That said, what disturbs me is that when it comes to handling their finances, most women depend on their father, husband, or brother/s. They lack control over the money earned and/or do not have much say in the family’s personal finances. Let me tell all the women reading this piece that you are well capable of taking financial planning decisions and don’t have to depend on anybody.
Generally women are better at dealing with money than men. In the difficult times of the COVID-19 pandemic (where many families had to accept job losses or pay cuts/loss of income), it was the prudent budgeting skills, conservative approach, the innate habit of saving, and discipline of the women in the households that helped families sail through challenging times. In the industry that I represent, do note that several women, be it fund managers or any other role, are doing a remarkable job.
The point is, managing your own hard-earned money (and not depending on anyone in the family) shall offer you financial security and independence and help you plan a bright financial future.
What is financial independence?
Well, it simply means the ability to make financial choices that will help you live the way you want and empower you to accomplish the envisioned financial goals.
Even in challenging times, such as the disability of the breadwinner of your family, critical illness, demise, loss of income, etc., if you have financial independence, it shall help you sail and take decisions confidently.
Here are a few tips to ensure your financial independence and security…
- Set SMART financial goals: We all have dreams and aspirations, such as buying a dream house, car, fancy gadgets, going on a foreign vacation, providing for our children’s future, and having a blissful retirement. But much of this requires SMART goal setting; it cannot be vague. Meaning the goals you set must be Specific, Measurable, Adjustable, Realistic, and Time-bound.
Also, depending on the time in hand to achieve them, classify them into short-term, medium-term, and long-term. Based on this, draw your asset allocation, and invest prudently.
- Invest in productive investment avenues : In times of high inflation or the rising cost of living, lone savings or parking money in a bank FD is not enough. You need to deploy hard-earned money in productive asset classes and investment avenues to counter inflation. The long-term trend displayed by equities and gold as asset classes suggests that they are best to build wealth and hedge inflation.
Having said that, always consider your risk profile, financial situation, broader investment objectives, financial goals and time in hand to achieve those goals carefully to make the best choice. Moreover, invest regularly in staggered lump sums and/or take Systematic Investment Plan (SIP) route.
To create a weatherproof portfolio that can withstand market cycles, spread your investments, i.e., diversify across asset classes. You can consider the the well-thought-out and time-tested 12-20-80 Asset Allocation model). That is, park 12 months of regular monthly expenses (including EMIs on loans) into a Liquid Fund (which you can liquidate in times of emergencies), 20% to gold (which usually has an inverse correlation with equities), and 80% (the growth block) in suitable diversified equity funds. By following this approach you have the potential to get risk-adjusted returns that beat inflation while protecting your downside.
- Insure yourself optimally: Apart from making thoughtful investments, don’t forget to optimally insure yourself, both for health and life.. You see, given the stress we face, we are prone to certain medical conditions such as irregular blood pressure, diabetes, immune disorders, arthritis, critical illnesses, etc. If you don’t pay attention to your health, it could cost you a pretty penny. In times of high medical inflation, it is important to have optimal health insurance coverage so that medical expenses don’t run you down financially and emotionally.
Similarly, when you are earning a respectable income and supporting the family, make sure you and your husband have optimal life insurance coverage (considering your Human Life Value). In my view, avoid combining insurance and investments; deal with the two separately. From a cost-to-benefit standpoint for your life insurance needs, a pure life insurance term plan is the best.
- Complement saving, investing, and insuring with tax planning: A penny saved from tax is a penny earned! So always make a conscious effort to engage in prudent tax planning. Depending on the gross total income you make every year, choose between the Old Tax Regime and New Tax Regime carefully.
If you lack the financial knowledge to manage hard-earned money, educate yourself. Read financial blogs, journals, magazines, newspapers, and/or join a financial literacy program. And in times of doubt, seek the guidance of unbiased financial experts who can handhold you in the journey of wealth creation.
This Women’s Day, take a pledge to embark on the journey to your financial freedom.
Rina Nathani is Chief Business Officer at Quantum AMC.