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You don’t need Women’s Day to underscore the importance of having a meticulous financial plan in place. But if you don’t have one, make a start today.
Financial planners cite a curious paradox when it comes to women and money management. They tend to make fewer financial planning mistakes as compared to men. But many are simply content to leave it to the male members in their family. This is a key hurdle for women in their path to achieve financial independence.
Read on to know the six financial lessons women who wish to achieve this objective should know.
Women, even professionals, tend to let their husbands or fathers take over this key aspect of their lives. “Make it a point to read up about investing. Read one article or topic a day or week,” advises Shweta Jain, founder, Investography, a Bengaluru-based financial planning firm.
Signing up for financial planning workshops is also a heady option. “Since it is appraisal and also the fag end of the tax-saving season, it is all the more important,” says Tejal Gandhi, founder, Money Matters.
Whether you draw an income or are a homemaker, financial literacy and close involvement with family finances is indispensable. It will help not only you, but also your family ultimately. You must sit down with your family and get a handle on the financial situation and crucial documents. “Have conversations about money.
With your husband, with your child, with your parents, try to talk money. These conversations initially may be uncomfortable, but are a critical part of the financial planning process,” says Jain.
Take stock of your family’s expenses, physical and financial assets, liabilities and insurance policies. If you are computer-savvy, then make an Excel sheet to keep track. Create a family expense pool account for routine household expenses. Open a joint account and make a contribution in proportion to your income, preferably.
“I have seen some women picking up the tab for discretionary expenses while the husband’s income is directed towards investment,” says Priya Sunder, Director, Peak Alpha, an investment advisory firm. Instead, you must invest for yourself as well; have financial and physical assets of your own.
Financial rights doesn’t just mean what you can do with your own investments. It means getting to know your entire money box and the ecosystem around. Start with your workplace. It’s easy to get access to information through official portals and human resources’ desks at your office.
“Check your entitlements, maternity benefits, life and health cover that your organisation provides. You can then buy a separate cover for yourself or at least supplement the corporate cover,” says Gandhi.
Mortality rates for women across age-groups are lower, so they tend to outlive men. “At that stage in life, you will need all the resources. Ensure that you are aware of the joint accounts and assets you hold with your spouse,” she adds. Similarly, women going through divorce also need to be better informed.
“It is important to ensure that no matter how unpleasant or long it takes, divorce settlement has to be right. Women try to come out of the marriage and accept whatever they get. In the end, it is worth the fight as it paves the way for a secure financial future for your children,” says Sunder.
Your family’s financial goals – children’s education, buying a house and so on – apart, carve out individual goals too. It could be an international holiday, buying a gadget, jewellery and also creating a fund for your parents’ care. Start a systematic investment plan (SIP) in a diversified or large-cap equity mutual fund for longer-term goals and a recurring fixed deposit for short-term aspirations. “Even women who are not working should set aside a portion of whatever they save into liquid funds,” says Sunder. While women seem to be good at saving, the same cannot be said about their investments.
According to a survey conducted by online robo advisory platform Scripbox last year, 35 percent women respondents said they manage to save between 10 and 30 percent of their monthly income while 10 percent said they save more than 50 percent. Nearly 25 percent of the respondents revealed they manage to save just 10 percent of their income.
However, a majority of these respondents said prefer traditional instruments to invest their savings. Having the right asset allocation strategy in place is key to achieving your financial goals – secure, fixed income instruments for near-term goals and equities for long-term goals with a horizon of more than seven years.
Saving is one part of the financial planning process – something that women are good at – but deploying the money right is equally crucial. Another Scripbox survey had found that most women were highly risk-averse when it came to choosing investment options. A majority – 58 percent – preferred to direct their savings to either fixed deposits or public provident fund (PPF), or simply let the money lie in their savings accounts. Six per cent said they preferred to buy gold, while 15 percent of women zeroed in on mutual funds.
“Women tend to be conservative. Getting them to invest in equities, which are seen as high-risk instruments, takes time,” says Sunder.
If you are one of them, you can start by investing small amounts of Rs 1,000 to Rs 2,000 a month in an equity mutual fund through the SIP route. Over the long-term, equities tend to deliver the best return compared to other asset classes, market fluctuations in the interim notwithstanding.
“Take risks, small risks, but make a start. Don’t panic when markets are down, and you made a loss. Stick to your asset allocation. Don’t sell your investments just because others are doing so,” says Jain.
However, do not get taken in by windfall gains and the greed they can give rise to. “Don’t bet huge money. Betting isn’t risk taking,” she cautions.
All of your carefully laid out investment plans can unravel if you do not have a robust protection portfolio. This includes a highly liquid emergency fund that can take care of at least six months’ household expenses, a large term insurance policy as also adequate health cover.
As a thumb rule, your life cover should be at least ten times your annual income. If you live in a metro city, you will need a base health cover of at least Rs 5 lakh to start with. You can enhance it by buying a top-up cover or a critical illness policy. If you have dependent parents, buy a separate cover for them.
Remember, your employer may have given you a health insurance cover. But it is imperative to have your own health insurance cover. That way even if you change jobs and your new job doesn’t have this facility or your existing company stops this benefit because, say, it goes through a cost-cutting exercise, your own personal health insurance cover comes in handy.
While many are wary of equities due to the inherent market risks they come with, there have been cases of women, just like men, being swindled too. For instance, through payment frauds where scammers trick unsuspecting targets to divulge their card and account details or PIN. Never forget that no matter what the circumstance, your bank will not ask you for this information. It will always be for your eyes only. Caution is warranted while evaluating too-good-to-be-true investment schemes.
“Don’t trust anyone based on what they say alone. Be smart before you invest. Ask for things in writing. If it’s too good to be true, then it probably is. Don’t sign documents without reading and understanding the terms and conditions,” cautions Jain.
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