- Date : 25/09/2019
- Read: 9 mins
A self-made millennial woman is capable of achieving everything. But it is important to understand how to be able to boost one's net worth in a competitive market.
The only way to finance her dreams without seeking monetary help from anyone, motivational speaker Jillian Haslam once said in an interview, was to generate her income.
Haslam should know – eighth of 11 children; she grew up in squalid poverty in Kolkata after her parents, English citizens living in pre-independent India, refused to join the exodus of Europeans headed home in 1947, only to be reduced to abject penury, and raising their children in deprivation.
Haslam wanted to make money so she could help people; she remained steadfast even when she found employment with the Bank of America, not getting sucked into the comforts of an MNC job and forgetting her dream.
Comfort Zone Trap
Today, Haslam, a millionaire on whose life a Hollywood movie is in the making, tells young women starting out in life to get out of their comfort zones if they want to be successful in whatever they are doing.
This seems to be an issue with most of us – even those who have a job; we get stuck in our little comfort zones, content with a steady paycheck and lacking the motivation to better our income, increase our net worth.
But it can be achieved, with a little bit of self-restraint in expenses coupled with some disciplined savings, and some basic investments to reach short- and long-term goals; of course, the latter needs some reading up on the subject.
Single Income Pangs
Needless to say, starting early helps, as compound interest comes into play here. Someone investing Rs 1,000 every month for 30 years at 12% annually collects more (Rs 35 lakh) than another who starts late and saves Rs 12,000 a month for 10 years at the same interest rate, who collects only Rs 27 lakh.
However, most of us have only a single source of income – our salaries –, and it is with this money that we have to meet our goals, whether immediate or long term. As a result, we face the threat of wiping off our savings accumulated over the years to achieve our short-term goals, leaving us without resources for the long-term ones.
That is why it is also important to not just save money but to use it to make investments that will help create wealth over a longer period of time, with which we can focus on our goals. This is also why it makes sense to approach our goals with the twin strategy of investments and savings.
Let us see how this can be done.
As a woman with a single source of income, one can look at several investment options, starting with the humble bank deposits. Of course, you should also look at reinvesting the returns from one scheme to increase your net worth. You can also work towards goals (house, marriage, etc.) if you plan your income flow well.
Fixed Deposits: This is, the most time-tested and common option for women as it leads to steady risk-free accumulation. Fixed Deposits come with a fixed rate of interest over a period of time, and can be yearly, quarterly or even monthly. Currently, the interest rate varies from 8% to 9% annually.
Recurring Deposits: This is a term deposit scheme that Indian banks offer whereby those with regular incomes deposit a fixed amount every month into their recurring deposit account and earn interest at the rate applicable to fixed deposits. Say you start today with Rs 6,000 every month for five years in your RD account; at the end of it, you will get roughly Rs 4.5 lakh as the maturity value. That amount can be invested in MIS – that is the next step – and you can always begin a new RD account. On the whole, it is a reliable way to build a small wealth.
MIS: We mentioned MIS earlier; it is a monthly income scheme (hence MIS) offered by banks that guarantee you a regular income. Also, as in a fixed deposit, the interest earned is paid at regular intervals. Moreover, the interest rates are the same as that for FD rates. The attraction here is you earn interest every month and also get back the deposited amount at the end of the term period. Suppose you deposit Rs 50,000 in MIS for five years, you get monthly interest at prevailing rates through the five years and then get back your Rs 50,000 at the end of it. Returns from the RD account can be reinvested here.
MIPs: There is also the mutual fund monthly income plan (MIPs), a type of mutual fund scheme that invests in debt and equity securities; roughly, around 75-95% of the total corpus is invested in debt instruments like debentures, government securities etc. while the remaining is put in equity. The scheme helps in providing a steady source of income in dividends and is therefore recommended for those without a regular – and substantial – source of monthly income. And as they are suited for conservative risk-takers, MIPs ought to appeal to women in general, who are cautious by nature.
SIP: One of the best investment avenues for women is the Systematic Investment Plan (SIP), where specific amounts are invested in a mutual fund at regular intervals – weekly, monthly or quarterly – so that a corpus is built over the investment period. This way, the investor also inculcates discipline. You can start a SIP with Rs 500, and returns depend on the chosen mutual fund and the tenure.
These are only a few of the options before you; as you get more tuned in to the idea of working towards making your money grow, you will automatically find ways to make your assets grow. Look around to see where you can find schemes that support women.
For instance, when buying a house, you can always look at the Pradhan Mantri Awas Yojana – a house purchase scheme from the government. If you take a loan under this scheme, you can avail of special home loan interest rates for women from certain banks (SBI, HDFC). Women are also being given extra stamp duty concessions if the property is registered under their name. Overall, a woman loan applicant can get a discount in the interest rate of up to 0.05% per annum as compared to men. Total subsidy adds up to Rs.2.67 lakh for women under the scheme.
Alongside all this, you need to be financially disciplined and on top of your finances. Unless you can control expenses, you will have trouble saving, never have enough disposable cash to invest, and unable to make your assets grow.
Start the practice of budgeting your monthly expenses; from this, you can narrow down three important verticals: the expenses you cannot do without, those that you can, and figuring out how to have budget surpluses. Total up your debt (credit cards, personal loans from friends and relatives), as this amount also has to be repaid out of your salary.
Essentials: These are the expenses you cannot do without (the various utility bills, daily commuting, kids' fees, servants' salaries, food, monthly savings, investments, etc.).
Non-Essentials: Then there are the items you can do without – if you are really honest with yourself: the frequent eating out can be brought down, the splurge on clothes can be moderated, the use of credit cards pared down to the bare minimum, the "keeping up with the Joneses" eschewed, etc.
Budget Surplus: Once you have honestly worked out the areas you can cut down on, you will have worked out a "budget surplus" – having more income than expenses. As you already have kept aside some amount as "savings" and "investments", the surplus cash here will form the basis of your debt repayment plan.
Needless to say, you will have to say goodbye to extravagance and live modestly for a while, as you cannot afford to cut into your "budget surplus". If possible, try and think about additional sources of income; every rupee counts when it comes to fighting debt.
Paying off Debts
Financial discipline involves taking steps to be debt-free, and this includes credit card dues. Worldwide, the two most popular methods of repaying debt are the Debt Snowball Method and the Debt Avalanche Method.
Debt Snowball Method: Here, you are required to pay off your debts from the smallest balance to largest balance, regardless of interest rates;
Debt Avalanche Method: This involves paying off your debts from highest interest rate to lowest interest rate, regardless of balance.
The Snowball Method enjoys a cult following in the US, probably because the average American prefers plastic money and has multiple cards; as a result, they have multiple debts, including store credits. For them, paying off the smallest due makes sense, as it creates a sense of accomplishment and encourages them to clear more debts.
However, if you do not own multiple cards and also have the cushion of a stable job – one with a bonus as well – then the Debt Avalanche Method makes more sense. With it, you will save more and get out of debt quicker. Your annual onus can also go into paying off the big debts.
A few words about your credit card usage and repayment practice ought to be said here; first, stop using the card for non-emergency purposes. This means no more partying with friends on plastic money – learn to differentiate between what is an emergency, and what isn't.
Second, stop taking the easy way out when making payments by squaring off the minimum dues so as to avoid a fine –it doesn't help you any as the big debts still remain. Therefore, tackle the big dues first to bring down your outstanding faster.
There is no one-plan-fits-all template for increasing one's net worth, nor does it involve making certain prefixed moves. This is because people want to / need to increase their net worth to meet their financial and material goals, and these vary from person to person.
So draw up a financial strategy that addresses your goals; the moves are yours, make them work together to take yourself on the path to a higher net worth. Do you know the net worth of these women business leaders? Take this quiz to find out.