There is a great paradox that impacts the lives of women more than anything else. Yes, it has to do with money. Women are very good at working hard, both in their careers and at home. They are wonderful multi-taskers and ensure that everyone – from the office boss to the children, family and even the servant maid – is taken care of. And who is better than a woman in aligning in their women financial matters just like she aligns the domestic issues in the house?
Women take the backseat when it comes to putting finances in order. Financial literacy levels for women in India are quite low. This could have a far more impact on their future, more than anything else. While financial planning requirements may seem universal, women have unique challenges and therefore, needs.
Women tend to live an average of 5 – 7 years more than their spouses. This itself means that at some point they have to manage ‘on their own’, given the nuclear family norms we see. Unplanned contingencies impose more challenges as we are not just talking about ‘sunset years’ but about actively planning for children’s education, marriage and other goals.
Hence, it is very important that women not only earn more, but also save more and invest smartly. They must begin the investing journey at a younger age and evaluate the various investment options available. Unfortunately, they postpone making investments, sometimes till the time when it might be too late.
As a result, they lose some benefits of compound interest. Compound interest is often called the eighth wonder of the world. Let us say, Uma and Shashi both invest Rs 1000 per month till they reach the retirement age of 58. Uma starts at age 25 and Shashi starts ten years later. The difference in corpus would be three times between Uma and Shashi. This underscores the importance of starting early.
In many jobs, there is a disparity between the salaries of women and men. Chances of a woman quitting her job after a child is born, or to take care of old parents are much higher than that for men. What does this mean? If you take the above Uma and Shashi example, you can clearly make out that the savings they make will be much less and a smaller nest egg will be available to take care of their later years
The implication for you, clearly, is to start early. Define your own financial plan. If the need be, talk to a professional advisor to build it.
This plan should act as a map for your finances, outlining how much you earn, spend and eventually save. Saving alone is not enough. You need to ensure that the money is invested in a diversified set of assets. You should also know what to review and how often – usually once every 6 months or even 1 year is enough.
Understand where your money is going. What are the big buckets of spending, after paying any loan instalments? How much do you spend on eating out, clothes, accessories etc.? This is important to understand the current expense level and also to determine how much of saving is required to meet your future necessities, when you retire or may have no income.
Do you have an emergency fund? Are you dipping into your credit card as an emergency corpus? In case you quit your job – voluntarily or otherwise – it is important to build a buffer of cash that can hold you through a rough period.
How are your investments doing? How much do you invest regularly? Is it sufficient to meet your long-term goals? Do you have an appropriate distribution across investment assets that match your risk profile? For example, if you don’t prefer too many risks, you may not want too much stock market exposure. Are you locked into investments that incur a high commission and cost structure? Unfortunately, most people incur commissions in regular mutual funds that they are not aware of, depleting almost half of their long-term wealth. Direct Mutual Funds are a much better option, eliminating commissions and you should consider switching to direct.
Next, check your insurance policies. Is there adequate life insurance cover to meet any exigency? Are you adequately covered by health insurance? Are you locked into unit-linked insurance policies that may have poor returns compared to other instruments like mutual funds?
Consolidate your accounts to simplify things, it also helps monitor your investment performance. Get hold of a professional investment advisor if required, who can create a blueprint that meets the unique requirements of you and your family.
Next time when you review and reorganize your home, do not forget about your finances too. Once that is done, take a deep breath and relax!
This article was contributed by Mr Ram Medury to Sheroes.com
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