a commitment to regular saving – and relying on one person to save sufficiently for two people’s retirement can be unrealistic. Further, if you’re earning an income, there are significant tax benefits for contributing to a retirement fund, making it financially wise to invest in your own name and have retirement assets of your own. It’s also important to remember that women outlive men by between two and five years, which means that women generally need more retirement savings than men. The most prudent approach is for you and your spouse to have a joint retirement plan prepared to ensure that you are both maximising your tax-deductible contributions towards a retirement fund and that you are sufficiently invested for your retirement. Most importantly, stay actively involved in the retirement planning process and ensure that your plan is reviewed at least annually.
Not protecting your income
If you earn an income, it’s crucial to protect your earnings with a comprehensive income protection benefit from a reputable insurer. In case of temporary or permanent disability due to illness or accident, this benefit will pay out your nominated income until you reach a predetermined age, usually between 60 and 65. Should ill health or disability prevent you from working, having this policy will ensure that you have an income to rely on, sparing you from financial dependence on your spouse or family. This form of risk cover offers peace of mind, knowing you are financially secure even in adverse circumstances.
Investing too conservatively
Research indicates that women are generally more disciplined savers than men and less impulsive when investing, although they often lack confidence in their abilities. Women typically invest more conservatively, which can hinder their long-term wealth generation. Avoiding growth assets like equities in favour of cash and cash equivalents can be detrimental over time, as inflation erodes the purchasing power of investments. While caution is wise, being overly conservative—especially with a long investment horizon—can result in insufficient retirement funds despite years of saving. To ensure adequate retirement funding, it’s crucial to have a long-term investment plan and a well-diversified portfolio. This approach helps balance risk and keeps you aligned with your retirement goals, ensuring you remain invested appropriately over time.
Have a wonderful day.
Sue
