Women today are making giant strides, making their mark in all spheres of life. From leading governments to managing MNCs or dominating academics, the progress has been nothing short of phenomenal. However, if there is one aspect where Indian women still need to catch-up – it’s managing their finance independently. There is still a dependency, especially among Indian women, on their father or partner to manage their finance, mainly due to the failure to break away from the age old traditions of men taking all the financial decisions.
Like in all other things, women should also take charge and control of their finances and manage it on their own. And, here is list of basic mistakes they should avoid:
Not being financially literate
Lack of knowledge and being ‘jargon inverse’ often leads to many women taking a backseat when it comes to discussing finances with spouse and family. Most women rely on their partner to take various financial decisions, such as investment and insurance, primarily because they are reluctant to learn about financial products and the importance of being financially literate.
To begin with, women should read financial newspapers, magazines, online portals etc. to get at least a basic understanding of personal finance. Trust me, it’s easier than it sounds. Knowledge about different products
Gradually, they should gain all the necessary knowledge which would enable them to take financial decisions independently, even in the absence of spouse due to divorce or death. If you are a working woman, knowledge regarding employee benefits, how to invest your savings, type of insurances necessary etc. is vital to secure your future and make the most of your earnings.
This awareness would enable you to take the right financial decisions at the right time, and not get carried away merely by sales pitches and advertisements. Moreover, make sure you discuss financial decisions with your spouse and make budgeting a regular practice so that the finances don’t get off track.
Failure to maintain separate emergency fund
Another mistake most women commit is not maintaining of a separate emergency fund to tackle financial exigencies such as severe illness, accident or any other unexpected event in life. If you are married and working, you may consider maintaining a joint emergency fund with your spouse, with your respective contributions per month.
Ideally, the emergency fund should amount to at least 3-6 times your family’s monthly income. With interest rates up to 7.25 per cent being offered, savings accounts are a great avenue to park your emergency funds. Whether you are married or single, failure to maintain an emergency fund may hit you hard whenever a financial crisis surfaces. Absence of it would result in requirement of borrowing funds on an immediate basis, from lenders or family, or exhausting your credit card limit to pay for such unexpected expenses.
Saving instead of investing
Not only women, but men too misinterpret saving and investment as similar terms. Saving is merely parking your idle money in your bank account, without the motive of generating much return from it. However, investing is when you put your surplus money to use, by parking them investment avenues such as Fixed deposits, Mutual funds or PPF. When you invest, instead of being kept idle, your money works for you by generating returns during the investment period. No matter what the investment horizon is, investing enables you to achieve every financial goal, such as building retirement corpus, child’s higher education and marriage, along with your own aspirations like a holiday abroad or owning your own car.
Therefore, make sure you don’t commit this mistake of merely saving and not investing. Both savings and investment are vital aspects of financial planning. Savings help you during emergencies and help you maintain liquidity, whereas investments are aimed to fulfill various financial goals of future.
Before investing, women should know their investment horizon, assess their risk taking capacity, financial position regarding their expenses and income to select the right investment avenue. For instance, for short to medium goals (within 1-5 years), fixed deposits, debt mutual funds or balanced funds are a good option, whereas for long term goals, equity funds are the most suitable choice, since they have consistently outperformed other investment avenues for long term investment horizon of above 5 years. ELSS (equity linked saving scheme) is an ideal investment choice for working women, since these are equity oriented mutual funds and provide tax benefits up to Rs.1.5 lakhs per year, under section 80C.
Not protecting oneself with adequate insurance
Irrespective of your gender, an adequate health and term insurance is a necessity to protect yourself and your family from unforeseen events such as severe illness or death. Term insurance would protect your family financially when you aren’t around, by providing an assured sum to them upon your untimely demise. This would assist in continuation of investments and repayment of existing debts. Term insurance premiums are very low when compared to the huge cover which they provide. Working women should ensure they have purchased a separate term insurance amounting to at least 10-15 times their annual income. If you are married and your partner has purchased a term insurance, even then it would be wiser to buy term insurance to secure your family when you aren’t around.
Additionally, with continuous rise in medical costs, you cannot commit the mistake of not purchasing health insurance. Health insurance would assist you in bearing the high medical costs, wherein a single hospitalization bill being capable of eradicating your savings. Even if both partners are working, a separate health insurance should be purchased, without being dependent on their respective employer’s health cover. Single mothers or married women may either choose a family floater plan and get children included in it, or she may opt for a top up medical policy to cover medical costs in case of disability or accidents.
Moreover, both term and health insurance provide tax benefits. Under section 80D, premium paid towards health insurance for yourself and your parents can be claimed for tax deduction up to Rs.25000, whereas term insurance premium qualifies for tax deduction under section 80C.
By Radhika Binani, Chief Products Officer, Paisabazaar.com
