Financial Planning for Women
Gender equality is something that many literate human beings, especially women usually stand for. It is only fair that women be treated and considered at equivalence with men in all strata's of human life. Infact, to do otherwise would be downright stereotypical and selfish.
Today women are empowered and are at par (if not ahead) with men in all work related functions of mankind. With the rising cost of living and expanding human needs, women have started sharing the financial responsibilities of the household with their husbands. This has not only made them economically powered, but also financially independent. But can financial independence be regarded the same as financial security? Definitely not!
You see, a monthly pay check in your bank account alone cannot render you capable of meeting all your financial goals. It is how you plan and manage your finances which will result in fruition of goals later in life. However when the word 'financial planning' is talked about, many ignore it or find themselves helpless.
A recent survey conducted by Nielson across a few cities in India showed that only about 23% of the working women take their own financial decisions about where and how to invest, as published in a leading newspaper (The Times of India). It is unfortunate that despite of being financially independent, many women in India feel less confident or are not permitted to take their own financial decisions by their families.
Importance of Financial Planning...
Financial Planning is a process of charting a road map to achieve all the financial goals and unforeseen needs that may arise in one's lifetime. In the absence of a financial plan you may not be well equipped to accomplish what you might have dreamt of achieving and might also be under-prepared to deal with contingencies.
Although the broad financial planning process is similar for men and women, the latter might be required to manage their finances differently at times. The working lives of women might be interrupted during certain important events of their lives such as marriage or children. A classic example for this would be Mrs Sudha Murthy (the wife of Mr Narayana Murthy, the founder of Infosys). Inspite of being highly qualified and experienced Mrs Murthy took a step behind from Infosys for the sake of her home and children. Hence women sometimes have certain priorities which might be more pressing than their career.
A woman's life is also greatly altered when she is widowed or a divorcee. For these reasons per se you should not be totally dependent upon your husband or father for your living. Even if on a sabbatical (break) or engaged in other activities in life, it would be prudent to have some alternate source of income. Indulging in financial planning from an early stage in life will also enable you to plan your finances for all the aforesaid events apart from achieving all your financial goals.
You may consider the following points to help you establish a viable financial plan:
We understand that setting goals, outlining a plan, executing it and reviewing it, might be a time consuming process and be rest assured investing in the advice of an expert or an experienced financial planning consultant will not be a waste of money.
- Define your Objectives: Unless you know where you are headed you won't get there. So, the most important thing to do while you sit down to plan your finances is ask yourself why you want to plan. For a married woman with kids, the answer could be child's education or child's marriage. For a woman whose kids are already married, the desire to plan could stem from a dream to set up a small boutique, for instance. For a woman who is yet to get married, it could be for her marriage. A single woman might also want to save for buying her own home, car or even getting an MBA degree. So you could have a variety of objectives; when you get down to penning them down you will notice that the list is a lot longer than what you had bargained for. Hence it is important to prioritise them. You need to be certain which objective is more important the other. For instance, your child's education may be way more important than buying a car. Also, it would be prudent to filter your goals as short- term and long-term
- Calculating Investment Amounts: Once you have determined what your short and long-term goals are, you need to find the cost of achieving them. This would probably be much higher in the future than what their worth is today, mainly due to the impact of inflation. Then you must work out the amount you need to save per month so that you can achieve these goals. Also, it is said that women have a longer life expectancy than men. In such a scenario, women also need to increase their retirement kitty. For instance, if you are 35 years old and want to retire at 60 years. Assuming that the amount that you would need on retirement is about Rs 95 lakhs (after adjusting inflation), then you will be able to accumulate this corpus only if you start saving Rs 5000 per month (at 12% interest p.a.). Such a goal based planning will help you to get a clear picture of how a systematic approach can help you to achieve your financial goals. Remember, that financial planning is not only planning for your goals but also incorporates taking an appropriate insurance cover (life and health), and also saving for any unforeseen contingencies or emergencies. Hence you also need to determine the amounts you will have to set aside for meeting these expenses, in order for you to comfortably achieve your financial goals.
- Saving: Once you have determined how much you need to save per month to meet all your goals, you need to start acting upon it. In case you feel that you are not able to save as much as you had planned, then have a look at your monthly budgets. Reduce your household and personal expenses such as electricity bills, fuel costs or recreational expenses etc. If the gap is yet large than it would be prudent to find an additional source of income along with your on-going job. This could be by working part-time or freelancing etc. If it still seems impossible to save that much than you must consider revising your goal realisation date or altering your objectives. For example, if you were planning to retire at 60, consider retiring at 65 instead, giving yourself more earning years. Or consider reducing the goal corpus that is required. For instance, if you wanted to buy a house for 75 lakhs, consider a house for 60 lakhs instead. Only having realistic goals will lead you to achieving them.
- Preparing an Investment Plan: Saving your money alone will never help you achieve your goals as the inflation bug eats into your hard-earned money every single day. To fight inflation and to make your money grow you need to start investing. Depending upon your risk appetite and risk tolerance level, you must determine your investment avenues. It is also prudent to diversify your investments across different asset classes and imbibe an appropriate asset allocation plan to ensure that your funds grow at a desirable rate and are also protected during uncertain economic conditions and market volatility.
- Executing the Plan: After preparing an investment plan, you must start the execution process. This involves for instance, investing in the diversified equity fund to buy your house after 10 years, or investing in plans for your child's education. All the investments and insurance options that you have outlined in your investment plan have to be bought. This process involves filling in all the investment and insurance application forms with accurate information. Giving inaccurate information on these points could lead to rejection of your application or insurance claim or at a later date. Remember, financial planning also involves planning for your estate. Estate planning ensures that your assets, both physical and financial, are inherited by the people to whom you want them to be transferred to in your absence. Hence it is important to appoint a nominee across all your investments, bank accounts and insurance products so that everything is passed on to your choice of beneficiaries.
- Reviewing the Plan: To ensure that you remain on course it is important to review the financial plan (annually or bi-annually). This will enable you to incorporate any economic or personal changes in your plan to achieve your goals as intended. You also need to adjust your asset allocation from time to time to avoid market turbulence. For instance, you might have a large exposure to risky assets (such as equities) while you are young and far away from realising your goals, but as your goals draw nearer you must consider shifting majority of your portfolio to safe instruments (such as fixed income products) to shield the value of the portfolio from getting eroded. Remember, without a timely review of your financial plan, you are most probably bidding a goodbye to your financial goals.
- Redemption: As the event you have been investing for, is upon you, you need to redeem your investments. With a mutual fund investment this involves signing on the redemption slip. In case of a life or health insurance policy, it involves submitting the policy and other relevant documents to the insurer and following up for the maturity proceeds. You also need to understand and plan for the taxation issues involved with the redemption of your investments.
Another thing that women must bear in mind is apart from managing their own financial affairs; they must also be actively involved in the financial matters of their family. Women as spouses or daughters must be aware of all the investments and liabilities of her husband or father so that she never faces helplessness and is never misled by any of their debtors or creditors. You must also be involved in the creation and review of the financial plans which are made for your family as your opinion about various matters can bring a great deal of clarity and another perception to the financial plan. This not only applies to single or working women but also women who are home-makers and are responsible for taking care of their house and children. Being involved in the day-to-day finances of your family will give you a sense of being involved and also help you become financially independent in the long-term.
PersonalFN believes that fulfilling the financial goals of any family requires the active participation of the women in the family (wife or daughters). Without the team effort by all the members the financial objectives and dreams of a household might never come true. It is high time that all the women of our country came forward to contribute to the financial affairs of their family, became confident to take their own financial decisions and undertook prudent financial planning for their financial security.
PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.
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