This article is about various steps to be followed by women in a financial guide for managing money and has answers to frequently asked questions about investments.
Why should women follow good financial habits?
Developing good financial habits like regular savings and controlling expenses helps create short-term and long-term goals. Without good financial habits, decisions are often made on impulse and are not rational.
Women with good financial habits can deal with emergency situations better.
As women make decisions regarding household expenses, following good financial habits will help them combat inflation better.
Guide to managing money for women
Following are the steps involved in managing money for women:
A. Education about finance and investments
The first thing a woman should do in creating good financial habits is to educate herself about finance, investments and insurance.
Operating a bank account, including using an ATM card and keeping the ATM pin secure and not sharing OTP(one time password) with anyone, are important things a woman should know while operating the bank account.
Know about life insurance and medical insurance and why these plans are necessary. Review life insurance plans made by your husband and check whether they are adequate considering the family income and expenses. The medical insurance should be checked and seen that all family members are covered.
Know all the investment and insurance policies purchased by the husband. See that all investments have nominees.
Keeping and operating an independent bank account will help learn the basics of budgeting and controlling expenses and making investments. They can learn by making fixed deposits and recurring deposits.
B. Making a budget
A woman usually manages the monthly household expenses in a family whether she earns or not. The monthly expenses should be divided into essential, leisure and investments.
Attempts should be made to cut expenses by making bulk purchases which enable discounts.
Leisure expenses can be reduced by cutting wasteful expenditure and casual purchases.
Investments should be planned so that a fixed amount is rooted to investments. Investments include investing in ULIPs, mutual funds, retirement plans and education plans. Higher savings will enable higher investments.
C. Setting Financial Goals
Women should set clear short term, medium and long term financial goals and investments/savings should be planned accordingly.
Short term goals should be targets for a short period up to a year. This may be a desire for a high value jewellery item or a vacation trip in India. Monthly savings should be targeted towards achieving the goals. There should be an emergency fund for unforeseen circumstances.
Medium term plans could be children’s college education when the child is in the final year of school. An expensive vacation trip or child education can be planned by investing in systematic investment plans.
Long term financial goals should be a good retired life. This is done by investing in pension plans which beat inflation comfortably.
D. Studying various investment options & making investments according to your risk profile.
For a young working woman, there are various investment options like bank fixed deposits, mutual funds (equity and debt), equity markets, unit linked insurance plans and pension plans.
There should be a mix between low return, low risk fixed deposits and equity market mutual funds.
The formula is 100 minus your age. For example, a 30-year individual should be investing 70 percent in risk instruments and 30 percent in debt instruments while for a 55-year person, 55 percent should be invested in debt plans.
The financial technology revolution has made operating bank accounts easily and without going to the bank.
Shepays is offering the digital first neo bank which enables females to achieve financial goals.
The following facilities are offered by Shepays:
It provides training around benefits of savings, investments, insurance and loans
Training on how to start a new business or expand a new business
Providing information on Govt support for small business.
They help in achieving life goals e goals through savings, investment plans and loans.
There is no need to go physically to a Bank.
FAQs
What factors should I consider before choosing an investment product?
The following factors are important while considering an investment product:
- It should align with the long term and short term goals of the individual.
- It should fit with the risk profile of the person
- The product should meet the expected return on the investment made
- A person should be ready to lock in the investment for the stipulated period as withdrawing before the period may cause losses.
- Some products have very high risk and can be volatile in the short term like equity mutual funds. Investors should be ready to stay invested during the tough times.
- The funds should have tax benefits.
- There should be a provision to convert the investment into cash in the case of an unforeseen emergency.
What is the difference between short-term and long-term investments?
Short term investments
- Short term investments are investments which are held up to a period of 3 years.
Examples are Bank fixed deposits and post office savings schemes. - They provide assured low assured interest and no risk.
- These instruments are highly liquid and can be easily converted into cash.
- Long term investments are investments which are held for more than 5 years. Examples are Public Provident Funds, Equity Mutual Funds, equities, bonds and mutual funds.
- Most of the investments are high risk and high return instruments.
- These investments are illiquid and cannot be easily converted into cash at short notice.
Long term investments
How to create a diversified investment portfolio?
Different investment products with different tenure, returns and risks should be selected.
The portfolio should have both short term and long term products.
If investing in equity funds, investments should not be made in similar stocks and sectors.
Investment in asset classes with negative correlation with each other should be made. For example, investment in Gold should be balanced against investment in equity funds.
The portfolio should be reviewed regularly, and portfolio realignment should be done. A rise in the equity markets should lead to a reduction in equity investments and rise in debt investments.
What are the investments recommended for women with low risk-bearing capacity?
Women with low risk taking capacity should invest in Bank Fixed Deposits, plans with guaranteed returns, post office schemes and Public Provident Funds.
Here also for short term investments Bank Fixed Deposits are the ideal vehicle while Public Provident Funds are an excellent long term investments.
What are moderate-risk investments with high returns?
Unit Linked Insurance Plans are a good option for investment with high return. These investments have a bit of risk and should be considered only for the long term. They also provide life Insurance. Equity Linked Savings Scheme (ELSS) and mutual funds with systematic investment plans are also good options.
How can I leverage digital technology for managing my money?
- By opting for a digital or online facility with your Bank removes the risk for carrying a high amount of cash.
- With the mobile app, even petty amounts can be paid to the shopkeeper through apps like Google Pay, Paytm and Phone pe.
- There is no need to fill forms for opening accounts, taking loans and taking insurance policies and making investments.
- Online tools give the returns of your investments in real time.