Poornima Kavlekar

How important is it to be financially prepared before you have a baby? When I asked this question to my friend, who had her first baby 10 years back, she said that these are emotional decisions and not linked to finances. When they decided to have a baby, they didn’t think much about how prepared they were monetarily. Most of us in India think along these lines. So did I, to a certain extent. While I always knew that I would be giving up my job when I had my baby, sacrificing a full- time career as a journalist and, therefore, moving from a double to a single income, wasn’t an easy process. My husband and I took a few important steps in preparation for parenthood though, which I will discuss a little later.

But, just before I sat to write this story, I chatted with a set of working women in their late 20s and early 30s, married for a few years now and fitting the profile of “time-to-have-a-baby -soon” category, to understand their take on this. And I got a different perspective. Most of them felt that they were financially ill-prepared and were unsure about their ability to support a child and other related expenses. In other words, today’s women are financially more aware, but as a consequence caught in a dilemma. “I am not sure if a single income will suffice under the circumstances as I will have to give up my job for at least a while,” was a common response.

Most of you will agree that we can never be fully sure of our readiness to become parents. Be it financially or emotionally, parenthood remains uncharted territory! It’s a journey filled with unexpected events. But, from a money management perspective, when a working woman gives up Rs. X amount of income for Y period of time, (something many Indian women do), some degree of preparedness is possible and prudent.

Is it possible to gauge how much you will need on a monthly basis and what should be your joint monthly inflow and outflow to help you decide the right time to have a baby? Not really, most of my respondents felt. However, one thing that all of us concurred on is that having a broad level of financial stability before you have a baby is essential. My friend, Aparna also gave an example, “If you see yourself starting a new business, or perhaps are signing up for an EMI, it’s important to evaluate how the decision to have a baby will impact the inflows or savings.”

Remember you can raise a child on whatever income you have, be it higher or lower from the current level, as long as you know, prepare for and prioritise your expenses.

However, you cannot compromise on the non-negotiable expenses like medical emergencies. To deal with this, take adequate insurance cover, life and health mainly, for everyone in your family, including your parents. Start saving for your child’s education as early as possible. You could ease off a bit on discretionary expenses initially to help you get that balance of an additional member in your family.

As a policy, start saving as soon as you begin your career so that you have already created a base to fall back on, during periods of lower income. The career break you take for motherhood may last a few months or even stretch over a couple of years. To avoid financial crunch in such a situation, put away a nest egg of around 8 to 10 months expenses. This is what I did. When I knew I was going to give up my job, I saved 6 months’ salary and set it aside exclusively as an emergency fund. Seven months after my first baby was born, I was ready to take up part time assignments which helped me regain my financial security.

For today’s couples who are getting ready to face parenthood, emotional and financial preparedness go hand-in-hand. So, go ahead and welcome your baby with open arms….and financial security!

By Poornima Kavlekar

“I very recently met a frail lady in her late 40s who was really desperate for a job,” recalls Saundarya Rajesh, Founder-President, AVTAR Career Creators, a talent strategy consulting firm that also offers flexi-career opportunities for women seeking work-home balance. This lady, a graduate with five years of work experience before her marriage, approached AVTAR for a flexi-career option. And she was desperately in need of one as she had been abandoned by her husband alleging infidelity! “Forget the allegation, her husband made sure that she signed over all her property to him before he sent her off packing,” says Saundarya. With no place to go, she came close to complete destitution, but was fortunately saved by a job with an NGO.

Then there is the case of Saraswathi*, wife of a well-placed government officer. When her husband remarried and threw her out, a group of elders made him responsible for the marriage expenses of his three grown-up daughters. But no provisions were made for the wife who had nothing to her name after several years of marriage. She was advised by ‘well-wishers’ against legal action, as that would jeopardize her husband’s job and the marriage prospects of her daughters. She ended up as a house-help to fend for herself.

Both these women, who had reasonable education but were unemployed, were no doubt undergoing a period of emotional trauma. But, what worsened their condition was that they were going through a financial crisis as well. When they were with their spouses, they had access to family income, but no savings that they could independently access.

Divorce or abandonment are not the only reasons why many women are financially disadvantaged in their old age. There are many instances where succesful women take career breaks, or end up compromising by taking up low-paying jobs…

Divorce or abandonment are not the only reasons why many women are financially disadvantaged in their old age. There are many instances where successful working women take career breaks, or end up compromising by taking up low-paying jobs as they juggle relentlessly between their home and work. As homemakers, they are constantly taking care of other people – their parents, siblings, husband, in-laws or children. And whether it is health, happiness or financial security, women place themselves last on the list! This sacrificing attitude (a natural consequence of years of societal conditioning, no doubt) has left many women poorer on all three scores, especially during their twilight years.

Sentiments are also a woman’s weakness. There are cases when her own children prey upon her, trying to get their hands on her provident fund money or late husband’s pension benefits, her share of the family home or other such property. Unfortunately, society’s general attitude towards women tends to heighten this problem also. As Mathew Cherian, Chief Executive of Helpage India, rightly says, “In general, India is a patriarchal society where women are treated as second-class citizens and widowed women are third-class citizens. Even in the Hindu Law, it was only in the late 1960s that women became eligible to inherit family property equally.”

Is this not reason enough to financially empower women across all socio-economic classes? Here’s how you could start:

Moving up the ladder, but… There is no doubt that women have, in the last few decades, expanded their horizon and progressed well professionally. However, they are yet to learn to prioritise their spending pattern and ensure that their hard earned money is managed well. “Typically, when women apportion their income, they do so as a secondary source and therefore assign it to a lot of impulse needs,” says Saundarya Rajesh. “Statistics prove that at least 70 per cent of a woman’s earnings are directed towards expenses other than her own, such as domestic help, tuition classes, home purchase EMIs and so on.” Remember – managing your money is more important than earning it. Try to ensure that all your monies are not spent on common needs.

Remember – managing your money is more important than earning it. Try to ensure that all your monies are not spent on common needs. 

Do it yourself or at least be involved. Women need to snap out of the general conditioning that managing money is a male thing. It’s your money and you are the best one to decide what to do with it. Here are a few key points that will help you start your own savings and investment journey independently. One, start saving from a very young age. Two, know your various investment options, and assess your risk taking capability before you invest in any product. Three, get a grip on your income tax needs, and finally, get yourself a good insurance policy. If you have assets, make a Will, but retain control over your assets till your end.

Whether you are a homemaker or a working woman, ensure that you are present when a Will is being made out, either by your parents or by your spouse. If you and your husband are buying a property, you should be a part of the registration process, and if possible be a co-owner of the property. “Ensure that you have a joint account with your spouse,” advises Mathew Cherian.

The big picture. For all this to happen, there has to be a major change at the grassroot level where financial literacy among women is still quite low. A solution that Mathew Cherian suggests is to start training the younger generation of girls and get women into inclusive financial services.

Making financial literacy a part of the school curriculum may be a good way to do this.

By Poornima Kavlekar

I have this vision of my retirement – my husband and me sitting in our sprawling backyard; me on a basket- swing, reading a book and him playing golf in our micro-mini 3-hole golf course in the compound of our picturesque chalet in Kodaikanal. This is our plan for our twilight years – a peaceful retirement in our home in Kodaikanal! All this seems far away as yet….But, to realise this dream scenario, we need to start planning our finances carefully, right away.

Retirement is definitely a big concern for everyone – a concern of whether the money saved is enough and how to assess how much is enough. When I chatted with some retirees on what sort of planning they did earlier in life, there was a common answer: “there weren’t so many variables in our life then.”

Most of them depended on fixed deposits (interest rates were high then, say 12 to 14 %) and the interest income was sufficient to replace their salary. However today, with soaring inflation rates, a sharp rise in healthcare costs, lower interest rates and rising standards of living, many confess that their planning has proved inadequate and fallen far short of expectations in ways!

Today, many of my peers have sought professional help in estimating their retirement needs while some have used their own matrix to make the calculation. Of course, identifying the source for this cash flow is the next step. With the number of investment products currently on the table, retirement plan options are many. But plan and invest with care so that the payback period reaps adequate benefits. Here are a few options you can consider to help you reach your destination of a peaceful, carefree life in your golden years.

Note: This story only aims to help you set to off in the right direction. Whether you are on track will depend on your personal financial ecosystem.

Estimate your needs first

The effectiveness of your entire payback period depends on how accurately you can estimate your future expenses. Yes, it’s hard to get it right 10 or 15 years in advance! In fact, many argue that you can never be accurate. Inflation is one factor that you may not be able to assess correctly when estimating a retirement corpus. That is why it is necessary to review your plans at least once a year to make necessary changes.

As a first step, get a grip over your current expenses. Go back a few months and read through your expense profile. And then try to forecast your expenses at the time of retirement. For example, if Ravi’s monthly expense at the age of 35 is Rs. 25,000 and he expects to retire at 55, assuming an inflation rate of 5 per cent, his expense at the age of 55 will be around Rs. 66,000. And based on this figure you can arrive at two things. One, the corpus needed to fund his retirement, and two, how much he needs to save from the age of 35 to be able to fund this amount.

Remember that there will be many changes in your expense profile from now to when you retire. For example, you may not have to fund your child’s education or marriage, but you may have to step up your medical expenses. Ravi will need a corpus of Rs. 1.22 crore to be able to fund his expenses post-retirement (assuming a life expectancy of 75 years). Assuming a 10 per cent return on investments up to retirement, he needs to start saving almost Rs. 17,000 per month to build this corpus. This calculation may be difficult for a layperson to make and this is where you could seek expert help.

review your plans at least once a year to make necessary changes

Start early and save regularly

The power of compounding is best utilized when there is a long time frame. Maintain a discipline in channelizing a part of your investment towards this purpose. But focus on your priorities. Invest first for your children and perhaps on buying a home and if there are excess funds for investment, then you could set it aside for your retirement right away. You could start a SIP which will ensure dedicated savings or invest in a ULIP plan which will ensure annual outflow, for this purpose.

If you start early, you can afford to lock in your money for a long term so that the wealth creation stage isn’t disrupted.

Invest in diverse asset classes

There is no single product that can give you the entire targeted corpus. It has to be a mix of equity and debt-related products. But such accumulation strategies differ with age as the risk taking capabilities change. If you start building your retirement kitty when you are in your 20s, you could be overweight on equities (say 60 to 70 %) and this balance is reshuffled when you are in your 50s (with around 30 % in equities).

Sunita Srinivasan and her husband have taken this approach towards building up their corpus. They have invested in unit linked insurance plans with annual payout option, equity (ad hoc investments in bluechip stocks) and mutual funds. They have also invested in land.

Having your own property by the time you retire helps you save on paying rent. If you own more than one home, rental income can be a good source of retirement income. Priya and Prem have used this strategy. They have rental income from their properties as a part of their inflow after retirement.

There is no single product that can give you the entire targeted corpus. It has to be a mix

Finally, understand the tax benefits of any investment product. Your accumulated corpus must be tax free and only the payouts at the time of receipt will be taxable.

Estimating your needs correctly and following a systematic approach towards building your retirement corpus will help you during your golden years. So plan now and reap the benefits later.

By Poornima Kavlekar

The financial markets have been up and down in 2010. Inflation has been steady on its northwards journey. Rising petrol and diesel costs, among other cost escalations, have been a burden on our purse strings. On the other hand, the stock markets scaled new heights during 2010 yielding good returns for those who managed to liquidate their holdings at the right time.

With so many variables that make the money market so dynamic, having a fill-it-shut-it and forget-it policy will take you nowhere. Constantly review your portfolio and investment philosophy and set new money-related targets. And the timing couldn’t be any better.

 With 2011 just around the corner you could resolve to do a few things differently. Before that review your 2010 goals – check if you are on target to meet your long term goals. If you have made good progress, build on this success, else revise and revisit your target and approach. Fix new goals that you’d like to work towards in 2011 and budget for it smartly. Use the financial resolutions listed below as your starting point and create your own 2011 financial resolutions.

Note of caution: have a list that is manageable!

Resolution 1: Have a balanced investment portfolio. How is your current asset allocation? Does it have the correct mix of equity and debt instruments? And does it match your risk tolerance? Getting the right answer to these questions is very important to build your investment portfolio. When Sunil Kumar, 39, revisited his portfolio last week, he felt the need to introduce more debt products in his portfolio which is currently overweight on equity. He now plans to invest around 10-15 percent of his portfolio in the public provident fund.

So refresh your risk tolerance levels regularly, may be every year, based on what you have learnt in the past and also on your other financial commitments (could be a marriage, a new born or an ailing parent).

Resolution 2: Create an emergency nest – Emergencies are unwanted guests. But, nevertheless, you need to deal with them. Save around 4 to 6 months of your expenses for this purpose. Invest this in an instrument that can be easily liquidated.

Resolution 3: Hone your retirement plan. For a start knowing what you want to do after retirement will make your financial planning smoother. With this in mind, you need to establish how much you will need when you retire and how much you need to save up for it at the current rate of return.

Understand your discretionary and non-discretionary expenses for this. And remember to wipe out expenses that you have today and will not have when you retire, like education or marriage expenses of your child. But factor in costs like inflation, rising standard of living and medical expenses. Once you understand your future liabilities, you can establish a realistic accumulation goal and stay on track to reach it.

Sometimes it might not be an easy task to estimate your retirement expense. You could seek some professional help here like what Ganesan Venkatasubramanyam, 44, plans to do in 2011. “I want to locate an advisor who will help me understand the retirement planning process and streamline my portfolio for the purpose,” he adds.

Resolution 4: Tread carefully on debt. Reducing debt is not an easy task but an attempt can be made to make 2011 fairly debt free. Reduce borrowing as you age. While borrowings can be 4 to 6 times of your earnings when you are in your early 30s, make sure there is a drop by 50 per cent every ten years or so, so that you are fairly debt free by the time you reach your 50s. Try to keep your debt payments (in the form of EMIs) not more than 40 to 45 per cent of your income if you have a home loan and not more than 20- 25 per cent if there is no home loan.

Resolution 5: Proper tax planning. Never invest for the sake of completing the year-end tax formality. During the last few months of the financial year, many investors take last minute decisions to buy tax saving instruments that are not really needed. Spend time to understand your tax investment needs and evaluate options that are suitable for you.

Resolution 6: Ensure that you are adequately insured. You cannot just depend on your savings and investments in case of calamities and unforeseen circumstances. Ensure that you and your family members have adequate insurance. How much insurance you need will totally depend on your personal circumstances.

Resolution 7: Teach your children money manners. Your child needs to understand that there is a cost to everything they buy. So start orienting them young. Introduce them to piggy banks when they are three or four-years-old. And bring in new concepts as they get older. Make children comfortable with money and let them learn to respect it. There is no right way to teach your child money, but, never make it a subject that you shy away from.

So resolve today on what your money life will be like in 2011. Work towards it and more importantly – stick to your resolutions as it is a path to a fairly hassle-free financial life.

By Poornima Kavlekar