In the uncertain times that we live in, the financial security of families is frequently emphasised, yet a woman's personal financial security often goes unnoticed. Just a few decades ago, the sight of women in offices in India was often met with discomfort and resistance, as it clashed with societal norms. Fast forward to 2023 and per Government data, women account for 37% of the workforce in India yet, many women still find themselves sidelined when it comes to managing their finances. This can be on account of financial illiteracy or simply due to the age-old notion of ‘family comes first’. Check out this guide to solve this critical issue to enable women to take charge of their financial independence right from budgeting basics to investment strategies and pave the way for their financial freedom.
The importance of financial planning is a very well-discussed topic in today’s times. However, the importance of financial planning for women is often brushed off deeming it less important. However, that is not the case.
Financial planning is especially important for women because it empowers them to take control of their financial future, ensuring stability and independence. In India, many women face unique challenges such as career breaks for family responsibilities, lower pay compared to men, and a longer life expectancy. These factors make it crucial for women to plan for long-term financial security. By managing savings, investments, and retirement planning wisely, women can protect themselves against financial uncertainties and achieve their goals, such as education, home ownership, and supporting their families.
Financial planning also promotes independence, helping women make informed decisions without relying on others. Additionally, it fosters confidence in handling life's unexpected challenges, like medical emergencies or sudden expenses. Having a well-thought-out financial plan ensures that women can live with dignity and security, both now and in the future.
Now that we have seen ‘Why’ or the the importance of financial planning for women, let us now focus on the ‘how to do it’ part. Here are a few essential tips that women should focus on for efficient financial planning.
A budget is the foundation of financial planning and helps one track their income and expenses thereby ensuring they live within their means. Start by listing all the monthly income sources and expenses ensuring to categorise the spending into essentials (like rent, groceries, and bills) and non-essentials (like dining out or entertainment). The goal is to find a balance where you can save a portion of your income every month (ideally 20-30%) without feeling too restricted. You can also use tools like budgeting apps or simple spreadsheets to stay on track.
Before diving into any financial plan, the first step is to clearly define the goals. These goals could be short-term, such as saving for a vacation or an emergency fund, or long-term, like buying a house or retiring comfortably. Identifying goals gives a roadmap to follow and makes it easier to decide how much money should be saved or invested.
Savings alone are not enough to build wealth over time. Investing the money allows it to grow and helps in achieving financial goals faster. Women should start by understanding the different types of investments available, such as mutual funds, fixed deposits, Public Provident Fund (PPF), stock market and more. Each option has its own risks and rewards, hence it is essential to choose the ones that align with personal risk tolerance and financial goals. The thumb rule of investing is ‘the earlier you start, the more benefit from the power of compounding’ which is essential for long-term wealth creation.
Insurance is often overlooked, especially by women, but is an essential part of financial planning. It provides a safety net for self and family in times of crisis. Health insurance is critical to cover medical emergencies without straining the finances while life insurance is equally important, especially in the case of dependents. Another important aspect often overlooked is adding disability insurance to help replace part of the income in the absence of employment due to injury or illness.
Life is unpredictable, and unexpected expenses like medical emergencies, car repairs, or job loss can happen at any time. Having an emergency fund is essential to deal with such situations to avoid the need to borrow money or dip into investment. Experts believe it is important to save at least three to six months' worth of living expenses in a separate yet easily accessible account. This safety net ensures peace of mind and prevents financial stress during tough times.
Apart from the above essential points for effective financial planning, here are a few more points that can help women have a robust financial future.
Tax planning is a crucial part of financial management, yet it is often ignored until the last minute. By understanding tax-saving instruments and exemptions, women can reduce their tax burden and increase their savings. Popular investment options like Equity-Linked Savings Schemes (ELSS), PPF, or National Savings Certificates (NSC) provide deductions under Section 80C of the Income Tax Act. Similarly, most banks also provide concessional loans which are further eligible for tax benefits under the Income Tax Act, 1961. Therefore, it is important to regularly review the tax-saving strategies, and file returns on time to avoid penalties. This will help women optimise their finances while meeting their tax obligations.
Retirement may seem far away, but planning for it at the earliest ensures a comfortable and stress-free life later. Women should start by contributing to a retirement account, such as the Employees' Provident Fund (EPF) or a pension plan. The simple rule for retirement planning is ‘The sooner you begin, the more time your money has to grow’. It is equally important to make sure to review and increase the contributions regularly, especially as the income rises. Similarly, it is also essential to not ignore retirement planning even in case of a break from work or managing household responsibilities.
Putting all the money into one type of investment is extremely risky and diversification of investments helps balance risk and reward. This includes spreading the investments across different asset classes like stocks and bonds, real estate, and mutual funds. Thus, if one investment fails to perform well, others may compensate for it ensuring portfolio stability and more consistent returns over time. Furthermore, it is important to make sure to review and rebalance the portfolio regularly to stay aligned with the financial goals and risk tolerance.
Debt can be a huge burden on one’s financial health if not managed properly. While loans like home loans or education loans can be beneficial and are offered at concessional rates for women, they should avoid taking on unnecessary debt, especially through credit cards or personal loans with high interest rates. If, however, one is already in debt, they should prioritise paying it off as quickly as possible, starting with high-interest debt first. The essential steps to avoid debt traps include creating a debt repayment plan that fits the budget and prevents from falling into a cycle of borrowing. Being debt-free gives women more financial freedom and peace of mind.
For most women, managing their finances can be quite overwhelming and a daunting task. This is where the professionals step in. A financial advisor can guide women through the complexities of financial planning, helping them identify the best investment options, and create a tailored plan that aligns with their goals. These professionals can also assist with tax planning, ensuring women maximise their savings and minimise their liabilities.
Financial planning is a crucial step for women to secure their future and achieve true independence. The stepping stones to robust financial planning for women include having a well-defined budget, setting an emergency fund, planning for retirement, tax planning, estate planning and more. With these above-mentioned simple yet effective steps for financial planning, women can achieve financial freedom and security to confidently navigate their finances to provide a good life for themselves and their families.
This article talks about a significant yet often ignored aspect of financial independence for women in our families. Let us know your thoughts on this topic or if you have any more points to add from your personal experience.
Till then Happy Reading!
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Marisha Bhatt is a financial content writer @TrueData.
She writes with the sole aim of simplifying complex financial concepts and jargon while attempting to clarify technical and fundamental analysis concepts of the stock markets. The ultimate goal is to spread vital knowledge and benefit the maximum audience. Her Chartered Accountant background acts as the knowledge base to help clarify crucial concepts and create a sound investment portfolio.
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