We all have grown up watching our mothers manage the household proficiently. They were organised, disciplined and always in control. The modern woman, in addition to her household and family, also manages her career, juggling responsibilities remarkably. But, when it comes to financial planning, women often take a step back. Even many professional women with thriving careers lack the confidence to take charge of their big personal finance decisions.
While it is important women plan for the financial goals of their families, it should not be at the cost of their own aspirations and financial security.
So, why is financial planning for women so important? Firstly, solid planning by the woman of the house of her own finances will make the family's financial plan stronger to meet goals like buying a dream home, planning for the higher education of children etc. Financial planning is also critical for women to meet their own personal and professional aspirations, without depending on anyone.
So, here are my six suggestions to all you women out there:
1. Make yourself the No. 1 priority
It's common for women to take breaks in their careers and compromise on their professional aspirations, usually to take care of children and manage the household. My first advice to all women would be not to give up their professional lives easily, and try to work out a solution, where you can continue to be financially independent. Also, take care of yourself and indulge yourself once in a while. Remember, a healthy mind and stable income are the two must-haves for implementing any financial plan.
2. Build your financial confidence
Women usually shy away from financial planning mainly due to their lack of will to invest their energy towards it; most find it time-consuming and difficult. They, however, need to understand that being truly financially independent is not just about earning money, but to utilise it smartly as well. So, start reading about financial planning, have honest conversations with your spouse, consult financial experts, initially start with smaller amounts and slowly start taking charge of your personal finance. Trust me, once you start spending time learning about it, you'll find it neither tough nor boring.
3. Protect yourself
Insurance policies are extremely important for a working woman as an unforeseen event can adversely affect the overall financial well-being of her family. Therefore, make sure to get an adequate insurance cover for yourself by opting for a pure term policy. Term policies provide a high risk covers at very low costs. Opt for cover equalling at least 15 times your annual income. The rising cost of healthcare and the increase in critical illnesses in India also make health insurance imperative for women. You can look for policies designed for women or choose a regular health policy with additional benefits for maternal and child care.
4. Be prepared for emergencies
While it is important women plan for the financial goals of their families, it should not be at the cost of their own aspirations and financial security. Creating an adequate emergency fund should be the top priority for every woman to tackle unfortunate circumstances like a job loss, divorce or death of spouse. This fund should contain at least six months of your mandatory monthly expenses.
5. Plan for financial goals
Financial planning is about preparing for the future. Today, with a plethora of investment instruments available, building a strong financial portfolio only requires smart planning and disciplined investment over a period of time. Usually, women have a greater affinity towards what are perceived to be "safer" investment options, otherwise known as fixed income options, like PPF, KVP, NSC and FDs.
Every independent woman should start investing for their retirement corpus right from the start of her career.
However, I will strongly suggest that women should consider equity-linked investments like mutual funds too. They will not only save taxes but they outscore other alternative investment options in terms of returns, lock-in period (shortest lock-in period of three years) and taxability of gains. Investment in mutual funds should be done according to your financial goals in the future. Create a separate portfolio for each goal and invest according to the time left to achieve those goals. Invest in debt mutual funds for goals that are three years away; balanced funds for goals maturing within three-five years; and equity funds for long-term goals that are five years away.
6. Think about retirement
Most Indians, irrespective of gender, start thinking about saving for their retirement only in their 40s. For many women, retirement saving is never a priority, even when they reach their 40s. This can prove to be a big financial mistake. Every independent woman should start investing for their retirement corpus right from the start of her career. This will give investments more time to grow and benefit from the power of compounding.
A 25-year-old working woman will require a monthly investment of just ₹3100 (growing at an average rate of 12% p.a.) to build a retirement corpus of ₹2 crore by the time she turns 60. However, a 45-year-old woman will require a monthly investment of ₹40,000 for the same amount at the same rate of returns.