The Complete Guide For Women On Strategies To Save Money
At best, it is an uneasy relationship. At its worst, the relationship doesn’t exist. It may be easy to blame years of social conditioning and patriarchal traditions for the unhappy bond between women and money, but it is time women learnt to make peace with it.
Despite the financial pitfalls that a woman encounters at work and home, gender pay gap, financial illiteracy, familial responsibilities, marital hurdles, legal bias—on her way to monetary empowerment, it is a good time to take charge of her finances. With the easy access to online information, changing social norms, as well as the freedom to earn and invest, women need to shrug off the taboo and meet the financial challenges head-on.
There is, of course, a greater need for a change in work culture and more cooperation from family members. “Both corporates and families need to empower her to ask for her financial rights,” says Anjali Raghuvanshi, Chief People Officer, Randstad India.
Priya Sunder, Director, PeakAlpha Investments agrees. “It is unfortunate that women don’t take a greater interest in financial dealings or are prevented from doing so by men. They are naturally and favourably predisposed to undertake investing and financial planning, which is often better than men,” she says.
To further encourage women in taking a step toward financial inclusion, we offer solutions to the money problems they face in various facets of their lives. Be it single women, married or divorced, there are ways to overcome hurdles and become financially independent. In the following pages, we present some of these challenges, be it in dealing with the struggle of saving and investing, tackling financial illiteracy, balancing the needs and wants of parents and children, or overcoming resistance in marriage. We hope you will find a way to make your financial dreams come.
You will earn less, so save more
The societal prejudices and biases that confront women at home and work have a way of trickling into their financial lives. “This, despite the fact that women are, by nature, predisposed to better financial planning for goals,” says Priya Sunder, Director, PeakAlpha Investments.
When it comes to single women, be it a mother, divorcee or a widow, it is a struggle to manage finances because they are hampered by three hurdles: gender pay gap, caretaking breaks that disrupt their careers, and a longer life span, with a life expectancy of 78.6 years at 60, compared with 77.2 years for men. Given that there are nearly 74 million single women in India—unmarried, divorced, separated and widowed—as per the 2011 Census, it is imperative that they learn how to secure their finances better.
While societal change and employers initiatives will have to pay a bigger role in helping reduce the pay gap and women’s contribution to caretaking, there are other ways in which she can be proactive. “While she needs a break after childbirth, it is important how she uses this break,” says Raghuvanshi.
Don’t Stop Networking
“She needs to continue to network with colleagues and other people in the industry,” says Neeti Sharma, Senior Vice-President, TeamLease Services. If she rejoins after 2-3 years, she may not be able to join the same company, so it is important to remain connected with people in the same line of work.
Invest In Your Skills
“Even if she rejoins after the mandatory six months of maternity leave, she may want a different work profile,” says Raghuvanshi. So it is important to keep upskilling and updating with the latest developments in the field.
Image: Economic Times
“There is nothing wrong in asking for rewards and equal pay if your performance is at par with your male co-workers,” says Sharma. So women need to be vocal and confident if they want to close the pay gap.
Strategies To Raise Savings
Image: Economic TimesAn important factor in how much a woman saves depends on how she invests.
Speed Up Saving: Since the woman will end up saving less due to the gender pay gap and fewer years she puts in at work, one way of overcoming this hurdle is by increasing her monthly savings. So if a 25-year-old woman is building a corpus for retirement at 60, she will have to save nearly 17% of her income compared with 10% that men would have to in order to build the same corpus. If she finds it hard to do so, she can automate her investments or increase her EPF and VPF contribution with her employer, so that the money is saved before she can spend it.
Optimise Investments: Though there is no difference in the way a woman or man invests, the best way to make up for lost time and money is to invest smarter. For all the long-term goals, be it retirement or her children’s education and wedding, which are more than 12-13 years away, she should harness the growth of equity, which gives one of the highest returns in all asset classes. A small portion, however, needs to be kept in debt for safety. She should also factor in the eroding effect of inflation and taxation while making calculations as these eat into the corpus.
Protect Investments: To ensure that her life and investments are free of risk, it is crucial to keep an emergency corpus and purchase the right insurance. If she is single, she should stock up at least eight months of household expenses as a contingency. To protect her children, buying term life insurance, which is 7-10 times her annual income, is important. To avoid medical costs eating into her retirement corpus, she should also buy health insurance for herself and her children.
Work Longer: Another way to enhance earning power and compensating for lost money is that the woman skills herself in a way that she continues to work even after retirement.
Strategies For ‘Sandwich’ Moms
Despite being consummate jugglers, women may not always relish being a ‘sandwich’, caught between the financial needs of their parents and children. While it’s not easy balancing a finite income with infinite financial responsibilities, prioritising needs and optimising investments can help. Before focusing on parents and kids, it is important to secure your own finances because only if you are financially strong will you be able to help them.
Save For Retirement: From the day you start earning, invest for your retirement by putting your money in a mix of equity funds and debt instruments. If you are in your 30s, put at least 70% of your savings in equity and 30% in debt. The former can be in the form of equity funds and the latter can comprise EPF, VPF, PPF and NPS. Remember that kids can take loans and parents will have assets that can be monetised, but you will have no source of funding your retirement.
Emergency Corpus: With dependants, you cannot afford to run into a financial crisis, say, job loss or medical problem. So even before you start investing, build a contingency corpus equal to 4-6 months of household expenses.
Buy Insurance: Another tool to secure your family is to buy term life insurance that is 7-10 times your annual income, keeping in mind the number of dependants and loans. For health, pick a Rs 5-10 lakh family floater plan for your spouse and kids, but buy a separate plan for your parents. Also, take a Rs 25-30 lakh critical illness plan for yourself and your spouse.
Optimise Investment For Parents, Children
Image: Economic Times
Parents: Generate income stream: Instead of investing your parents’ savings only in debt instruments include a 20% equity component. If you invest Rs 75 lakh for 10 years, here’s how equity will help generate a bigger income for them.
The above investments will help create a pre-tax monthly income of Rs 78,274. If, on the other hand, you invest Rs 30 lakh in SCSS and Rs 45 lakh in fixed deposits at 7.5% for 10 years, you will help create a monthly income of Rs 67,415, a difference of Rs 10,859.
Investing Strategy For All
For the safety of capital, most assets should be in debt, but a part should also be in equity to help the corpus grow. Cash is also a must for emergencies.
Invest at least 65% in equity since it gives good returns over the long term, and your goals have a long horizon.
Since the goals are longterm and there are no immediate demands on money, debt and cash should be negligible.
Monetise Your Parents’ Assets
Image: Economic Times
Kids: Start Early, Invest Less
If you need Rs 25 lakh for your child’s education goal when he turns 18, here’s the monthly investment required @12% depending on when you start investing.
Image: Economic Times
How To Help Parents
If your parents do not have a good cash flow and income stream, it’s likely that you will end up supporting them and compromising your own goals or scaling down your own lifestyle. To avoid doing so, here’s what you need to do.
Invest And Monetise: “It is rare that parents don’t have money. It’s just that it is illiquid, and in the form of property or gold,” says Sunder. “So the first step is to monetise these assets,” she adds. This may require a change of mindset for a generation that placed their faith in debt investments with low returns and property. It will, however, offer financial independence to your parents and reduce your burden. You should also help invest their retirement benefits in debt instruments, with 15-20% equity component to help their money grow.
Health Needs: “If you are working, cover your parents in the company policy because your spouse can be covered by his employer,” says Sunder. If you are not employed, depending on the amount you can spare, buy a small base cover of, say, Rs 3 lakh, for the parents and a higher top-up plan of Rs 15 lakh with a Rs 3 lakh deductible.
Saving For Kids’ Goals: Start saving for the kids’ education the moment the child is born. Since it is a long-term goal, invest in equity funds via systematic investment plans (SIPs), which will give good returns in 15-16 years. Increase the investment with the rise in income to speed up the process of reaching the goal.
Education Loans And Weddings: With soaring education inflation and the pressure of saving for their own retirement, parents no longer have the luxury of funding both the education and weddings of their children. “Right now the wedding is not a goal for us and we are focusing only on educating our child,” says Mira Narayan, a 35-year-old marketing manager in Mumbai. “If at the time of the wedding, we are in a position to contribute, we will,” she adds. Education loans too are an easy way to reduce your own financial burden and teach the child financial discipline and responsibility.