BT FINANCIAL: Wealth Building for Women

Original article featured in BT Financial Group . Interview by Carmarlena Murdaca.

Although the principles of wealth building apply to both men and women, there are circumstances where women, in particular, can be left vulnerable as they navigate the gender pay gap,1 the super gap and the gaping hole in their earnings, while taking time out to care for their children.

We’ve put together some financial tips to help women get ahead, come what may.

1. How to: negotiate a pay rise 

New research conducted by the Harvard Business Review found that women do, in fact, ‘ask’ for pay rises as much as men do, however, they’re far less likely to ‘get’ them. The study also suggests that while men are successful in negotiating a pay rise 20% of the time, women were only successful 15% of the time (despite both genders concern about damaging their relationships in the workplace).

Despite the above, Jane Jackson, Career Management Coach and author of Navigating Career Crossroads, says women need to foster a win-win attitude when asking for a pay rise. “Women often allow a self-limiting belief to hold them back, whereas men may brazen themselves through difficult conversations, by being direct,” says Jane. “It’s important to be factual about what you bring to the table and not talk yourself down before reaching the negotiation stage.”

Jane believes, there are a number of ways to negotiate a pay rise with your boss. “Be prepared – make sure you know exactly what you want and how you are going to justify the raise. Also, go with a win-win attitude; it’s a discussion about the value you bring to the organisation. You need to provide a valuable solution to their problems, by giving examples using Problem – Action – Result methodology.”

Be prepared – make sure you know exactly what you want and how you are going to justify the raise

Negotiate, wealth building, negotiation, Jane Jackson, career coach

Once you’ve negotiated your pay rise, how to save the cash comes down to a number of factors. “Decisions as to where to direct savings, will have different results depending on a number of factors,” says WBT Adviser, Diana Saad. “These include life stage,  if there is a requirement to access funds instantaneously , individual tax position, investment risk profile (including psychological and financial tolerance to investment risk), short/medium and long-term goals and objectives, as well as various other factors that could be relevant to that particular individual.”

Diana believes you should use your pay rise to invest. “Think about how to utilise this extra disposable income for your long-term financial success”, Diana adds. “You’re not always going to have that extra money to set aside through your different life stages. You might be unemployed for a bit, you might have to stay home if you have kids. If you move out, you’ll have to pay rent, or, pay off a home loan.

“It is also important to bear in mind that investment markets go through cycles with ups and downs, and therefore you need to be prepared to invest for the long-term and ride the waves of fluctuating returns that come with investing.

2. How to: save during maternity leave

While having a baby is one of life’s most rewarding moments, the financial pressure of maternity leave can be stressful for some. According to Diana, it’s important to prepare or review your expense budget, so you have a clear map of expected cash flow. “A good idea is to group your fixed expenses like your home loan and utilities as these are your monthly non negotiables,” Diana says. “Then you can make smart decisions around which areas of discretionary spending you value most.”

While the costs are significant, Diana believes there are ways to alter your finances in line with the additional expenses that come with kids. “It could be cutting down on impulse purchases and wasted food, or taking advantage of government benefits such as the Child Care Subsidy,” Diana adds.

Making the most of government assistance is an important one, especially if you decide not to return to work after maternity leave. Benefits change from time to time but may include:

  • Family Tax Benefit Part A and Part B: you may be eligible if you have a dependent child or secondary child under 20 not receiving a pension, payment, or benefit such as Youth Allowance, and you also provide care for the child for at least 35% of the time. You must also meet an income test.2
  • Child Care Subsidy: income tested and subject to eligibility criteria. To work out how much Child Care Subsidy you and your family are eligible for, the government looks at your family’s income, the hourly rate cap based on the type of approved child care you use and your child’s age and the hours of activity you and your partner do.3

3. How to: manage financial equity in marriage

Financial equity in marriage is essential.  It’s rare for couples to enter a financial relationship with the same amount of savings, income or debt, so while inequalities are natural, it’s important to get on top of them. “I suggest putting together a budget that both partners can agree on,” says Diana. “If possible, it’s a good idea to make room for discretionary spending for each person – that way the budget doesn’t feel too stringent and the couple is more likely to stick to it.” That’s a key method for wealth building.

4. How to: build wealth through super contributions

When it comes to super, Diana believes it’s important to start with the basics and consider consolidating your super funds if you have multiple.

“I’ve had young couples with three, four or even five funds, paying multiple fees that erode small balances,” Diana says. “Before you do this, however, make sure you consider what default insurance cover you have inside your super funds (especially if you have pre-existing medical conditions and therefore could be challenged to secure cover elsewhere). At the same time, you could be over insured by unnecessarily doubling up on insurances (and insurance premiums) if you have the same types of covers across multiple super funds. You should also check that your employer is paying your 9.5% Super Guarantee (SG) every quarter, especially for employees of small businesses. If the company liquidates, you could be left short on your entitlements which will affect your financial situation in life.”

Relying on your employer’s 9.5% Superannuation Guarantee (SG) contributions alone, may not provide sufficient funds for you to achieve your retirement goals. Taking active steps to also boost your super through extra super contributions, could mean a better quality lifestyle in retirement. Keep in mind, there may also be tax benefits to take advantage of.

A tax-effective way of making additional before-tax contributions to your super is through salary sacrificing for wealth building. Contributions can be made from your pre-tax salary, rather than receiving cash in hand (which is known as “concessional contributions”). As these contributions are taxed at a low rate in most cases, this strategy could help boost retirement savings and be a useful tax-effective investment strategy.  

Superannuation contributions can also be made from after-tax money (which is known as “non-concessional contributions”). This is different from salary sacrificing, which happens before your income is taxed. With the Government’s super co-contribution scheme, by making a non-concessional contribution into your super, you may receive a benefit from the Government based on any after-tax contributions you make to your superannuation fund, if you meet the eligibility criteria.

Keep in mind that super contributions are subject to limits, and money moved into super generally can’t be accessed until retirement, so best to speak to your adviser for further information.

1 Australia’s Gender Pay Gap Statistics.” Australian Government – Workplace Gender Equality Agencywww.wgea.gov.au/data/fact-sheets/australias-gender-pay-gap-statistics
2 “FTB Part B Eligibility.” Centrelink – Australian Government Department of Human Serviceswww.humanservices.gov.au/individuals/services/centrelink/family-tax-benefit/who-can-get-it/ftb-part-b-eligibility
3 “Your Income Can Affect It.” Centrelink – Australian Government Department of Human Serviceswww.humanservices.gov.au/individuals/services/centrelink/child-care-subsidy/how-much-you-can-get/your-income-can-affect-itWoman with her dogLadies, mind the gap – how the gender pay gap could affect your futureOn average there’s still a considerable gap between men and women when it comes to retirement investments.

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Jane Jackson

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