Now, women need to think about financial security more in terms of financial products rather than just about traditional assets like gold.
In the Indian culture, financial security has been integral for women from times immemorial. Of course, the concept of financial security has changed over time. In the past, women used to get financial security through gold jewellery, share in ancestral property etc. With the maturing of the financial markets and the emergence of a plethora of customer-friendly investment products, the approach to financial security has changed. Now, women need to think about financial security more in terms of financial products rather than just about traditional assets like gold. How to go about it?
There are 5 steps that women need to take to ensure financial security for themselves and for their families.
Step 1: Get adequate financial securityfor yourself
If you are an earning member of the family, then your absence has a cost to your family in the form of foregone income. While the loss of a person may be hard to fill, it could get worse for your family if there is financial uncertainty. The first step towards financial security is to get a term cover. Avoid the temptation of investment products like endowments, money backs and ULIPs. They are just too opaque. What you need is a low-cost term cover that substantially replenishes the income that your family could lose out on. Secondly, have a term insurance cover against your outstanding loan principle.
Step 2: Ensure the health of your family is fully covered
There is nothing like health insurance for a rainy day. Apart from the tax benefits that it proffers, a health cover can help you meet the rising cost of hospitalization without disturbing your current finances. You can reduce your cost further by opting for a family floater where the entire family gets a much larger medical cover limit to share. A key step to your own financial security and the financial security of your kids is to ensure that medical costs do not infringe upon your resources.
Step 3: Create an emergency fund for a rainy day
There are a lot of things that you can never predict and it happens quite often that there is a medical emergency and we find ourselves short of cash. As a woman, there are a number of specific medical conditions you may be vulnerable to. Someone in the family may fall sick or your parents may suddenly require money. The last thing you want to do in such circumstances is to borrow from relatives or be compelled to dispose off your valuable investments. Ideally, create an emergency fund that covers around 5-6 months of regular expenses. This is something you must fall back upon only in the event of an emergency like sudden travel expenses, loss of job, accidents etc. Make it a point to replenish the emergency fund when you draw from it.
Step 4: Use equity mutual funds for long-term goals
In the first 3 steps we have focused on security from a safety point of view. Now we focus on security from an investment point of view. Viewed differently, financial security is all about making money work hard for you. You want to reach a corpus of Rs 2 crore in 25 years; all you need to do is to plan, save and invest regularly. As a working woman, your financial security can be influenced by you. Look to leverage on the power of diversified equity funds to create wealth for you over the long run. Wealth is your best insurance against long-term uncertainty. Consider the table below:
So, your dream of having a corpus of Rs 2 crore can be achieved by just investing Rs 30 lakh systematically over 25 years. Take the risk of equities and give time to your investments to grow. Nothing beats that for financial security.
Step 5: Keep a tab on your liabilities
Some would argue that this last step should be the first step, but we have kept it last for a reason. When we talk of liabilities, we refer to all the debt that you have either in the form of home loans, car loans, personal loans, credit cards etc. Quite often, the biggest risk to your financial security is your outstanding debt and it gets worse if your income does not keep pace. Here are 3 things you must do to manage your debt. Ensure that you repay high cost loans like credit cards and personal loans on top priority. Such loans negate most of your investment returns and efforts. Also, consolidate your loans and bargain for better terms with your bank. Most banks will be more than willing to do it. These are critical to ensuring your long-term security.
(By Rohit Ambosta, Chief Information Officer, Angel Broking Ltd )