A woman's financial plan must be aimed at creating long-term financial stability. Their emotional needs must be factored into the financial plan.
Planning for one’s financial security is a must for everyone. If you are a woman, be it a working woman, a homemaker or a single mother you have financial needs. Are your financial needs different from men that require you to follow a different financial planning routine? If so, how do you go about securing your future and what are the instruments that you should invest in?
Financial planners say the money needs of women are often quite specific.
“If a woman is working, there are chances she may take a break from her profession during pre-& post-pregnancy or to take care of children. Thus, often a woman's source of income either tends to be volatile or dependent on her husband's income. This dependency can be avoided if a woman understands her needs and plan her finances differently than a man,” says Vishwajeet Parashar, Senior VP and Group Head Marketing, Bajaj Capital.
Anil Rego, CEO and Founder, Right Horizons, says that emotional needs of women must be factored into their financial plans. “Women yearn for security and stability, to a much greater extent than men. Clearly, their plans, especially financial plans need to cater to the woman's own special needs. As with men, the emotional needs must be catered to in the financial plan,” he points out.
Rego lists out the various investment choices a working woman should seek at various situations and life-stages:
Investments for long-term stability: Catering to the long-term stability must be
paramount. Priorities should be owned home and investments with relatively more fixed income. Public Provident Fund (PPF) for tax savings and retirement funding, term life insurance to cater to descendants and other dependents, medical insurance in a family floater plan and personal accident insurance would be the foundations on which the plan would be constructed.
During early working life: During early working life, living with parents helps save money which should be invested. Starting a long term SIP in diversified equity mutual funds is a good way to be on the way to wealth creation.
Take risk cover: One should take a personal accident cover as this is relevant and cheap. Without dependents early in your career you do not need life insurance. Buy medical insurance if you are not covered in your parent’s floater policy, or if your employer does not offer you medical cover.
Invest regularly in PPF: It would be advantageous if your parents started a PPF
account for you. Keep depositing money in it for tax savings, in monthly deposits if you can. This will provide you the balance of equity investing through the SIP and debt in the PPF.
During mid-career: As you grow in your career and maybe start a family your priorities would be building a home. Ensure that you become a joint owner of your family house and pay part of the EMI.
Buy life insurance: When you have children you would need to invest in life insurance – take a term plan with a maturity of 65 years. Insurance beyond this is normally a waste as you would have met all financial goals before you retire at 60. Cover your family with a family floater plan. Try to save at least 40 percent of your income, including in the home loan repayment.
When nearing retirement: When you near your 50s retirement would be
factored into your plan. Let your equity corpus remain, but make SIPs in Bond Funds, instead of equity as you seek to reduce risk at this stage.
On retirement: Once your working life ends, start enjoying the fruits of your lifetime’s labour. Travel and spend your time for social needs such as helping children in foster homes and help the elderly.
Bajaj Capital’s Vishwajeet Parashar adds tax-planning as another pillar to a women’s financial plan. “Women must do proper tax planning with tax-saving schemes which have short lock-in-periods as this will help them in having access to cash money time-to-time,” he said.
Parashar advises women to choose inflation-beating investment instruments. “Women must choose investment options that give them inflation beating returns. They can invest in ELSS (Equity-Linked Saving Schemes) of mutual funds, which comes with only 3-year lock-in period and also gives tax benefits on investments up to Rs 1.5 lakh under Section 80C of the Income Tax Act.
He suggests a diversified portfolio. “While investing in ELSS one must try to invest in 3-5 different schemes of different AMCs, as it will diversify their investment and decrease risks,” Parashar said.