Don't shy away from money matters: Here's expert guide for women

Invest aggressively to deal with the challenges posed by a longer average life span and an often-curtailed work span

While women are known to be diligent savers, they often do not take the lead when it comes to investing for life’s key financial goals. This task is often delegated to their husband or father. However, many issues unique to women’s lives make it imperative that they become active on this count, and achieve financial independence at the earliest.

Longer life span but shorter career: Women, on an average, have a longer life span than men. It, therefore, becomes necessary that they plan for a bigger retirement corpus. They also need to be hands-on in handling financial matters, and not depend entirely on their husband or father, given the uncertainties of life.

While women live longer than men, they tend to work for a shorter span than them. Taking time off to raise a couple of babies chops off several years from their working lives. Many women are also forced to opt out of regular jobs due to the need to look after ageing parents or in-laws. All this means that every rupee that a woman earns and saves must be deployed in the best possible avenue.

Excessive caution can become a hurdle: Many surveys have also documented the fact that the majority of women tend to play it safe when it comes to investing their hard-earned money. While it is good to be cautious, deploying the entire corpus in fixed-income instruments will mean that the portfolio will not be able to earn inflation-beating returns. Women should invest a part of their portfolio in market-linked instruments to meet their long-term goals. Remember that time is the best antidote to the volatility in equities.    

Women need to take control of their personal finances to ensure economic empowerment and financial independence. They need to participate more actively in discussions involving financial matters – household budgets, buying a new house or car, home décor, festival shopping, child’s future needs, etc. And to accomplish many of life’s vital goals, they need to develop a financial plan. Here’s a five-step approach that women (and even men) can follow:

Set ‘smart’ goals: The goals that are set need to be S.M.A.R.T— specific, measurable, adjustable, realistic and time-bound. Goals also need to be segregated into short-, medium- and long-term. Without this exercise, it would be like sailing without a mariner’s compass.

Determine the amount you need to invest: You need to put away a portion of your salary every month to achieve your goal. Depending on the corpus required, the time at your disposal, you need to calculate how much you will have to put away every month. Take a realistic rate of return when doing this calculation. Do factor in the impact of inflation as it tends to erode the purchasing power of money. Investing in an ad hoc manner, or blindly aping what your friends, colleagues, and neighbours are doing will not help.

Invest prudently in productive avenues: While there are a variety of investments avenues available, mutual funds have proven themselves to be a potent avenue for wealth creation, provided the category and sub-category of the fund and the scheme is wisely selected. This should be done based on the investor’s risk profile, investment objectives, the financial goal being addressed, and the time to achieve the goal.

Systematic Investment Plan (SIP) has emerged as a worthwhile mode as it helps people invest regularly and in a disciplined manner. It enables rupee-cost averaging and helps compound hard-earned money. Currently, Indians invest above Rs 8,000 crore every month via SIPs.

When building their mutual fund portfolios, women also need to stick to the basic tenets of diversification and asset allocation.

Don’t ignore insurance: Insurance is the first step in financial planning. The objective of insurance is to indemnify the risk to life and health. Hence, holding an optimal insurance cover, both for life and health insurance needs, is essential. If the coverage is inadequate, it could endanger the financial well-being of your dependants. 

Review the financial plan: To stay on course, review the financial plan at least once annually. If returns from your portfolio have been lower than expected, you may have to invest more every month. Similarly, new goals appear from time to time that require a course correction on your part. Your child may have planned to go to a college within the country, but may now want to study abroad. Such changes require a higher monthly investment.

Build an emergency corpus: Life at times throws unpleasant surprises at us. So, around 6-12 months of unavoidable expenses, including EMIs, should be maintained as an emergency fund (also known as contingency fund) in a savings account or a liquid fund. Keep in mind that with a financial plan in place and investments assigned and aligned to every financial goal, gaining financial security is possible. Financial independence is quantifiable and can be achieved if one works diligently towards it. 

Invest time in gaining financial knowledge: A lot of times, the lack of awareness about personal finance creates financial insecurity. The financial pinch is felt when women find themselves stranded if they are divorced or widowed. Due to lack of knowledge, they are cheated out of their rightful legacies, or are mis-sold financial instruments.

These hurdles can be overcome by learning more. As Benjamin Franklin said: “An investment in knowledge pays the best interest.” Doing this will elevate your morale and self-confidence and ward off many fears that prevent women from investing actively.
 

In case you need help, do not hesitate to seek professional guidance from a competent financial advisor, who can guide you in an independent, ethical and unbiased manner. Able guidance makes it possible to take the right steps to attain financial independence.

Finally, mothers must act as role models for their children. When the latter see that their mothers are financially independent, they will also be inspired to be self-sufficient in life when they grow up.

Hard truths about women and finances

 

• Fewer women than men take independent investment decisions
• Many take their own investment decisions only due to circumstances, such as divorce or husband’s death
• Men dominate decisions regarding investing, or buying a car or house
• Women have a larger say in buying gold or jewellery, day-to-day household purchases, and purchase of durables
• Very few women decide on their own to invest in market-linked instruments
• Source: DSP Winvestor Pulse 2019 Survey

The writer is MD and CEO, Quantum Mutual Fund