Financial management

Why the five foundations of financial security are especially important for women

- June 9, 2022 6 MIN READ
Helen Baker inset on background with sign reading: financial freedom next exit

Award-winning financial advisor, author and spokesperson for online finance platform, Helen Baker, is also dedicated to helping women find financial freedom. She joined editor Cec Busby on the Flying Solo podcast to explain why it is so crucial for women to be financially literate.

Helen is the author of On Your Own Two Feet: The essential guide to financial independence for all women, which aims to help women take control of their finances and avoid insecurity when adversities such as divorce, job loss or health difficulties arise.

Helen firmly believes that everyone should have a plan to help mitigate money stress when challenges inevitably occur.

“I think everybody needs a financial plan,” says Helen. “Many people put their head in the sand and think that it’s too hard. The problem with that is we run out of time that would have been used well by avoiding mistakes or doing things that made a difference strategically, such as starting investments earlier. At some point, you have to pop your head up out of that sand, and the problems are still going to be there.”

Helen Baker, financial advisor

Helen Baker, financial advisor

Why women’s financial independence is so important

Helen says that a sound financial plan is essential for women, who are more likely than men to find themselves in difficulty.

“We tend to assume ‘If I earn this amount for the rest of my life, I’ll be fine’,” Helen says. “But a woman’s life is generally more stop/start, or part-time. We have issues like the gender pay gap, and we also have the ‘career choice gap’. Many women choose to work in caring for others, such as nursing, childcare or aged care, and those roles don’t pay as well as somebody who’s a mining engineer or working full time in a legal firm. Then there are women having time off for children, and many women sacrificing time to take care of their parents or grandparents.

“I started getting inquiries from women who were divorcing or who’d been widowed, and a lot of them had little understanding about how to manage investments or what they should be doing with their money. Our industry has been heavily male-dominated, and for some women, that hasn’t been something they felt comfortable with.

“For them, coming to a female advisor to get some trusted advice and guidance means that they can ask those questions that sometimes they feel too afraid to ask. It’s crucial to find somebody you are safe with to give you the quality advice you need, get you on your feet, and keep you there.

Listen to Helen Baker on the Flying Solo podcast:

The five foundations of financial security

Helen says there are five foundations to financial health that should underpin and support any money decisions we make.

“Lots of people have started some investment, but they didn’t have the right foundations. So as soon as something goes wrong, whether they lose their job or get sick and can’t work, or just want the opportunity to make certain choices, they haven’t got things in place to protect what they’ve built. Then they get to a point where they’re forced to sell an investment or don’t have the choices they want.

“It’s about putting these five foundations in place before building on top.”

According to Helen, the five foundations are:

1. Emergency funds

“The emergency fund is your money tucked away for a rainy day or challenging times such as job loss or illness,” says Helen.

2. Spending and investment plan

“Some people might use the term ‘budget’,” says Helen, “but budgets to me feel a bit like handcuffs or like going on a diet, which can become stifling. We need to be realistic and include things like getting our hair done, kids’ sports or school fees, petrol, groceries and holidays – all those things that we need. Then aside from that, what’s left over, and what do we do with that money? Do we put it on a home loan or into an investment? Do we put it in super? Your goals will be different at different stages of life.”

“You can always change the plan, too,” reminds Helen. “The plan gives you an idea, but it’s a living strategy. Things will either hit the target or go above or below the target, so you keep adjusting as you go. It’s always evolving.”

3. Insurance

“This looks at general insurances like home contents and cars, and personal insurance like income protection and private health,” Helen explains. “Insurance has become even more complex and costly recently – costs have gone up around 30 per cent on insurance. It’s a massive issue for people to continue to afford it versus the risk of not having it. It’s important to remember that income protection is tax-deductible.

“Also, a lot of people think they’re insured, and they’re not because they’ve either consolidated super, or they just don’t have enough. A financial advisor can help you find some balance to take risks with informed decisions, rather than finding out too late.”

4. Superannuation

“Super is protected against bankruptcy and creditors if something goes wrong, so it’s a great addition to have,” says Helen. However, she warns about jumping on the super consolidation bandwagon too quickly.

“It’s worth getting good advice about super. There’s a lot of talk about consolidating superannuation, but I’d say you don’t do that until you’ve got advice because if you do consolidate, you may lose certain essential insurances.

“Super is also something we often don’t pay ourselves as business owners, because we focus on cash flow and the ebbs and flows that come with business. But you want to ensure you’ve protected yourself. If we were working for somebody, we would be getting super – business owners often find ourselves well behind where we could be. And the good news is, putting contributions into your super is tax-deductible, so you get a tax concession along the way.”

5. Estate planning

“Estate planning is about wills, powers of attorney and special trusts that might be appropriate for families and advanced health directives.

“It’s also important to look into our super nominations,” Helen reveals. “Who have we left it to? Are they an eligible beneficiary of super? Because that can be restricted.”

Taking control

Helen says that taking control of our finances now is the first step to the freedoms we look forward to as we head towards retirement age.

“If we get all those in play, then we’ve taken control over what we can control. And then, we build on top of that to make sure we aim for the lifestyle we want to achieve.

“Financial planning is about enabling you to start doing the things that build your wealth and buy you choices down the track – to dial down the hours that you’re working, or have a year off and travel – because you have put those foundations in place to protect yourself, even around things like divorce.

“It’s not that you need to be fearful, but it’s about being in control and having wisdom and knowledge around the elements that decide what your life will be like.

“If we get finances right, we make quality decisions in all areas of our life. People are less likely to stay in violent relationships or not pursue a business because they feel trapped from a financial perspective. Having your finances sorted gives you the freedom to get out and live the life you want and to try your hand at things that you’re passionate about, like your own business.”

On Your Own Two Feet book cover

Grab your copy of On Your Own Two Feet now. Proceeds from each book sale go towards charities helping women become more financially literate.

Helen shares more advice on protecting your financial health in this podcast, plus a few great tax tips for small business owners. Listen to the full episode now!

helen baker

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