International Women’s Day 2020: Seven simple steps for women to gain financial independence

Updated: Mar 08, 2020 9:34 AM

It’s Women’ Day again and the watchword this time is ‘Each for Equal’. However, we must ponder whether the above slogan stands true in all walks of life.

International Women’s Day 2020, Women’s Day 2020, Seven steps to financial independence, financial planning, money management, saving, RD, Contingency FundWomen are typically natural savers, setting aside money in savings accounts to sugar jars. While saving money regularly is the first step, you also need to invest it in an apt investment avenue.

It’s Women’ Day again and the watchword this time is ‘Each for Equal’. However, we must ponder whether the above slogan stands true in all walks of life. SHE has come a long way over the years, but there’s a lot more that CAN be done to level the scales. Take financial independence, for instance…women still have a fight ahead when it comes to chalking out their own financial plan. Ironically, a study by the Warwick Business School conducted by 2018, revealed that female investors in the UK earned higher returns than men vis-a-vis the benchmark index FTSE 100. Other studies reiterate the same, and yet the larger masses (of women) still lag by a long margin when it comes to deciding their finances independently. So, this International Women’s Day, here are seven simple steps for women to achieve financial independence:

1. Give your savings some action

Women are typically natural savers, setting aside money in savings accounts to sugar jars. While saving money regularly is the first step, you also need to invest it in an apt investment avenue. And no, we do not mean plain-Jane options such as an FD or a recurring deposit (RD), where average interest rates stand at 6.5%. For instance, if you park your monthly savings of Rs 7,000 in an RD for ten years, you would end up with a return of Rs 11.5 lakh. Contrast this with a large-cap equity mutual fund, wherein, investing the same Rs 7,000 for the same period could fetch you Rs 20 lakh (assuming an average return of 10.2%).

2. Know the family

Ah…and we don’t mean your household members here, but the family of mutual fund asset classes. There are equity funds, debt funds, hybrid funds, equity-linked saving scheme (ELSS) funds, fund of funds, index funds, money-market funds…and the list goes on. Each type of fund fulfils a particular function/ need and your relationship with each varies accordingly. Equity funds work well in the long run and help you score significant life-goals such as retirement, children’s education, etc. Others work well for short-term goals such as a foreign vacation, or an expensive purchase, or so. Hybrid funds work like a combo offering the benefits of equity and debt.

3. Score some self-goals

When women save/ invest, a 2018 study by Bank of America-Merrill Lynch revealed that most women usually align their money and investments with their family goals – health, education, etc. However, it is equally important to let your investments work for your needs such as making a career shift, going on a long vacation, starting a business, etc. While lining up your goals, it is also important to classify them as small, mid-term and long-term before deciding the amount and the timeframe of the investment.

4. Keep your credit good

The key to a successful financial plan also lies in being debt-free. Thanks to the onslaught of advertisements, pop-ups and SMSes on your phone or that attractive offer on a personal loan, it is easy to rake up debt and easily fall into a trap of EMIs that you could erode your savings and investments. However, that doesn’t mean you do not take a loan at all. A healthy credit profile leads to a good credit score and also means that you are managing finances better.

5. Build a Contingency Fund

Ask any financial advisor and the first thing they would advise is building a contingency fund. An emergency is always a guest that surprises. It is ideal to set aside an amount that considers your regular expenses, medical and unexpected costs, monthly living expenses, EMIs, et al. If you earn Rs 90,000 per month, with monthly expenses of Rs 60,000 and annual expenses of around Rs 6 lakh, you should be setting aside a contingency fund of nearly Rs 10 lakh every year. Unforeseen situations can hit more number of times than one dares to predict and therefore it is necessary to have a fund that guarantees some financial backing (and easy liquidity, if needed), for instance, liquid funds, short-term recurring deposits and debt mutual funds.

6. Own your finances

When it comes to your own money, do not take the backseat. While studies reveal that it is the men who are often in charge of investment decisions, it’s time the baton passes to women. Handing over financial responsibility to another might save your some time but keep you away from the changing contours of the market and how it affects your hard-earned money. When you are in charge, you could play an active part in deciding where your money is parked, how it is increasing/ decreasing on a monthly basis and whether the investment needs to be shifted to another avenue. Why you could even invest more frequently and take more shots at the (market) dart-board.

7. Stay a curious cat

As your aspirations evolve, it is also important to stay up-to-date with market trends and developments in the financial world. Lack of knowledge could be the biggest roadblock towards financial independence. Treat the financial market as a buddy and not something to fear. This will help take calculated risks, pick the right investment avenue and plan effectively. All the same, trying to stay wise is not the same as trying to predict the market. Spend more time in the market, but it is advisable to not time the market.

(By Gautam Kalia, Head – Investment Solutions at Sharekhan by BNP Paribas)

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