A few weeks ago, I got into an argument with a friend over how much money I had in my emergency account. This friend told me to withdraw 30% of that money and put it into riskier investments, such as cryptocurrency and individual stocks.
As a solo entrepreneur whose income fluctuates dramatically from month to month, this advice was not only alarming, but also inconsistent with my strategy and financial goals. Not only that, but as a woman, I’ve always wondered if I should contribute more to my emergency fund than the three to six months that experts typically recommend.
When I contacted financial experts to ask if it was true, they agreed. Here are the top four reasons why women need to save more money than men in their emergency funds.
1. Women live longer
According to the World Health Organization, women live six to eight years longer than men. And according to financial planner Carly Carbonaro, that fact alone can sometimes mean more financial complexities.
Because they are expected to live longer, Carbonaro says women should spend more time building up their savings in their emergency and retirement funds.
“As women live longer, they may need to save for a retirement that lasts more than 30 years,” says Carbonaro. “Despite the fact that women are more likely to save, they fall behind in retirement savings because they are less likely to invest.”
The gender pay gap also plays a role – women, and especially women of color, earn less over their lifetime than men for the same roles, and therefore have less money to save and invest. .
2. Women pay more for personal care products
While it’s not something we often think about, financial planner Danielle Miura says women often pay more for personal care products than men on a daily basis. According to a study by the New York City Department of Consumer Affairs, products aimed at women cost 7% more than similar products aimed at men.
“In general, women pay more for skin products, hair products, personal care products like razors and deodorant, and clothing,” says Miura.
In times of financial crisis, women may have to turn to their emergency funds to pay for essential personal care and get more money out of it than men.
3. Emergency funds provide options for women
Financial planner Nicole Peterkin Morong says women starting their own businesses need to save even more in their emergency fund than they originally thought.
According to a WBENC report, 25% of women were likely to seek financing for their businesses and more women used credit cards than equity investors to fund these businesses. Additionally, 88% of women-owned businesses generate less than $100,000 in revenue.
These statistics are why Peterkin Morong is urging women entrepreneurs to save more money in their emergency funds.
“Women are starting and running businesses at a faster pace than ever before, and in my experience, it’s often out of necessity and with little or no cushion,” says Peterkin Morong. “That means higher interest paid on start-up costs that are funded by higher-interest debt, more financial stress, and a higher likelihood that these businesses will fail due to lack of an adequate lead to build.”
Peterkin Morong says a woman’s emergency fund can not only help with unexpected expenses, but it also gives them options.
“An emergency fund gives women the choice to change careers or start a business with a good foundation, or to stay home and enjoy extended maternity leave while they plan their next move”, explains Peterkin Morong.
4. Women are often caregivers
According to a report by the National Alliance for Caregiving, women are 67% more likely to be the primary caregiver than men. Financial planner Lauren Wybar says that since women often take on the role of caregiver, whether for their own children or for aging parents, it can create income gaps.
“When women are caregivers, they can drift away from their careers or miss years of peak earnings,” Wybar said. “An emergency reserve – with a minimum of three to six months of expenditure – is a kind of safe financial haven, providing access to cash during any short-term period away from a career.”
Additionally, financial planner Jay Rishel says the pandemic has further worsened the situation for women who have left the workforce to become primary caregivers who have been unable to attend school or daycare.
“They still haven’t returned to the workforce in the same numbers as men. This disruption makes the slope even steeper for women saving for retirement,” says Rishel.