Financial independence is similar to the concept of ‘success’. It is deeply personal to us; it is shaped by our experiences and circumstances.

This term has been hijacked recently, where it has been attached to causes such as FIRE (Financial independence, retire early) movement. It has been a blanket statement which means that you are not reliant on anybody, or anything, to be able to financially support yourself.

For many of us, this is not a realistic situation for most of our lives, especially when it comes to employment.

Financial independence is an ever-evolving concept where each milestone sets another one in front of you. This is okay. Just as we continue to grow as people over our lives we can grow financially as well. Each new step you take builds the foundation for financial independence.

When I finished university, financial independence was an aspiration even if my initial goals seem modest upon reflection. It was to be able to pay rent and all my associated living costs.

Since then, I have married and have achieved growth in my career. Now, it means being able to independently support myself regardless of any unforeseen future circumstances. This means that I have my own bank account, control of my pay checks and my finances structured in a way where I can spend money in a way that suits me.

Shaped by my experiences and circumstances, the independence from an employer is not a qualifier for my financial independence. I have provisioned in my emergency fund for 4 months of unemployment, but I expect to be employed again within that timeframe.

I know in the future, like in the past, my understanding of financial independence will evolve. As I approach retirement, my definition will absorb independence from employers supplying my paycheck.

For women, there are situations that we are statistically more likely to experience that challenge our ability to gain financial independence. These situations can be mitigated through financial preparedness. Here are some ways that we can use our finances to protect our financial independence.

Relationship breakdown or abusive relationships

Each relationship is unique, and therefore access and control of money varies from relationship to relationship. Having savings that you can access does not mean that there is less trust in the relationship, but regardless can be a difficult conversation to have when all funds are joint or shared.

In case of domestic violence or abuse, there are government resources that you can rely on, but it gives me peace of mind to have funds easily accessible to me.

For the end of non-abusive relationships, there are limited to no resources to rely on.

Maintaining financial independence

Emergency fund: Emergency funds, also called rainy day funds, is money earmarked for unforeseen circumstances that require quick access to cash. I hold 4 months of living expenses in my name. I have accessed these funds in the past for urgent medical costs for my pet and for unforeseen study costs. These funds are always replenished as a matter of priority and can give you peace of mind and choice when there are other difficult decisions to be made.

Cash as an asset class is often devalued and holding a large amount in an emergency fund can often make you feel like you’re not putting your money to work. It’s important to remember that cash has value because it provides peace of mind. Peace of mind has value in all interest rates environments.

Ill health

According to the Australian Institute of Health and Welfare, women experience distinctly different health outcomes to men. Their life expectancy is longer, but their ‘total disease burden’ is also higher as women are more likely to live with a chronic disease than die early from a disease. Women are also more likely to experience chronic conditions that require ongoing support.

As you reach retirement, you are far more likely to develop chronic conditions that require specialist care. In fact half of Australian women have one or more chronic conditions. Australia has one of the best universal health programs in the world, but despite this it is not comprehensive when it comes to ongoing specialist care.

Maintaining financial independence

Insurance: Private health insurance is a luxury that can offer peace of mind. There may be tax benefits for those who earn over $90,000. For low to middle income earners, self-insurance for later in life may be a more manageable safety net.

Investing and self-insurance: Although these situations are mostly unavoidable financially, the impact can be minimised by investing early to ensure you are able to meet the healthcare costs associated with age. Exact amounts or dollar amount goals are hard to define for future healthcare costs, but this is another key reason why planning is crucial—not only because of the disparity in women’s wages, life expectancy, career breaks, superannuation balances and health outcomes, but because the culmination of these factors will often multiply in the form of lost investment earnings, and a lower quality of life in retirement, when most of these health issues occur. Utilise your superannuation with lower tax rates to invest and self-insure for your future self.

Lower retirement savings due to career breaks

For women, childbearing and caring responsibilities form the largest portion of career breaks despite the advances in maternity leave benefits. However, the 20 weeks of paid parental leave that is legally mandated still falls short of 32 weeks that the average mother takes.

Under existing legislation, employers are not required to make superannuation contributions for employees on paid parental leave. This leaves a potential 32 weeks without any kind of superannuation contribution. For 14 of those weeks there is also no income earned. And it goes without saying that having children is one of life’s most expensive events. Considering gaps in superannuation must be a component of this preparation.

The result of one or more career breaks is often a lower superannuation balance at retirement. For a 30 year old woman taking a 32 week career break, on a salary of $100,000, the difference at retirement is $52,000.*

According to the Australian Financial Security Authority, the government agency for those in financial hardship, on average, women have a 42 per cent lower superannuation balance at retirement than men. However, this gap is likely be drastically underestimated as most 60-year-old men and women would have only had superannuation as we know it for a portion of their life. Assuming you start work at 22 years old and retire at 60 with 8 per cent annual returns, a woman would need to save an additional $513 a year to close this gap. The wage gap between men and women exacerbates the impact of one or multiple career breaks. To make up for combination of the wage gap and career breaks, women must contribute a little over 11 per cent a year to super instead of the compulsory 9.5 per cent. This doesn’t seem like a far stretch, but the impact of compounding drastically improves the retirement outcomes.

I have not taken a career break, but I have gathered some thoughts from my friend Betsy Westcott, Founder of the Inner Money Journey. She recently took a career break after having a child. She said, “I always thought I was well prepared for my career break. I had always made extra contributions to super, strived for the most senior and highest paying roles and married a modern man who’s a hands on parent and partner. Two things I didn’t anticipate were the shortage of flexible executive roles or the psychological impact becoming financially dependent after years of being financially independent and the primary income earner.”

Maintaining financial independence

Voluntary contributions into super: For career breaks that are planned or unplanned, extra contributions in the lead up, or upon your return to work, can ensure that you do not end up with lower retirement outcomes.

Emergency fund: Again, I will sing the praises of an emergency fund. Unplanned career breaks may go for longer than your emergency fund allows. If you are supported by another income in the household, it still gives you the freedom of a buffer, and allows you to purchase items for yourself. If you are the single income in a household, I would strongly consider a larger buffer than the 4 months of living expenses that I have saved. The general guideline is 3-6 months and the tail end of that might be more suitable.

The two pieces of advice that I humbly give to women is to harness the power of investing and to keep an emergency fund with an amount that suits your circumstances.

Chances are if you are reading this article, you’re already investing or you’re interested. Keep going. We retire with less due to a multitude of factors including conservative asset allocations and career breaks. Ensure that you go through the portfolio construction process to give yourself a north star as you invest, and to help you achieve your goals. Part of this is ensuring that you invest in the right mix of assets – your asset allocation. Women are far more likely to have conservative asset allocations without the context of what they require to reach for their goals. As it stands, we’ll probably work for 40 odd years and have to use accumulated savings and investment earnings to survive on for the next 40. That is a long time to rely on dollars saved and grown, especially after inflation erodes the balance.

Along your journey, the meaning of financial independence might change for you. Situations are ever changing and life is known to throw curve balls. Maintain your financial independence through financial preparedness. Even if you do not have any of these situations arise, the peace of mind is worth its weight in gold.


*A 30 year old woman retiring at 65, with a salary of $100,000 with a 10.5% super guarantee, earning 5.5%p.a on her investments.