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. 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.
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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 Rs 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.
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.
Draw up a budget and stick to it
A key 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.
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.
