Financial planning is a continuous process, it must begin early and continue after retirement. Many of us assume that if we save a certain amount every month in fixed deposits, it is enough for a stable future.
However, we must not limit our financial planning tips to savings. As it is popularly said, idle saving is a workshop to financial disaster. Understanding financial planning and how it extends beyond mere savings to all kinds of investments is essential. For designing an effective financial plan, we must be meticulous and take guidance only from experts.
When it comes to financial planning tips for women, gone are the days when handling finances was considered a man’s job. With an increasing number of women becoming financially independent, every woman must understand the importance of financial planning and not depend on men to plan their investments. Learning money management tips is not only about increasing income but also about building confidence.
What is the importance of financial planning?
A financially independent woman is full of confidence and high self-esteem. Financial planning for women is of utmost importance, and it is like a safety net that protects our present and future. Some reasons why women should have a financial plan:
- According to the U.S. Bureau of Labour Statistics, women over the globe continue to be paid less than men for the same work. The gender pay gap is a fact and continues to exist in many sectors. This means women need to save more to secure their future.
- The World Health Organisation’s HALE index reveals that women tend to live longer than men. Longer life means a few more years of savings will be necessary. Women, therefore, need to have a proper retirement plan to live a respectful life during old age.
- Women play multiple roles in their life. Even while working, they often take comparatively more leave because of children, parents, or other family or personal issues. All of these lead to huge pay losses because total disposable income comes down.
- A good financial plan means financial freedom and no more dependency on others for money. Being independent means living on our terms without waiting for anyone’s approval.
In short, it is important to have a plan and learn some financial planning tips for women to live that carefree and secure life. Whether single, married, separated, divorced, working, or not, we must involve ourselves with money management. Kuvera highlights some more important benefits of financial planning.
Steps Involved in Financial Planning for Women’s
To understand and develop skills in financial planning, we must have a good understanding of all the options available to effectively plan, save, invest and earn a good return. The following broadly may indicate steps involved in financial planning for women:
Step 1: Define and state financial goals. Any good plan starts with setting objectives that define the future course of action.
Step 2: Chalk out a budget. Once the end goal is set, we have to prepare the plan in detail to achieve those objectives.
Step 3: Plan out expenses like EMI and taxes. We may encounter expenses like taxes, EMIs on loans, credit card bills, etc., which must be prioritized while planning fund flow.
Step 4: Prepare for contingencies. An intelligent planner knows that it is always wise to keep aside some funds for unforeseen events like illness, accident, business loss, job loss, etc.
Step 5: Invest in a retirement plan. To continue a particular lifestyle and maintain self-respect, we must plan to compensate for our income loss after retirement.
It takes time and effort to achieve financial goals, and it is advisable to take expert advice at the planning stage to avoid mistakes. Here are a few financial planning tips for women which are very pertinent in the current context to achieve financial freedom and live a financially sound life:
Design and set financial goals
Financial goals can be lined up for the short term as well as the long term. A short-term goal may be as simple as saving 30% of our monthly paycheck, and a long-term plan can be to invest in real estate within the next ten years. Many theorists related to human motivation have asserted the importance of having finances.
It is essential to set goals in advance to achieve anything in life, whether financial, career-related, or family goals. More often than not, women who set personal goals and work accordingly are more likely to achieve success and happiness in life.
As the saying goes, if we aim for the stars, we shall at least reach the moon. We must set our goals high to achieve at least a significant part. Setting low goals is a big mistake, as it may indirectly demotivate us.
At the same time, plans must be high and realistic! While setting goals, we must keep enough space for our mental well-being and growth. Self-care should be an essential part of our goal-setting process. Use Kuvera goal setter to set up investment goals and start immediately.
Planning of Investments
Investments not only magnify our earnings but also help combat inflation and other certainties. Many of us are aware of investment as a term, but only a few know in detail about the intricacies of the investment markets.
When invested efficiently, one can earn high returns from the market. There are different types of investors in the market depending on the risk appetite, investment goals, investment duration, etc.
A long-term investor will keep investing and reinvesting in the markets for a long-time, while short-term investors don’t park funds in the market for more than five years. Even if you are a long-term or short-term investor, don’t ignore the benefits of investing 20-30% of your portfolio in low-risk fixed return investments like emergency funds or fixed deposits.
Doing so can provide you with stable returns despite market volatility. The other FD benefits include the flexible tenure available with the ease of liquidation. Visit the Kuvera website right now to check out the list of banks offering the highest FD interest rates for varying tenures.
Savings are the key to a stable future.
“What we save saves us.” A little more savings never hurt anyone. If we cannot save money, we have to limit our expenses. Experts have suggested that we must have enough money saved to cover at least 3-6 months of our expenses.
During unforeseen contingencies, like business loss, illness, accidents, etc., savings go a long way in averting problems. Maintaining separate savings for different purposes, like family funds, home renovation, child education, etc is preferable.
Many of us face problems in saving as we cannot differentiate between needs and wants. One trick to stop overspending is asking ourselves thrice while buying anything if we need the item.
If the answer is No, we may be better off stalling the purchase for now. With multiple cards, it may be a good idea to surrender all but one and use that to meet primary expenses. We must always keep track of our spending patterns and re-think each purchase decision. It is advisable to avoid impulse buying of products, as most of them are not a necessity.
Avoid Idle Savings
Maintaining too many savings and not utilizing them for suitable investments is an equally bad disaster. Keeping money in savings accounts in banks gives a meager 2-3% return per annum, whereas fixed and recurring deposits yield around 4-6% return per annum, depending on the bank and scheme.
Those who only save money under these two options miss out on lots of opportunities for earning in the market. Equities, debt, hybrids, derivatives, balanced funds, and many more options exist. As per our risk appetite, we can select any mix of funds.
To avoid idle savings, we have to start investing right away. Initially, we can invest as low as Rs. 500 per month. Once we understand the market better, the investment amount can be gradually increased. It is always advisable that the investment is sufficiently diversified among debt, equity, forex, hybrid, and so on.
Mutual funds are an excellent choice for beginners who plan on investing for a long duration. Mutual funds also provide wide options in terms of balanced, risky, and risk-averse portfolio options. You can consult numerous apps and stock market guides before starting. Kuvera’s share market tips for beginners are a must-read for beginners before investing.
Effective Debt Management
Another important area of financial planning for women is the management of debt. We should always prioritize our debt repayment. Products like credit cards have made overspending very convenient, and many of us tend to overly depend on debt. Moreover, there can be auto loans, home loans, education loans, etc.
We must chalk out a plan to dispose of such debts as soon as possible. Piling up debt will ultimately lead to higher interest and negatively affect credit scores. Once the credit score is lower, obtaining a loan will become more challenging to obtain a loan, and interest rates will get higher.
The first step in debt management is to list all outstanding debts and arrange them as per the highest interest rates. We should check if we have any reserve funds to repay those debts.
Sometimes, if there are multiple high-interest loans, the bank may give the option to consolidate them into a single low-interest debt. Another smart way to dispose of high-interest credit card loans is by taking a low-interest personal loan to repay the high-interest loan. Getting an advance on salary may also be a way to dispose of loans to avoid further debts.
Be Insured, Be Secured
Insurance is what protects us against unforeseen circumstances. Whether it is the death of a breadwinner, illness, or loss, insurance will provide us with adequate funds to see through the circumstance. There are various life and non-life insurance types, both of which are equally important. It is not very tough to get a good insurance plan. However, wide choices must be scrutinized, and the best fit must be selected. A good insurance plan offers a reasonable annual premium and a high settlement amount.
In the case of life insurance, there is term insurance and whole life insurance. Term insurance is only for a limited period with a low premium and a fair sum assured at the expiry of the period, or death, whichever is earlier. On the other hand, whole life insurance covers the insured’s entire lifetime and can be cashed on surrender of policy or in the event of death. Whole life insurance may not be ideal for budget-conscious policyholders, as premiums need to be paid till the event of death.
All women must buy a health insurance policy that provides essential health benefits and expense coverage in case of unfortunate events leading to serious health complications. An early investment in health insurance entails lesser premium amounts. As age increases, the amount of premium keeps getting higher.
Be mindful of taxes
Tax is a necessary evil. Although it’s an expense, taxes must be paid at the earliest. Proper tax planning will ensure lower tax expenses and there will be more savings. The government of India offers many tax-saving schemes such as Sukanya Samriddhi Yojana, NPS, health insurance premiums, allowance for house rent, etc.
On investments and expenses like Public Provident Funds, National Pension Scheme, home loan repayments, educational loan repayments, life insurance premium, health insurance premiums, tax saver fixed deposits, Citizens’ Savings Scheme, Income Tax provisions in India allow exemptions up to ₹1,50,000.
Several investment options also serve as tax savers. Smart investment in such instruments will decrease tax expenses. The best tax-saving instruments for investors are PPF (Public Provident Fund), which is a tax-free and risk-free fixed return investment offered by the government. A fixed monthly investment is required to be made into the scheme.
National Pension Scheme (NPS) is another great investment scheme that offers good tax savings. Equity Linked Savings Scheme (ELSS) is a mutual fund scheme that offers excellent tax benefits but is a comparatively long-term investment. Check out the various ELSS schemes you can invest in on Kuvera.
Plan Retirement
Women comparatively have a shorter work span and live longer compared to men. But whether men or women, one cannot go on working and earning till their death. There is a fixed retirement age for working professionals, and entrepreneurs’ earnings will be ensured till health permits them to work. In all of these instances, it is essential to have a retirement plan which must be implemented at an early age. The earlier we start our retirement plan; the higher the returns will be.
A good income post-retirement will preserve self-respect and maintain the same lifestyle. We can invest in growth-oriented investments which provide high- and stable-income post-retirement. Some such growth-oriented stocks are stocks, pension schemes, annuities, and certificates of deposits in banks, to name a few. Use this tool to plan for your retirement on Kuvera and never worry about the future again!
FAQs
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Why should women have a financial plan?
Financial planning helps us generate sizable income from our savings and helps to gain financial independence and confidence.
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What is the first step to financial planning for women?
Setting goals must be the first step in chalking out a financial plan. Goals may be short-term, like investing in mutual funds, or long-term, like buying a house. Without goals, no plan can be effective.
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What is the best way to select investments from the market?
Investments should be selected based on individual risk appetite. We must not opt for a risky investment if we require a stable income. For best investment guidance, visit Kuvera.com.
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Is it necessary to buy insurance for women?
Buying insurance is of utmost importance for women. Life insurance serves as a security in case of the unfortunate death of a breadwinner, while health insurance covers hospital expenses in case of serious ailments.
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Are there any investment options that provide tax benefits?
Yes, many investment options can help save tax, such as NPS, PPF, Tax saver bank FD, etc. Click here to know more about how to invest in tax savers.
Summing Up
Follow well-guided money management tips to live a worry-free and debt-free life. Financial planning is a must for every woman out there. The earlier we start, the better will be the benefits. An intelligent and patient approach to finances always yields better results than looking for short-term benefits. We must always prefer quality investment at a reasonable price for the best results.
Happy Planning!
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