When it comes to managing finances in India men seem to be at the fore front. But things have changed at a fast pace. More and more women have taken to working and are bringing home the mullah. In such a scenario, it becomes more important for women to learn about how to manage their money. Financial planning is the first basic step for anyone wanting to manage their finances efficiently.Financial planning for women is not very different than for men however, financial planning for women can get complicated by several conditions which are specific to women. Some of these are:
- Longer Life Spans – Women tend to live longer than men, resulting in a greater need for retirement savings to sustain their lifestyle post retirement.
- Staggered career path – Many women tend to be the primary care givers for their family and may take a break from work or choose a career which gives them more time for their families. This can limit their future career options and may strain their finances.
- Divorce or relationship breakdowns – A women may be married and not working but a sudden death or an unavoidable divorce can put her finances in a topsy-turvy state.
- Lack of knowledge and interest – We often meet women clients who are either not keen to learn about finances or don’t have the know-how even if they want to. On most occasions they leave their finances to their spouses or parents, this may create problems as discussed above.
Many women may feel financial planning is all about complex numbers, investing in stocks, taxes and insurance. However, financial planning is a means to an end. The end is your financial dreams and goals; financial planning can put you in greater control of where you want to go and how you want to do it. It gives you greater confidence to face uncertainties that may arise in future. Financial needs change at various stages of life and it is essential to plan as per the unique demands of each life phase. While this would be different for each individual, the financial needs and corresponding approach of women in their 20’s, 30’s and 40’s would revolve broadly around the below parameters.
20’s: Be the Priestess of your future
Life Stage: Single/ Newly Married, Career Progression
Needs / Goals:
- Immediate: Protection, Further Studies
- Short-term: Buying a car, Marriage
- Long-term: Retirement
Be financially aware:In your 20’s you have just begun to enjoy your financial independence. While this is the phase where typically one would have the least family responsibilities and financial pressures, it is important to bear in mind that it is never too early to be financially aware and educated. Infact this is the best time to outline your long term and short term goals clearly and start allocating funds towards each goal.
Manage your expenses:Regardless of the amount you are earning, it is important to maximise your fund utilisation. At this stage, responsibilities are minimal and one tends to overspend on discretionary expenses if expenses are not being monitored.
Seek professional help:Seek help from a professional advisor who can educate and advise you on the best options available.
Develop your own view:While you might be planning to get married and assume that you would have double income support, it is critical to learn to manage your own finances. In many cases you and your husband’s view might differ on certain issues, hence it would help to have an educated idea of the options available so that you can take more informed decisions. While contributing to family decisions, you would be able to value add if you have professional assistance in making sense of the labyrinth of options available in the market.
Financial Approach: Understand your risk tolerance
- Pick a health plan that covers maternity – do revisit your health plan annually
- Consider buying a sizeable term plan not only based on your current income but also your future earnings
Short – term
- Invest in a Liquid fund rather than holding money in savings account
Long – term
- Choose a Systematic Investment Plan (SIP) corresponding to your financial goal. For instance: invest in debt and balanced funds if you have a goal with horizon 3 years v/s equity investment if have a goal with more than 5 years time frame.
30s :Get into the driver’s seat
Life Stage: New parent, Break from work
Needs / Goals:
- Short-term: Vacations,
- Buying a home, car
- Long-term: Child’s education, Retirement
Be prepared for alternate work situations: By your early thirties, incase you are a working professional, you would have reached a comfortable stage in your career. But it is important to remember that for many women this is also the stage where your priorities tend to change, and sometimes so dramatically that you might decide to devote time full time to the family or take a long break from work. This would have a deep impact on your lifestyle, not to mention the additional expenses of young children. If you do decide to leave the workforce you need to have a backup plan, and it better be a good one.
Manage the certainty of uncertainty:In the best circumstances your money jar might be used for the icing on the cake like getting you and your family on that Europe vacation. However life has a habit of throwing unexpected challenges at us. The truth is that no one likes to think about situations like divorce or disability. No one likes to talk about it, or plan for it, but the reality is that it happens. A lot. Infact divorce disproportionately affects women, and the most prudent thing to do is to plan for your own life as if you are going to be living on your own, without anyone else’s assistance. It is wonderful to have the extra support of a double income, but you don’t want to be caught napping when and if something happens.
Be involved in the family’s finances: Learn about your finances. Don’t just sign the tax or property papers, be sure to understand them. Get assistance from your advisor if you need explanations. Eventually financial planning is about your dreams and how to get there, not about boring statistics and numbers.
If you are married, be sure that you and your husband each understand what you own and what you owe, and use insurance to plan for uncertainties. Men and women are not always on the same page when they think about issues like money and happiness, kid’s future and your own future. It would help if you plan in advance and are actively involved in the decision making. Also, ensure that you are a joint account holder on all major bank accounts and investments to manage for uncertainty.
- Compare health insurance plans to select one that covers the new born and also increase the cover amount.
- Increase your and your spouse’s overall insurance cover
- Invest in short term debt funds.
- Consider a retirement plan with annuity features
- Evaluate child plans which can give you money at important milestones
- Write a will to distribute your/ your family’s assets.
40s :Approach your retirement years with confidence
Life Stage: Mid Career, Own assets
Needs / Goals:
- Immediate: Protection
- Short-term: Children’s higher education, marriage
- Long-term: Retirement
Be ready for retirement: Retirement Planning for women is different from men. There are some key considerations which women need to bear in mind, beginning with higher life expectancy. The good news for women is that they live longer, so they have longer to enjoy their retirement. The bad news is that they live longer, and so their retirement will be much more expensive.
Understand your needs: Women often think that they can rely on their husbands’ income or pension, but they can be wrong. Not surprisingly, most widows are not able to sustain the same lifestyle as they had before their husband passed away unless they have planned well. On the other hand, for a man, the impact of the wife passing away is more emotional but probably does not impact his financial status much. The combination of being on your own and outliving your husband means that you really need to plan proactively in your 40’s to ensure that you are not struggling in your sunset years.
Take action : Whether married or not, there are some aspects you need to focus on to ensure a secure present as well as future for yourself.
Invest your money well to optimise returns: In case you have been out of work force for an extended period, that would certainly impact your lifestyle. So while you are still earning, make your money work harder for you and create a substantial nest egg. Make sure that the money is not stagnating.
Be aware of your complete financial situation: Be sure that you understand your family’s combined assets, liabilities and investments. The worst situation could be that your husband has assets and investments which you are not even aware of. In case of any unfortunate incident you could lose your well earned investments due to sheer ignorance.
Ensure that you are the nominee in your husbands’ investments: Understand if your liabilities and loans are adequately insured so that you are not left holding a huge financial burden in case of any unforeseen contingency.
Protection: Top-up the insurance plans so that home loan and other liabilities are covered.
- Some of your past investments may be maturing so manage that money based on the time horizon of goals
- • Move money from equity to less risky investments to manage for short term goals
- • In case there is some spare funds available you can look at prepaying loans.
- Gradually increase allocations to your retirement funds.
- Explore advanced products such as structured products and PMS as your income can support it now.
Ameriprise Financial, the largest financial planning company in the United States , which recently launched its services in India has a team of certified financial advisors who help you develop a long term, comprehensive approach which is personalized to your needs. Financial advisors at Ameriprise guide clients through a unique Dream>Plan> Track (TM) approach which is long term and holistic. For them, understanding your dreams and aspirations is vital before getting into number crunching.
The first step towards this is the Dream Book – a personal work book where you begin by outlining important aspects of your life and the vision you have for yourself and your family. This is followed by establishing a plan based on your financial situation including income, expenses and liabilities. The plan includes product recommendations and timelines addressing each of the goals. A comprehensive suite of solutions are considered, including mutual funds, structured products, portfolio management services and insurance products.
Advisors also assist you with other important matters like tax strategies, and selecting the best loans and real estate options. The plans are regularly updated to reflect your changing needs. What you receive is a roadmap to help achieve your dreams – but like any good plan it needs to be adapted as your life changes. Advisors meet on a regular basis to help plan for how a first job, wedding, having children or other expected events will impact your financial situation. But perhaps even more valuable, is the guidance they offer when you face an unexpected event, like developing a serious illness or the death of a loved one.
With the help of professional advice, taking the right steps at the right time can help you enjoy every stage of your life without worrying about the challenges that life brings along. So go ahead and indulge in your dreams!
This is guest post by Mr. Bimal Gandhi, Chairman, Ameriprise India Pvt. Ltd. ; Executive Vice President – Enterprise Services, Ameriprise Financial Inc.
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Note: We have no tie-ups with Ameriprise Financial. We had written about the survey Insights into Financial Goals of Indians! conducted by them.
Financial planning for women – a subject very close to our heart. We are thankful to Mr. Bimal Gandhi for contributing to our blog on such an important topic.