TomorrowMakers

This article will walk you through how handling finances at each stage differently can make all the difference to a woman to boost her self-confidence

A woman’s guide to managing her finances at every stage of life

Women in India have been taking huge strides in breaking through the glass ceiling in many industries. It’s a major shift, from managing households to managing businesses. However, the one area that’s still seen as a male domain concerns finances in general and investments, in particular.

To ensure financial independence, women need to be more confident while investing. A lack of confidence makes women their money’s worst enemy. On the other hand, women make financial decisions only after consulting with those whom they believe know finance and investments. This makes them their money’s best friend. 

Since women tend to be the ones who take career breaks – whether it’s for their own family or to look after older family members – being at ease with finances is critical.

Investing means different things to different women. A single parent shouldn’t invest the same way a single woman might. And a woman in her 20s can afford to take risks that a woman in her 40s cannot. So, is there an age when women should start looking at investments? Actually, no! The earlier one starts the better. This holds true for any individual.

Young and single

Being single in your 20s is different from being single in your 40s. In your 20s, you have the freedom to take risks – and if you’ve just started on your career, it’s imperative that you begin investing immediately and consistently. You also need to have a mix of short and long-term goals and invest in instruments that can help you achieve both without having to borrow more than necessary – say, when you decide to buy a house.

While equities may be a good investment choice, you’d be better off investing in equity mutual funds (EMFs) via a Systematic Investment Plan (SIP) to achieve your long-term goals such as retirement. Just as importantly, you should purchase a suitable health insurance plan. You may be young, but ill-health can strike at any time. You should also build a corpus of liquid funds to help you during emergencies.

To meet your short-term goals, it’s best to invest in traditional instruments such as FDs, post office deposits, debt funds and Fixed Maturity Plans (FMPs). Another good practice is to periodically shift money over and above a certain threshold in your savings account to FDs or recurring deposits. You’ll earn higher returns while retaining liquidity for emergencies.

Over time, and if you’re still single, you may wish to own your own home by this stage. The focus of your investment strategy must shift towards retirement savings, increasing contributions to your pension plan, and adding top-ups to your health insurance. 

Married and working

You might have the unenviable task of simultaneously managing your household, looking after your children, and pursuing your job or business. Time is at a premium, and making informed financial decisions and keeping track of your investments will inevitably suffer.

While your husband may be the primary investor, yours is a double income home. You need to plan for your children’s education, their marriage, your retirement, and perhaps buying your own home if you don’t already own one.

At this stage, it’s advisable to purchase a suitable term insurance plan and continue investments in mutual funds that perform well. Women have traditionally been interested in gold as an investment. Investing in gold is good as long as you buy gold bullion or invest in gold funds and ETFs, never as ornaments.

If you’re over 40, your thoughts must turn to investing for your retirement. Public Provident Fund (PPF) and National Pension Scheme (NPS) are both tax-efficient instruments, but it might be a good idea to look at pension plans too. At this age, you must also diversify your portfolio across different asset classes to minimise risk exposure. The asset allocation is dependent on your age, risk profile, and your goals.

Investing is a life-long process and tracking your investments is just as important as making the right investments. So, make sure you review the performance of your investment portfolio frequently.

Homemaker

If you’re a homemaker and don’t have your own income, you’ll obviously try to stretch every rupee from your monthly household budget. Whatever savings you make should be salted away. The old maxim of ‘it takes money to make money’ is never truer than in your case.

You can consider investing in hybrid bank accounts, RDs, FDs, and the like. The post office has a monthly recurring deposit scheme that pays an attractive rate of return. And if gold is what makes you happy, invest in gold mutual funds or ETFs using a SIP.

Single parent

Whether you’re a widow or a divorcee with children, you’re completely responsible for looking after them emotionally and financially. In addition to their education and marriage, you will have to plan for your own retirement. This is when you must turn to safe, risk-free investments.

If emotional or personal tragedy has befallen you while you’re still relatively young, you have time to think about retirement. It’s possible your spouse had a generous term insurance plan, to which you were the beneficiary. If you have a home loan, use the proceeds to pay off the loan, with health insurance for the family, education planning, and your own life or term insurance being the next most important. 

Whatever is left over, together with contributions from your own monthly income, you should invest in PPF, NPS and balanced mutual funds.

If you’re a divorcee and receiving regular maintenance payments and/or alimony, the criteria shouldn’t be very different. It may be that you can’t invest a lump sum in any product, but an SIP will suffice just as well, more so because it encourages discipline by putting aside a portion of your monthly inflow (salary plus maintenance), without you really being aware of it.

In either case, it’s also essential to build an emergency fund to cover at least six months’ worth of expenses. This should also include any EMIs you have.

Conclusion

As your income increases over the years, your focus should turn more towards securing your own future rather than that of your family. Investment in less risky products should become the norm, as should a diversification of your financial portfolio. Above all, you must review your portfolio every month to weed out risks that aren’t in accordance with your financial goals.

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or insurance or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.

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