In their hearts humans plan their course, but the LORD establishes their steps.
Proverbs 16:9
Things happen in life that we simply cannot prevent. You can’t cheat death, accidents happen, and not all jobs or marriages last. But arming yourself with financial knowledge, creating a private credit history, purchasing the necessary insurance, and saving can make the difference between spending your retirement years in financial hardship and enjoying the best that your later years have to offer. No one can predict the future, but you can plan for the unexpected and help to ensure that you are protected no matter what lies ahead.
We make our plans then walk by faith, never knowing for sure what a day may bring. I don’t suggest we need to be fearful about every possible thing that could be waiting around the bend. But just as with all of the plans we make for the future, we need to be ever mindful that life can change dramatically in a moment of time.
The events that create financial disasters for women are generally not the things we want to think about—the death of a spouse, a divorce, a serious illness, a disabling accident, or the loss of a job. While it is easier to think these things will not happen to us, life-altering events can, and do, happen anywhere, anytime. These events are surprising and upsetting, but that doesn’t mean they have to be financially crippling.
Good planning can help prevent a personal tragedy from becoming a financial disaster. You can prevent a financial disaster by making sure you have good, basic information to help you make informed choices as you prepare to protect your future.
Here are six steps you can take to become more financially independent.
1. Maintain good records. Be sure you have copies of all current assets, bank account numbers, safe deposit information, insurance beneficiary information, IRAs and other retirement account records, tax returns going back seven years, mutual funds statements, stocks and bonds, health insurance policies, home owner’s and auto insurance policies, the lease or mortgage information for your home, wills, trusts, powers of attorney, and birth and marriage certificates. It is also a good idea to keep receipts of major appliances with information on warranties.
2. Have your name on all bank accounts. If your husband dies suddenly, it could be very difficult to keep everything current if the checking account is in his name only. If you are married, you should also open checking and savings accounts in your own name just in case a will is contested or some other complication arises.
3. Manage your own credit. Good credit is essential to any sort of financial independence. Get credit in your own name through a personal credit card. Without good credit, it will be nearly impossible for you to borrow money to purchase a home or car, or even get a credit card, without assistance. A growing number of companies check credit reports before making hiring decisions. Landlords want to see a clean credit report before deciding who gets the apartment. The practice is called “risk-based pricing,” and it is perfectly legal.
Like it or not, banks, credit unions, credit card companies, and auto financing companies look to credit data to set interest rates. Most banks now require a credit check to open a checking account.
Good credit means more than just paying your bills on time. While that is a critical part of maintaining a good credit rating, you must also check your credit reports every year to make sure there are no inaccuracies.
Credit scores range from 300 to 850. You’ll need at least a 720 FICO score (MyFico.com) to be considered for any type of mortgage, but in order to get the best rates and most favorable terms, you’ll need a score over 760.
The first step in managing your credit is to find out what’s in your three major credit reports. You have a legal right to review all of the information the three big credit bureaus have collected in your name. And you need to do this because credible evidence suggests that most credit files contain misinformation and mistakes. Your report may contain a lot of negative data that belongs to someone else and was simply misfiled. No one cares about that except you, which is why you must assume the role of manager of your own credit.
Start by ordering your three free reports at AnnualCreditReport.com. This is the official site that complies with the federal law and the only place you can start the process to get your free reports. Once at this site, follow the prompts. You will be sent to the sites of the credit bureaus, but as long as you entered from the AnnualCreditReport.com site, you will not have to pay. You may also receive your annual complimentary copies of your three credit reports by calling 877-322-8228 or by sending your request to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You will have to reveal your name, current address, Social Security number (don’t worry, they already have it), and other personal identifying information.
If you are able to identify yourself to the satisfaction of the three credit reporting agencies (Equifax, Experian, and TransUnion) by correctly responding to security questions, you can get your free credit report online within a few minutes, downloaded to your computer. If not, you will be instructed to call a toll-free number to speak with a customer service agent. You will also find instructions for how to proceed if you prefer to receive your free credit reports by mail.
Once you have a credit report in hand, look at this as you would a rap sheet. These are allegations that others have made about you that may or may not be true. Your job is to make sure the information is accurate. You will receive instructions with each credit report for how to dispute any inaccurate information.
4. Assess your insurance needs and buy enough to protect yourself. There are four kinds of insurance every family should have: life insurance, home owner’s (or renter’s) insurance, health insurance, and auto insurance.
Term life insurance is relatively cheap and something you need to fit into your budget. You need a policy for six to eight times the breadwinner’s annual salary. If you are not employed but your death would put your children and husband in a tough financial position because they would have to hire others for child care and housekeeping, you need a policy that would cover all of these additional expenses for at least five years.
5. Create wills for both you and your spouse. Make sure you have a notarized original copy, a lawyer has a copy, and there is a copy in a safe deposit box. Review and update your will every five years or when you acquire significant new assets. While state laws vary, surviving wives usually inherit at least half of their husband’s estate. However, given the nature of the modern family, inheritance can be contested by stepchildren, children, siblings, and even cousins. While a jointly owned house will automatically go to the partner who survives, no one wants to inherit a house only to find she cannot afford the taxes that go with it. It is very important to state clearly whom you want to receive your property and possessions. If both parties die at the same time, a will is important to make sure the surviving children are cared for and that assets are fairly distributed among survivors.
6. Save, save, save! One reason for the high rate of poverty among older women is the lack of personal savings. Every spouse, with or without income, can open a Spousal Roth IRA. The only requirement is that your husband earns enough income to cover the contribution. As long as your husband earns $11,000 in income, he can put $5,500 into his Roth IRA and $5,500 into yours (or $6,500 if either of you is over age fifty and earns at least $13,000).