Pride Month is a time to celebrate one of the most diverse communities around. But it isn’t all rainbows and triangles.
In fact, LGBTQ+ people may face more obstacles when it comes to money–including lower incomes, greater levels of debt, and constraints around planning for retirement and other long-term financial goals–than other groups. And so before the month is over, we want to examine some of these issues, and offer some suggestions for getting your financial house in order.
Here’s a closer look.
Starting out with less
LGBTQ+ people can tend to start out with more financial disadvantages, say David Auten and John Schneider, founders of the LBGTQ+ personal finance site Debt Free Guys. These liabilities can include a greater rate of homelessness in youth, and lower paying jobs, which can lead to an increased need to borrow for education or just to get by. And financial difficulties can continue into adulthood, as LGBTQ+ people enter the workforce and encounter hiring biases, which can limit income and professional advancement. (And all of these issues can be even greater for trans people and people of color, says Auten.)
What’s more, LGBTQ+ people on average have household incomes of $50,000 or less, well below the median income for all households. So it’s no wonder then that money difficulties are what reportedly keep more than half of LGBTQ+ up at night.
“Savings and general budgeting are some of the biggest financial concerns facing the [LGBTQ+] population,” says Steven Garibell, vice president in charge of LGBTQ2+ business development at TD Bank, which conducted a survey of LGBTQ+ Millennials in May, 2019.
Fewer financial products
Meanwhile, when it comes to planning for a better financial future, less than half of all LGBTQ+ people have the most basic banking product–a savings or checking account, while less than a third had access to retirement products like a 401(k) and less than a quarter had an IRA, according to a 2018 survey by insurance provider Prudential.
With these concerns in mind, here are some things that LGBTQ+ people can do to create a better financial future:
1-Spend less than you earn
LGBTQ+ people may have more temptation to “keep up with the Joneses,” and potentially spend more than they should, to prove worthiness, say Auten and Schneider. One of the goals of any smart financial life is to spend less than you earn. That sounds simple, but it may require doing a deep dive into your finances. You’ll need to sit down with a pen and paper, or a spreadsheet (whatever you like), and calculate your monthly net income and your monthly expenses. If you’re spending more than you earn, chances are you’re also running up debt, and it’s probably time to set up a budget.
In fact, 60% of LGBTQ Millennial workers have less than three months of emergency savings, according to the TD Bank survey. Only 39% said that they have more than three months of savings, and only 20% said that they have over six months of savings. “This is significantly worse off than Generation X and Baby Boomer workers,” Garibell says.
2-Create a budget
Think of a budget as a roadmap for your financial life. It will tell you where and where you can’t go, and it can help you start to save and invest money. While most people know about the 50-30-20 budget, it’s important to remember there isn’t only one type of budget. There’s also something called the envelope method, and another called the zero-sum budget. You can even develop your own. Regardless here’s what a budget can help you get a handle on:
·Fixed expenses: Recurring items that are not likely to change, including, rent, car payments, insurance premiums and phone bills.
·Variable expenses: Expenses that recur but are not fixed dollar amounts. Groceries, variable utility bills and the occasional night out at the movies qualify. You may choose to place credit card payments here as well.
·Irregular expenses: These expenses can be expected or not, and tend to arise only occasionally. Birthday gifts for friends and family, vacations and the unexpected home or auto repair fall into this category.
·Savings: Treat this as a recurring expense and you will be more likely to put away a small amount every two weeks. Try not to stress over the dollar amount—the point is to get in the habit of putting a little something aside for the future, to create an emergency fund and potentially to invest, which can help you start to build wealth..
If you have a Stash banking account, you have access to a planning tool called partitions, which can help you set aside money into different categories for monthly spending, and for longer-term saving goals.
3-Tackle your debt
The average LGBTQ+ family reportedly has more debt than its straight counterpart. When it comes to credit cards, LGBTQ+ folks had 16% more of $13,000, while they had 85% more student loan debt, of nearly $74,000. Too much debt can negatively affect your credit score, and it can prevent you from saving for your future.
Here ways to help reduce credit card and student loan debt:
- A financial tactic called the snowball method prioritizes paying off your smallest debts first, not the ones with the highest interest rates. The theory is that you can pay off smaller loans more quickly, which might help you feel better about debt as you get rid of these loans. Remember, though, high interest rate loans may cost you more in the long run.
- There’s also something called the avalanche method where you list all of your debts such as credit card or auto loans, from the highest interest rate to lowest rate. Then you start paying off the debt that charges the highest interest rate first. After that, you tackle the next-highest interest rate loan, and then gradually work your way up the ladder. The logic behind the avalanche method of paying off debt is that higher interest costs you more money the longer you hold it. So, by paying off the higher interest rate debt, you’ll be saving yourself money in the long run.
- When it comes to student loans, consider ways to refinance your loans at a lower interest rate. Also see if you can step up your monthly payments, or make extra payments each month. Find out more here. Also remember that during Covid-19, payments and interest on federal student loans is paused until September 30, 2020.
4-Save for retirement
Even when LGBTQ+ workers have access to workplace savings plans, nearly two thirds don’t put money into them, according to the same 2018 Prudential survey. And half of millennial LGBTQ+ workers have put off saving for retirement because of high levels of student debt, according to the TD Bank survey.
And for most of us, retirement will be expensive. In fact, you may need to put away more than $1 million in order to fund the average 20 years of not working, according to the Bureau of Labor Statistics..
Here’s something else to know about retirement saving—the sooner you start, the more compounding can work for you. Compounding is essentially a snowball effect involving the interest or earnings your money can make as it continues to earn more interest or some other return over time. People who start saving for retirement in their 20s can wind up with twice as much money as those who wait until their 30s. Find out more about that here.
Stash lets you set up retirement both traditional and Roth IRAs.1 Did you know you can have both? (You can!) Even if you’re getting a late start, you can still go a long way toward meeting your retirement goals.
5-Plan for your family
It’s not always easy for LGBTQ+ to talk to financial advisors openly about their financial planning needs, say Auten and Schneider. But they actually may need to do more planning, because they may be behind in saving, or dealing with higher costs related to health and raising a family, or just higher levels of debt.
Life insurance and custodial accounts can help LGBTQ+ people and families plan for the future.
- Life insurance can help protect your loved ones against loss of income and other financial uncertainties in the event of your death. In fact, purchasing life insurance can be an essential part of a smart financial plan, according to some experts, which should also include regular saving and investing.
- Custodial accounts have been around for decades. They’re also known as Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) accounts. Generally speaking, different states typically allow one versus another. UTMAs allow for investments in more types of assets, including real estate. UGMAs confine themselves to more traditional securities. They’re essentially brokerage accounts for children, with some investing and tax benefits. When you set up an account for a child, you’ll be able to invest funds in stocks, bonds, cash, and other market securities on their behalf.