Modern women aspire for financial independence. I have come across many well-educated women struggling in their lives because of financial problems. The situation can become worse in case of a sudden and unexpected loss of the breadwinner of the family. The main reason for all these, in my opinion, is the lack of financial knowledge and lack of opportunity to participate in the family’s financial decision-making process. Traditionally, majority of our women, by their natural instincts, pay more attention to the well being of the members of their family and, in doing so, they often neglect their own health and wealth. Fortunately, in recent times, there has been a steady rise in the number of working women in India. This has increased their disposable income. However, the responsibility of better saving and investment remains a challenge. Financial independence ultimately means creating enough wealth to fund own needs till death and if possible bequeathing some wealth to the next generation.
We know that women are better savers than men. The fundamentals of investing are not different for women and men. But women should acquire more financial knowledge, create their own investment plans and monitor these investments on a regular basis. For this, women should give more importance to investments rather than to savings, which most women normally do. They set aside coin residuals after household expenses to meet contingencies. Savings are risk-free assets with high liquidity but very poor return. When you plan for life’s long-term financial goals, always go for investments that have some risk but will give a return good enough to beat inflation. In short, the main difference between savings and investments is that the former will remain mostly idle whereas the latter will be active and will appreciate in value over a period of time. Moreover, investments always gain from the magic of the power of compounding.
Earlier, women, compared to men, were averse to taking risks. But today, many young women are aware of the risk-return aspects of various financial instruments and have the urge to do focused financial planning right from the beginning of their career. Now many online financial planning platforms provided by financial firms are available wherein they provide a report on your financial status, facilitate setting financial goals, choosing investment plans and executing them.
What women should do?
The first and foremost thing is to acquire reasonable knowledge about personal finance and about various financial products. This will help women to invest prudently as well as to take an effective part in the family’s financial decision-making process.
Next, every woman in the early stage of her career should be planning for protection. Every young woman must take a good health insurance plan with a critical illness cover, as the premium is comparatively low when they are young. There are three important age-wise stages in a woman’s life.
First Stage – 25 to 35 years of age.
Second Stage – 35 to 50 years of age.
Third and Final Stage – 50 years and above.
Investment objectives of these three stages are different. The first stage is the accumulation phase, which gives her freedom to move ahead with an aggressive investment strategy, as she will have more funds to invest. At this stage her commitments will be comparatively less so that she can invest more money in equity-linked schemes, where risks as well as returns are higher. In the second stage a moderate portfolio is desirable. This should aim at diversifying risk by investing money, say in 60:40 ratio, in equity and fixed assets. In the third stage, a conservative strategy is suitable, as she would be nearing the distribution stage of her life necessitating need for money. Hence, it is always sensible to set apart some money in safer instruments as a contingency fund.
Finally, planning investments is very important. Women should play a more proactive role in managing their own money through proper planning so as to achieve life’s goals such as children’s education, their marriage, buying a home or car, providing for retirement and so on. Here, asset allocation and diversification are very important, as she needs to allocate money for different financial goals. Investing in various asset classes will help in spreading risks also. So we should ideally spread our investments in various asset classes like equity, bonds, gold, mutual funds, real estate etc.