Smriti Mandhana, Harmanpreet Kaur, and Nirmala Sitharaman share a common thread – women breaking barriers in male-dominated domains. Finance or money is also considered to be a male domain and is either neglected by women or they usually do not prefer to delve into the details of money.
A CRISIL and DBS study found that 47% of urban women make independent financial decisions, with priorities shifting from housing upgrades (25-35 years) to children’s education (35-45 years) and medical care (45 years and above). While encouraging, this study noted that about 51% of women prefer low-risk investments like bank Fixed Deposits, 16% prefer gold, whilst the remaining 15% invest in mutual funds, 10% in real estate, and only 8% in stocks.
This blog is an attempt to explore the basic money matters that each woman must know, and to equip women to be more confident around money matters.
Goals – What are financial goals and why do they matter?
Financial goals are specific objectives that you want your money to achieve for you, of course within certain defined time frames. Naturally, therefore financial goals could differ widely depending on individual circumstances and preferences.
Some of the common goals are:
- Having sufficient funds for retirement
- Purchasing or renting a home
- Garnering funds for your child’s higher education
- Buying or upgrading a car
- Having sufficient health insurance
- Having funds to buy fancy gadgets
Setting clear financial goals helps you prioritize where and how your hard earned money will be utilized. Reaching goals also helps achieve a sense of satisfaction of having ticked off certain must-dos in your life.
Income, Savings, and Budgeting – where to start?
Income, savings, and budgeting are the building blocks when it comes to money management.
- Income: Understanding the sources of income is very important – sources may be your spouses’ and/or your salary, interest income from bank fixed deposits, dividends, or rental income. It is also crucial to understand how these would grow over time.
- Savings: Savings allow us to chart a path on how we will be able to achieve certain goals, therefore understanding your savings pattern is of utmost importance. Savings rates can differ for everyone. To begin with, you can use the rule of thumb of spending 50% of income on needs, 30% on wants, and setting aside 20% towards savings. Fortunately, this is something that most women naturally do, so it’s not that difficult.
- Budgeting: To achieve a successful savings rate, you must keep a monthly budget and track your spending. It may be tough at the start but it will become natural after a few months. Budgeting helps us question our ‘whims and fancies’ kind of spending and garner savings which we can start investing towards our goals.
Investing in different types of assets (Equity, Debt, Gold, Real Estate)
Once you have defined your goals and understood your savings pattern, you are ready to take the next step i.e. investing. It is important first to carefully understand and only then to invest. For this, you need to know whether what you are investing matches your risk appetite and time horizon. Broadly there are four asset classes – Equity, Debt, Gold, and Real Estate.
- Equity: Investing in equities is akin to investing in a business. Equities or shares/stocks allow you to be a shareholder in the business that you buy the share/stock of. Naturally, this means that it is risky. You can buy direct shares or invest via equity mutual funds. Mutual fund schemes buy many stocks in a single scheme, so the risk is better diversified in an equity mutual fund. Mutual funds offer SIP (systematic investment plans) whereby you can invest monthly.
- Debt: Investing in Debt means lending money to someone, so inherently that also has risk. However, when you invest in debt/fixed income you can opt for safer, low risk options like bank FDs and Govt. Bonds. There are also debt mutual funds available today which invest in many companies’ bonds and govt. securities thereby allowing you to invest conservatively as well.
- Gold: Gold is one of the oldest asset classes, popular with women. Gold is a store of value and usually gives returns in line with inflation. Gold can now be bought as a financial asset via Sovereign Gold Bonds, Gold ETFs or Gold Mutual Funds. Gold mutual funds can be bought via SIP where every gold mutual fund unit represents one gram of gold.
- Real Estate: To invest in real estate is a big decision especially because the amounts involved are large. You can either rent or buy a home, depending on individual preference and capital availability. Real Estate purchase would also involve decisions between buying ready property versus buying under construction. Currently, there is a financial asset called Real Estate Investment Trusts (REITs) which is a new way to invest in Real Estate.
REITs: REITs are quasi-debt instruments which means they have a dual nature- of debt and equity. REITs hold and operate commercial or residential properties to generate income. These are listed on the stock exchange and therefore easy to invest in.
Life Insurance and Health Insurance: Since COVID-19, all of us have seen that uncertainties can occur at any given point without any prior notice. Insurance is therefore one such product to consider in such situations where you may need to cover certain risks.
- Health Insurance: Health insurance covers the risk of not having money to cover the expenses of hospitalization of yourself or family members. When evaluating health insurance plans, look for companies that have a high claim settlement ratio, restore benefits, and offer other coverages such as maternity coverage.
- Life Insurance: As is the case in many families, one spouse has taken up the mantle of being at home while the other is working. The working partner could evaluate taking life insurance to cover up to 10x of his/her annual income. Such a cover ensures that the family can continue to live the same lifestyle in case anything happens to the breadwinner. While purchasing life insurance you should consider term insurance as that is a rather reasonably priced way of covering for loss of life.
Succession Planning: A financial plan is incomplete without writing a Will. Estate planning which includes writing a will or forming a trust and other items, will help you to capture your wishes and state who will receive and benefit from your assets after you. Succession planning is crucial irrespective of your age or wealth.
With that, we hope that the discussion in this blog gives you a holistic perspective on money matters and helps you to break the barriers and understand money and its management.
Disclaimers
- Investments in securities market are subject to market risks. Read all the related documents carefully before investing.
- Registration granted by SEBI, membership of BASL and certification from National Institute of Securities Markets (NISM) in no way guarantee performance of the intermediary or provide any assurance of returns to investors.
- The information is only for consumption by the client and such material should not be redistributed.
- The securities quoted are for illustration only and are not recommendatory.