International Women’s Day is being celebrated the world over today.
And thus this quote from the Women and Money report published by the Gates Foundation, puts things in perspective: ‘Money is the domain of men. Society doesn't view it as [a woman's] role to earn money, or her right to make financial decisions’.
As women walk shoulder to shoulder with men in all walks of life, it is becoming increasingly imperative for them to know how to save, invest and secure their financial future.
A. Working Women
To achieve the above objective, working women (women who have a paying job other than the work they do at home) should follow a simple five step process:
1. Set financial goals
The first step is to set financial goals. The goals have to be specific in terms of timing and amount. Goals could relate to foreign travel, marriage, children, their education and marriage, retirement, et cetera. Goals can be further broken down into short, medium and long term goals.
The current and projected income and expenditure need to be analysed taking into account the inflation impact to determine the saving potential. Such an exercise also shows if one is incurring frivolous expenditure or has set very high goals difficult to achieve in current income.
2. Save and invest regularly
After the saving potential is determined, one should start saving regularly for the various milestone goals. The type of instrument which should be used for saving would depend upon the type of goal and the timing.
Long-term goals can be funded more through equity while short term more through debt. Tax implications will also need to be taken into account while making the decision.
The various avenues available for investments are - fixed deposits, corporate bonds, equity shares, mutual funds, pension schemes, real estate, commodities, etc.
Investing small amounts in equity / debt instruments will help one to take the benefit of compounding from an early age. Investing regularly is a prerequisite for wealth creation and attaining financial freedom.
It's often said that when you sleep your money works for you. One should save at least 30% of income which is India’s average savings rate.
3. Take adequate health and life insurance for self and dependents
Expenditure on health is one of the bigger components as we grow. The inflation in the health sector is also higher compared to normal increase in prices. One should take health insurance for the family including dependents. This will protect against any big unforeseen expenditure due to illness / disease.
One also needs protection against loss of income due to disability, critical illness and insurance. Dependents need to be compensated for the loss of income due to death of the bread earner.
One should take a life cover (term insurance preferably) to guard against such losses. This will ensure that the lifestyle and milestone goals of the family are met in case of unforeseen death.
4. Create an emergency fund
An emergency fund should be created to meet COVID-19 like situation which led to pay cuts and job losses. The fund would help to meet the household expenditure for a few months.
LinkedIn was full of posts by people who were laid off during the pandemic and had to suffer because they had not planned for such an emergency. Better be prepared than be sorry, as the adage goes.
5. Plan for retirement
We all need to retire one day, normally at the age of 60 years. After retirement we may not have a regular income. Hence, one should invest in a pension scheme which would provide monthly income to meet household and medical expenditure.
Unless one knows how much corpus is required to live a comfortable life after retirement, one would not be able to plan properly.
B. Homemakers (housewives)
Homemakers or housewives need to keenly participate in the financial planning of their families. It is they who make the monthly budgets. They should, along with their partners, set their financial goals over the short, medium and long term.
Goal setting will make them aware of the sums of money required at different points of time to achieve their milestone goals.
COVID-19 has brought to the forefront the vulnerability of our lives. To be fully prepared to meet such exigencies, housewives should ensure that their partners have taken adequate health and life cover.
This would help the family to take care of big medical costs and also lifestyle / milestone expenditure in the event of unforeseen death of the income generator of the family.
If the family doesn’t have an emergency fund, the top most priority after insurance cover, should be to build a corpus which would ideally take care of household expenditure of six to twelve months.
Active rather than passive participation in financial matters is the key to secure financial future. The housewife should be aware of all their assets and liabilities and should make sure she is the nominee for all investments, bank accounts, insurance policies. These are some of the hygiene checks but very important.
If all of this sounds too complicated or difficult to understand, then one shouldn’t hesitate to consult a financial / investment advisor and seek professional advice.