Smart money moves for women
It
is important for women to take control of their finances. These six steps
can help them secure their financial future.
The modern woman wears multiple hats with
aplomb—from a loving spouse and nurturing parent, to a selfless caregiver
and hardworking employee. She not only continues to meet household
responsibilities and family commitments, but also makes a mark outside the
home and pursues a successful professional life. She attempts to battle
every day, in a system that is stacked against her in many ways. There is
probably nothing she cannot do by herself. And yet, a large majority of
women seem to be neglecting a very crucial aspect of their life: personal
finances. Even today, women tend to shy away from money matters. They are
more comfortable leaving the decisions on savings and long-term financial
planning to the men in their lives—fathers, brothers, husbands, even sons.
Despite their advancement at the workplace and rising income levels, women
don’t engage themselves enough in financial matters.
This is paradoxical because research shows that
women can be better money managers than men. Perhaps they lack confidence,
but this only makes them conduct more research. They are cautious by nature
and, therefore, tend to minimise the risk. And deeper family bonds make
them keep long-term goals like child education and marriage on the priority
list.
Yet, a study by Ameriprise India shows that while
single women are financially confident, they tend to change after marriage.
“Women’s financial confidence decreases as they start depending more on
their husbands for all financial decisions,” says the study.
This aversion to money-related matters could
jeopardise the financial stability that women seek. Considering a woman’s
unique financial needs—they tend to live longer than men and have truncated
careers due to childbirth—it is important for all women to take charge of
their finances.
This Women’s Day, we implore our female readers to
step out of their comfort zone. In the following pages, we have listed the
smart money moves that can secure your financial future. SAVE REGULARLY
FOR A RAINY DAY
When couples save for retirement, they often
overlook one basic fact: that the wife is likely to outlive the husband by
a good number of years. If the savings are not sufficient, the woman might
face hardship in her old age. She may have to depend on her children or
relatives.
To avoid this, she simply needs to put away some
money on a regular basis. This is not easy, as her natural instinct to
nurture the family and put her children ahead of her will overcome any
desire to consider her own future well-being. She may even sacrifice her
career for the betterment of her family. Surely, some of these things come
first, but they should not be at the cost of her own financial security.
Working women should start saving right at the
outset. Nisreen Mamaji, a Mumbai based financial planner and founder,
Moneyworks Financial Advisors, says, “The earlier you start investing, the
lesser amount you will have to invest to reach your goals as the power of
compounding will work its magic.” When you are young and free of family
commitments, one can comfortably invest larger amounts. “Save at least
20-30% of your monthly income,” suggests Jayant Pai, head of marketing,
PPFAS Mutual Fund.
Married women need a saving plan too. After
marriage, she is likely to contribute towards day-to-day household expenses
and perhaps even share the home loan EMI burden. Even so, she should try
and invest some portion of her income for the future.
She also has to build a contingency fund for
extraordinary situations—hospitalisation, accident, illness. If she has a
separate emergency fund in place, she won’t have to dip into her savings.
She should try building a contingency reserve amounting to at least six
months’ worth of expenses to get by in such situations. Most importantly, she
needs to ensure that she has adequate health insurance for herself, given
the spiralling medical costs. Neeraj Chauhan, CEO, Financial Mall, has some
important advice for women: “If you have dependent parents to look after,
immediately buy a health cover for them too. Your employer’s family cover
will not be sufficient to cover costs arising from major illness and
hospitalisation,” he says.
Financial steps For women in
different situations
Single women
Free of family commitments, this
is a good time to lay the foundation for your financial future.
Start saving at least 20% of your income. Make those savings work by
investing in growth assets. Create an emergency fund worth 6 months of
expenses. Create a budget and allow yourself occasional indulgence, but do
not make it a habit. Avoid credit card debt; repay any student loan as
quickly as possible. Arm yourself with knowledge about basics of finance.
Married women
Have a shared vision of the future but look after yourself too.
Maintain a separate savings account, apart from any joint accounts. Save as
much as you possibly can even if you are not earning yourself. Identify
common goals for the future and work jointly towards them. Participate in
family financial discussions and visits to the financial adviser. Maintain
your own credit history independent of husband. Be aware of key investments
and where money is flowing. Make an inventory of financial documents and
accounts.
Divorced or widowed women
There’s still a lot of scope to make good investment decisions.
Ascertain the financial situation quickly and start preparing for financial
life without a partner.
Update all accounts in your name and change in address if any (bank,
utilities, insurance companies). Update beneficiaries (life insurance, will)
or nominations, if required. Ascertain the outstanding debts if any (you
are responsible for any joint loans) and pay off quickly. If in receipt of
proceeds from life insurance, park in safe investments. Take a health cover
and start planning for retirement. Seek help from a professional financial
adviser.
DO NOT SHY FROM TAKING RISKS
When
it comes to money, women have a natural inclination to be cautious. They
are likely to keep away from any risky proposition involving money. Women
feel greater pain when they lose money than men. For the most part, it is a
prudent choice. But it is also a major inhibitor in your quest for
financial freedom and security. You may be saving a good amount of money,
but it will not be of much help if you do not put those savings to work.
Keeping your money idle in a savings account is not a prudent financial
choice. If you are serious about creating a financial cushion for yourself
and ensure adequate money during retirement or for the well-being of your
family, you must make your money work hard. That involves taking some risk.
“Safety is often the key consideration for women in investments. However,
you should ask whether this approach can help you build enough wealth,”
says Vidya Bala, head of research, FundsIndia.com.
Opening
a recurring deposit or putting money in the PPF will provide stability, but
will not give your money scope to grow. Inflation is a silent killer that
over time eats into any returns provided by traditional fixed income instruments.
Even the coveted gold in your locker will not keep pace with the rising
prices beyond a point. Pai identifies this fetish for gold as a cultural
phenomenon, which should be discouraged. “The idea that gold is a safe
store of value is not necessarily true. There are other financial assets
available that women can consider.” (see graphic) To make your money grow
faster than inflation, you must take exposure to equities. Before you
flatly dismiss this suggestion as too risky, we ask you to give it some
thought. Equity is the only asset class that is known to reliably give
inflation-beating returns over time. “Investments in debt instruments offer
security and safety of capital but do not carry much potential to grow your
money. Equity investments can offer such an opportunity,” asserts Daksha
Baxi, executive director, Khaitan & Company.
To gain from equities, you don’t need to be good at
stock picking. Instead, just put small amounts in good equity mutual funds
with a proven track record. Turn to page 22 to know the best funds in
various categories. In the long term, you can never go wrong with SIPs. It
is is the most efficient way of building long-term wealth with minimal
probability of loss. Start by investing as little as `1,000-2,000 a month
in 2-3 funds. You may be uncomfortable with this to begin with, but once
you spend some time in the market through these funds, you will appreciate
the wisdom of this exercise. ‘
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BE MORE INVOLVED IN FAMILY
FINANCES
In most families, financial decisions are usually
taken by husbands, even when the woman is earning. “The society expects
women to take care of the family but not to participate in its finances,”
laments Shilpi Johri, head & financial planner, Arthashastra
Consulting. The woman’s role is mostly limited to handling the monthly
utility payments or budgeting for day-today expenses. But a hands-off
approach could spell trouble for you later on. “Start looking at family
finances as a joint responsibility,” says Johri.
As a first step, start discussing money matters
with your spouse. Many couples find it hard to even talk about money, and
this can lead to a lot of pain later. You are more likely to do better
financially if you have a shared vision about your future. “Set financial
goals together and plan how both of you can contribute towards attaining
them,” suggests Chauhan. Combining your finances will benefit the whole
family. You will not only have a higher investible surplus, but also be in
a position to buy a bigger life cover and enjoy higher rebate on a home
loan, if any. You could even consider splitting financial responsibilities
in terms of handling investments, paying bills, etc. Even if you are not
bringing any money to the table, you should be taking more interest in
financial matters. “The woman should accompany her husband for any meetings
with the financial adviser. This way, she will be in the know of various
investments,” says Mamaji.
Learn about the financial products available,
better ways of investing and best options to save tax. Many financial
services companies have introduced products specifically designed for
women. Not all of these products are meant for you; some are merely
marketing gimmicks, says Pai. Turn to page 16 to know what’s on offer.
DRAW UP A BUDGET AND STICK TO IT
Akey
facet of ensuring savings discipline is to draw up a budget and stick to
it. As a single woman, it is easy to get tempted to spend on those shiny
pair of shoes, trendy outfits and designer bags beckoning you from the
store shelves. You give in to your craving and swipe your card. Those
monthly bouts of retail therapy might soothe your senses, but are silently
burning a hole in your finances. While the occasional indulgence is not
bad, it should not compromise your long-term security. It would help to be more
in control of your spending habits. “You should break this pattern of
spending. Even if you are not married, and have no immediate financial
goals, you need to wake up to the possibility of requiring money later on
in life,” points out Bala.
Living on a budget is the best way to ensure that
you stay within your means. Once you have set the savings goal as mentioned
earlier, you should plan your spending around the balance. Create a
realistic budget, which will identify what you are spending on. While
creating the budget, separate your needs from your wants.
Commit to cutting back on unnecessary spending
every month. Look for ways to save money on clothes, accessories and other
items in the form of discounts and bargains. This will leave you with extra
money that can go into your savings pool. As far as possible, avoid taking
your credit card to the mall. Even if you use plastic responsibly, you are
likely to spend more compared with cash. Remember that credit card money is
just a loan that you have to repay. If you do not have the money to repay
the entire outstanding amount within reasonable time, you will pile on
debt. More importantly, keep track of your expenses to avoid overspending.
After a few months of keeping track, you will be able to identify where
your money is flowing and where you need to cut back.
VALUE YOURSELF ADEQUATELY IN THE
JOB ARENA
It may sound unfair but men typically draw bigger
salaries than women for the same position. This wage gap has come down of
late, but still remains wide. The gap, in fact, intensifies with higher
level of education. A recent study by the faculty of the Indian Institute
of Management, Ahmedabad, found that women with basic education like
advanced certificates or diplomas earn 10% less than equally qualified men,
but the wage gap shoots up to over 40% in cases where women have
post-graduate degrees. Sure, many women take breaks in their careers when
they are required to take care of a newborn child, and they are offered
lower wages than male counterparts when they return to the workplace. Much
of this income disparity can be attributed to the way society perceives a
woman’s contribution or worth in the workplace. Baxi says, “Often a woman’s
professional capabilities are looked at with some degree of scepticism as
there is a perception of her being an emotional person and is expected that
she would want to take a break from the workplace at some time.” However,
some of the blame may also lie with the woman herself. Many women, even
those in higher positions, do not value themselves adequately in terms of
compensation. In other words, they discount their own worth. Their
reluctance to discuss money matters often extends to the workplace.
There are a number of things you can do to ensure
you are fairly compensated. If you firmly believe that you are not paid
enough for the effort you put in, take a stand. Have you put up your hands
at the right time to seek an increment? Chances are other people would have
done so, but not you. You simply cannot afford to wait to be offered a pay
hike. Or assume that you will eventually be taken care of. The least you
can do is make a strong case for yourself and negotiate. You may think that
doing so would put yourself in a bad light, but it is quite the opposite.
If you do not raise the issue at all, it could have an impact on how you
are perceived as a professional. While trying to ascertain your fair
compensation, give due weightage to your work experience, qualifications,
and what others in the same position are earning.
Do not hesitate to sound your own trumpet. Remind
your superior of your accomplishments and the value you bring to the table.
“You just have to be patient and continue to deliver at the highest level,”
says Baxi. If you are genuinely good, your boss will definitely take
cognizance of your concern. Even if things don’t happen immediately, you
would have made an impression and can bring up the issue again next time.
Legal aspects women should be
aware of
Under the Hindu Succession
(Amendment) Act, 2005, daughters are entitled to equal rights in ancestral
property as sons.
Under the Maternity Benefit Act, 1961, every woman shall be entitled to,
and her employer shall be liable for, the payment of maternity benefit for
a period of six weeks up to and including the day of her delivery and six
weeks immediately following that day.
Under Equal Remuneraton Act, 1976, no employer shall pay a worker a lower
remuneration compared to that paid to another worker of the opposite sex
for performing the same work.
TAKE EXPERT GUIDANCE BUT DON’T
TRUST BLINDLY
You may not get a grip on financial matters
immediately. Navigating through some parts of the financial world can be
challenging. But do not worry. You just need to reach out to someone for guidance.
It could be your father, husband, brother, a financially savvy friend or
even a qualified professional. These people can guide you through some of
the more complicated issues and advise you in your investments. Today,
financial advice is very easy to find, but identifying someone trustworthy
outside your home is not. There are many individuals and firms out there
who can offer advice on your personal finances. Not all of them will act in
your best interests. Some entities will attempt to direct you towards
products you do not actually require, but claim to be the ideal solution to
your needs. It is very easy to fall victim to such false promises. However,
you can avoid such a situation. When you step out to seek financial advice,
take someone along who is more tuned to the world of investments and
personal finance. If not, make sure to discuss any expert suggestions with
someone you trust. Also, do not limit yourself to one individual or firm.
Approach several entities and find out what each has to offer. You can then
decide for yourself which one to take up in earnest.
SANKET
DHANORKAR ET140303
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