In earlier articles of financial planning for women we learnt about the starting steps of being on your own feet. Next we understood the multitude of risks women face and in light of that what must women do to mitigate the underlying risks. Moving on we will now understand how financial planning can help women in different stages of their lives.
Life stage: Single woman and never married
At this stage i.e. in the age group of under 30/35 for most women life is all about freedom, independence and being the ultimate decision maker in all aspects of money. However money management matters tend to be of little importance and the priority for most women in this situation is to 'fulfill'.
Fulfill the need to spend on one's own self as was desired over many years. Giving back to the family is an underlying objective. The only savings/investment essentially happen for purpose of saving tax.
The real issues start happening when the quantum of disposable income starts increasing. Now there are two possibilities that take place here.
One is where the larger decisions of what to do with money are by default taken over by the males of the family viz., father and/or brother. This situation is then still ok where the money is being put to some good use.
The other is when there is no one to help or in many instances where one does not want anyone else to help. Many single and unmarried women simply leave the money in banks and/or tend to buy gold and jewellery. That is because traditionally this is what is understood best, most women are comfortable with this as investment plus the intrinsic pleasure of owning gold, gems and jewellery.
They feel that this is just not the time to be really concerned about building wealth and creating assets. That is something to be done when one gets married and then the hope is to jointly plan money. But this hope normally remains a hope and the husband normally tends to takeover financial matters.
The point I want to highlight is that, this particular phase will never really come again in life. It is the most financially lucrative phase as there are no commitments and you have all right and freedom to do as you please with your money. So either you could choose to totally 'fulfill' or choose to gradually 'fulfill'.
The latter is a better choice. There are many reasons for this. For women the family expectations tend to be lower as they may not be expected to contribute towards home affairs. This makes it a perfect scenario to build assets for future contingencies. And surely you would like to be financially independent throughout your life, isn't it? Then this is where it all starts.
It is preferred if you know earlier in the day what all can be done and what all should be done with money. Ideally in this scenario, if you can put away about 50 per cent of your earnings into wealth generating instruments, it is the best thing to do.
Now given that you have a broad framework of division of your earnings what should be your money management strategy in this phase of life?
Recommended:
Emergency Support: Place about 10 per cent of your proposed savings into bank deposits. Single unmarried men may not require much of emergency support but women surely do. You know what I mean. Further, a man may be financially broke but it is advisable if a woman never has to face such a situation.
Life insurance & pension policies: Do this only if you have dependents on your income and that too with prudence else this is not required.
Fixed investments: FD (fixed deposits), PPF (Public Provident Fund), NSC (National Savings Certificate), other bonds etc. This is not required as you have to build wealth especially by the time you are married which may be three-ten years away and these instruments will never serve your medium term purpose.
Variable investments - Place about 90 per cent of your proposed savings into equity shares and equity mutual funds. This is highly recommended, as you need to create wealth.
Women are more oriented towards good investment strategies, do not engage in trading and have patience to see the fruits of your investments. This makes them smarter investors then men. All that needs to be done is to understand a bit about risk management.
Finally, given the higher level of sensitive and prudent nature innate in women they would make far better returns with equity investments.
Power dating: While you are 'deciding' it is important to 'check out' on how the person manages money. How he manages and what he saves is far more important than what he earns. Talk about this once in a while, amongst other things.
Avoid:
Splurging: As you go swiping your credit card, you will keep feeling that you never have enough to call your own and you will never feel the financial strength. There is always a feeling of imbalance and this happens to women because of the imbalance in their emotional and financial strength. The emotional strength is generally much higher than financial strength. Ideally must be equal.
Impulsive eloping: All family support systems may get cut-off, at least for a while, there can be partial or total erosion of all savings and besides there is a lot of emotional stress after a short-lived excitement. Prevent rash emotion driven decisions.
Too much gifting/helping: Helping is fine but women are more emotional then men and best if one does not go overboard in this area.
Women oriented offers/products: Generally prevent, else try to refrain as they might be more expensive or just old stuff in different packaging be it insurance or credit cards or anything else. Also don't forget to look for the fine print. And if you strongly feel about something, just ask the question however silly you may think it might be. Use your emotional prowess - your hunch.
Next we shall talk about strategies for married women.
Kartik Jhaveri, an expert at Financial Planning, is a Certified Financial Planner and a Chartered Wealth Manager. He may be reached at kartik.jhaveri@transcend-india.
Disclaimer: The contents of the above articles are the intellectual property and copyright of the author, Kartik Jhaveri. No part may be used or reproduced in any form or manner. If you choose to act upon the information contained in the above article it is at your own risk. This article is purely educative and you are strongly advised to consult an expert prior to taking any significant decision.
