Devki Parashar, a 45-year old private sector employee in Pune, lost her husband in a car accident two years ago. Devki was left alone not just to run her household and plan for her son’s higher education, but also save enough for her retirement. What led Devki to this crisis was not just her own lack of financial planning, but her complete unawareness about her husband’s investments. It was only after a family friend helped a month later, did Devki come to know that her husband had invested in a life insurance of Rs 1 crore along with a couple of fixed deposits and equity funds, that now has helped secure Devki and her son secure their future.
The above example is a common phenomenon, especially across Indian households where a significant number of women shy away from financial planning. This unfortunately is also true for many independent women with solid careers. Although systematic management comes naturally to women, studies too show that they do not focus on securing their financial future, even when they make significant contribution in the family funds.
Here are a few tips that all women need to follow, to have a financially secure future:
Keep an emergency fund: It’s common for women to give up their careers and focus on their families. My first advice would be to try and be financially dependent at all stages in life. Save a part of your monthly income and create an emergency fund for yourself that would come in handy during any unforeseen financial crisis. You can keep this emergency fund in a high return giving bank account, fixed deposit, PPF or debt funds. Remember, this fund is to be used only for emergencies and this is just for you!
Build a strong investment portfolio for yourself: Many women leave all their investment decisions to either their partner or their father. Some even do not have an effective investment plan in place. I’d strongly suggest all women to take charge of their financial planning. Research online and try and understand about various investment options available and start building a strong portfolio through regular and disciplined investment. Usually, women prefer 'safer' investment or fixed income options, like PPF, NSC and FDs. However, women must also consider equity-linked investments like Mutual Funds. They will not only save taxes but they outscore other alternative investment options in terms of returns, lock-in period (shortest lock-in period of 3 years) and taxability of gains.
Be aware of your spouse’s financial planning portfolio: A common mistake women make is to stay completely unaware of the financial planning done by their partners, which like in Devki’s case, may lead to a big crisis. It is crucial to understand how your husband has planned his finances- the investments he has made, insurance policies in his name, etc. He sets aside a portion of his earnings every month to secure the future of the family. Being unaware of your husband’s investment defeats the entire purpose of making such investment in the first place.
Build Your Retirement Corpus: As a woman, you should start saving for yourself as early as possible. Even if you do not devise a separate retirement plan, a joint corpus should be planned in a way that it is enough to carry you through your old age if you outlive your husband. Discuss with your spouse about how much of your joint income can be invested in a retirement plan. During the initial working years, you have limited responsibilities so it is wiser to invest in speculative high-yielding assets. However, as time passes you should concentrate more on financial security and tax-saving. Invest in instruments that give assured and tax-efficient yield. Avoid the temptation to cash in the returns; reinvest it instead. Your older self will be grateful for the sacrifices you make now.
Protect yourself: Every financially independent individual, irrespective of their gender, needs to be protected adequately through insurance, as an unforeseen event can severely impact your family’s finances. Firstly, get yourself a pure term policy, with a Sum Assured of at least 15 times your annual income. Along with life insurance, a solid health insurance plan is also crucial, given the rising cost of healthcare and the increase in critical illnesses. You can look for policies designed for women or choose a regular health policy with additional benefits for maternal and child care.
And lastly, as you begin to prepare a strong financial plan, do not forget to step back and indulge yourself once in a while and take good care of yourself.
—by Radhika Binani – Chief Products Officer, Paisabazaar.com