The financial advisory and investment world is largely built around securing the financial goals of working men or at best families. But what about women who are increasingly a bigger part of the workforce especially in sectors such as financial services, hospitality, healthcare, telecom and media. And even if they decide to opt for marriage at some stage, they would want to maintain their financial freedom and contribute to the family kitty.
While all working women need financial planning it is especially critical for single women who don’t have the luxury to fall back on their partners in case of a financial emergency. An increasing number of men and women are single for various reasons, including choosing not to get married, divorce, or loss of a spouse.
As a rule of thumb, women are expected to live 3-5 years longer than their male cohorts. This means greater post-retirement expenses for women.
Women are generally reticent about savings and investments except for banks FDs and buying gold jewellery. But optimum financial planning is not rocket science and here are seven tips for you to start your journey.
1. Choose your job and organisation thoughtfully. This advice may sound patronising and even offensive to some of our women readers but the selection of job and the organisation has become ultra-important in the era of hire-and-fire and declining perks in many companies. Treat it as a risk mitigation exercise that will help you avoid unpleasant surprises later in your career. Given this, choose an organisation that offers stability, a women-friendly work environment and perks such as retirement benefits and health insurance even if the overall salary is lower than at other firms.
2. Invest in a house. The first thing that a working woman should plan for is to invest in a house. This will not only help you save rent but protect you from the hassle of dealing with a new landlord every few years if you choose not to stay with your family. This is important as many localities and housing societies discriminate against singles.
You can even use it to fund your retirement through a reverse mortgage. Home loans also help save you tax and thus create a life-long asset at a cost not much higher than the rate of inflation.
3. Arbitrage your home to generate additional income: Many working women especially in city biggies can use their homes to generate additional income by giving out their homes on rent and shifting to low-cost accommodations like working women hostels. Depending on the spread between the cost of a hostel or other form of shared accommodation and the house, it could finance a big chunk of the EMI on your home loan.
4. Buy women-specific health insurance. Various studies have shown that health care costs in India are growing at a much faster rate than overall inflation. This makes buying health insurance a must to avoid a huge medical bill in future. But don’t go for general-purpose health insurance as they are optimised for ailments that mostly affect men. They may not provide adequate cover for diseases and disorders that largely affect women. Many insurance companies now sell women-specific policies and choose the one that offers the best value.
5. Create an emergency fund. In today's world of rising financial uncertainty, it’s important to create a corpus or a fund to take care of emergencies such as hospitalisation, a job loss, salary cuts or even a major repair in your car or the house.
To be on the safe side, you can cover a year of your expenses. As a general rule, emergency funds should only be invested in safe and liquid instruments such as FD at large banks or in mutual fund schemes that invest in government bonds. But always keep a third of the fund in liquid form as savings deposits that can be withdrawn at very short notice.
6. Invest to create a retirement corpus. The best way to save for retirement is to open a Public Provident Fund (PPF) in a public sector bank or post office if your organization doesn’t offer an employee provident fund (EPF). You can top it up by signing up for the New Pension Scheme (NPS) and make a small monthly contribution. When you're filling the NPS form, opt for the automatic option in the asset allocation box. The third option is to invest in low-cost index equity mutual funds that invest in benchmark indices such as the Sensex or the Nifty 50. Invest in a basket of 2-3 index funds through a systematic investment plan (SIP) every month.
7. Have a nominee. You need to have a nominee who will inherit your assets after your demise. This will ensure that your property goes to the right person after your death and is not wasted in endless litigation or disputes. A nominee can be your partner or child if you are married. In case of singles, it can be your sibling, parents, cousins, distant relatives, friends or even your domestic help. You can even choose to donate your property to a cause or charity of your choice.
In all, it’s best to plan well to avoid any financial difficulties later.
(Karan Deo Sharma is a Mumbai-based finance and equity markets specialist).