The simple steps women need to take to plan their finances better

Women today are increasingly taking control of their financial future. However, financial planning for women comes with unique challenges such as career breaks, longer life expectancy, and family responsibilities.

Understanding how to budget, save, invest, and protect your wealth is essential for long-term financial security. In this guide, financial experts share simple and practical steps women can follow to manage their finances better and achieve their long-term goals.

Written by Renu Yadav for Mint on March 7, 2021, with inputs from Priya Sunder, Co-founder and Director of PeakAlpha

Divide Your Income into Three Financial Buckets for Better Money Management

PRIYA SUNDER

Director & co-founder, PeakAlpha Investments

Money management is a daunting task for most of us. For women, it often appears to be a mountain too high to climb. I suggest women take hold of their income and divide it into three boxes—freedom, splurge and essential.

Start by putting away money for financial freedom first, which is saving for your retirement goals. You should allocate at least 20% of your disposable income towards this end. Next, set aside money for yourself. At least 10% towards spending on whatever makes you happy. Last is the essentials box, which typically amounts for the bulk of the monthly outflow. If you can create an efficient budget and save on some heads here, you should allocate the surplus towards financial freedom.

Keep the proportion allocated towards these boxes as your income increases. This way, you are contributing increasing amounts towards your future without compromising your current needs. The best thing is that you have a discretionary spending budget, so you can stop feeling guilty about the Jimmy Choo hiding in your closet. Go flaunt it!

Five Practical Steps Women Can Follow to Take Control of Their Finances

RENU MAHESHWARI

CEO & principal adviser, Finzscholarz Wealth Managers

Women face unique financial risks owing to inheritance laws, family responsibilities, career breaks for childbirth or elderly care and living longer than men. Leaving money management to men is not the answer. All these risks can be easily managed if women learn to manage their investments. Here are five steps to get started.

1. The biggest impediment to a woman’s financial emancipation is her own beliefs. Get rid of your biases if you have any and take charge of your money today.

2. Get educated! You need not become an expert in finance for this. All you need is to get enough information and knowledge to understand how the market dynamics work.

3. Understand what you want from money, objectively and emotionally! Learn to differentiate between needs and wants. Take care of current needs and save for future needs and wants. Don’t borrow for anything other than a home unless it is a life and death situation.

4. Invest for your future needs and wants! Decide upon a strategy and invest accordingly. Do not get carried away with market movements and rumours.

5. Find a fiduciary adviser who understands your unique requirements and works along with you.

Why Women Should Be Actively Involved in Investment Decisions

SHWETA JAIN

CEO & founder, Investography

Women need to get involved with investment decisions the way they are involved with spending and saving ones. It is important to have money conversations with your family to ensure common goals, setting lifestyle expectations and ensuring the protection of the family. I believe in the mantra “If you teach a woman, you teach a family.” So, you have this responsibility too. We think we avoid risk by investing in fixed deposits and gold. But there are different risks to these investments, invisible risks, the risk of inflation and we won’t be able to meet our goals. So, buckle up and start learning. Be it the power of compounding or understanding risks that come with equity, we have to ensure that we trade off the right risks. Let’s take decisions that may seem a little unpopular at the moment for long-term gain.

Why Women Should Be Actively Involved in Investment Decisions

SHALINI DHAWAN

Co-founder, Plan Ahead Wealth Advisors

Women are instinctively nurturers. So, often, they tend to be a bit conservative in money management. This works well for the household budget and for being well-prepared for exigencies. But, when it comes to investing, women need to invest some time to understand various investment products and also take the help of a Sebi-registered investment adviser, if needed.

Women should keep aside a contingency fund equivalent to three to six months of household expenses. Earning women with dependents should buy life insurance to keep the family lifestyle intact in your absence; a term cover is a prudent option. You should ensure adequate health insurance to avoid a health issue affecting your finances.

Understand short-, medium- and long-term needs and then make investments matching these time frames. Define your goals to arrive at an appropriate quantum of corpus needed for these goals.

Ensure that you write a will so that your hard-earned wealth can smoothly be accessed by your children or grandchildren.

FAQs

1. Why is financial planning important for women?

Financial planning helps women achieve financial independence, prepare for career breaks, manage longer life expectancy, and secure their future through proper savings, investments, and insurance.

2. How can women start financial planning?

Women can start financial planning by setting financial goals, creating a monthly budget, building an emergency fund, and investing regularly for long-term wealth creation.

3. How much should women save for retirement?

Experts recommend saving at least 20% of your income toward long-term financial goals like retirement to build financial security and independence.

4. What are the key investment tips for women?

Women should focus on long-term investing, diversify their portfolio, avoid emotional investment decisions, and align investments with their financial goals and risk tolerance.

5. What financial protections should women have?

Women should maintain an emergency fund, purchase adequate health insurance, consider life insurance if they have dependents, and create a will to ensure smooth wealth transfer.