Women,whether married or single,working or non-working,should handle their finances independently. While the basic tenets of financial planning remain the same for both,men and women,the need to manage finances separately emanates from different earning patterns and priorities of the two gender classes. Some of the things to be kept in mind while preparing a financial plan are:
Ability to meet daily expenses and lead a quality life
Contingency fund to take care of emergencies and unplanned expenses
Savings for retirement
However,the way men and women achieve these above mentioned financial goals is different. While most of the men earn uninterruptedly throughout their working lives,women folks often take breaks,especially when they start a family. There are several other reasons as well that dictate the life of a woman. For instance,orthodox family,change in location after marriage,change in spouses job location,household responsibilities; these are some of the common reasons that put career aspirations of women on the back burner. Sudha Murtys (wife of Infosys founder and former chairman N R Narayana Murthy) life is an ideal case study. Sudha,an alumnus of the Indian Institute of Science,was working as an engineer when the couple decided that one of the two engineers will have to take full-time responsibility of the family. Sudha gladly decided to hold fort at home and ensure that her family is taken care of,while her husband pursued his dreams.
Lets understand the financial implications of such a scenario. If a woman,who earns Rs 50,000 a month,takes a break for five years from her job to spend time at home with her child,her earnings (and also savings) take a hit of Rs 30 lakh. We have not yet considered any increment in her salary. If we consider that her salary increases by 20 per cent each year,loss of earnings will amount to Rs 44.65 lakh. Thats a big number. Also,when she resumes work,she may have to compromise on the job profile,position and hence salary. Therefore,keeping in mind sudden changes that life might have in store for the fairer sex,a woman should always have a separate financial plan. Also,the percentage of savings should be higher for women during their working life.
Besides,the life expectancy for women is higher than men. So,the amount of retirement savings for women should also be higher. Here are some glaring statistics: On an average,women live five years longer,earn 25 per cent lesser and work 11 years lesser compared with men.
Importance of a separate plan
Keeping in mid the fast changing social fabric and lifestyles,it is important that women have a separate personal finance plan from her family – before and after the marriage. Factors like the alarming rise in divorce rates,increasing rate of deaths due to accidents or inflated cases of stress-related ailments,make it important for a woman to handle her finances on her own and be prepared to handle money matters,if the need arises. Knowledge of different investment avenues,savings and expenses is important to run a family. A separate personal finance portfolio prepares women to face financial challenges more effectively. Also,she will not have to bear a monetary loss in the event of a divorce.
Financial products for women
There are many products that are created for women. For example,insurance companies have special policies for women. The countrys banking system has several products launched for the women folks. Our tax system also has a relaxed tax bar for women. Income of up to Rs 1.90 lakh is not taxable for women compared with Rs 1.60 lakh for men (See table: Only for ladies)
A personal financial plan for women should include the following:
*Regular Income. Even if women need to take a break from work life,it is a good idea to earn income from working a few hours a day. Taking tuitions,develop and teach a hobby are common ways to earn a regular income even when one is not working full time.
*An emergency fund. Do not touch it unless it is a real emergency.
*Save and invest as much as possible. Invest in high return investments. Some part of the savings should go in to stocks and mutual funds as they have a high earning potential. Look for women-oriented products.
*Time your investments. As soon as you start earning,make a plan for the known expenses likes childrens education or marriages.
*Demarcate clear boundaries for routine expenses. It will be easier to determine personal monthly expenses and hence monthly savings.
*Track your savings and investments regularly.
*Have a financial plan. Save as much as you can at an early age when you have limited responsibility.
Assuming you plan to save 50 per cent of your income every month and wish to invest in different investment products,you could compartmentalise your investment into various risk categories:
You can change the portfolio as per your risk appetite. Life Insurance is a must. However,it is advisable that you set aside the money for making premium payments even when you are not working.
The writer is chief executive officer at the BankBazaar.com