Five financial planning tips for women

Women are increasingly an important part of our workforce, especially in white-collar sectors like media, financial services, healthcare, education, retail and hospitality. Yet, there is a severe lack of women-focused financial advisory and investment services. Most of the financial services target men or families, clubbing women with the latter.

However, the reality is that not every woman today wants to club her finances with her partner. They want to retain their financial independence and don’t always want to let their spouse decide about their savings and investments.

While all working women need financial planning, it becomes especially important for single women who don’t have the luxury to fall back on their partners or family in case of a financial emergency. An increasing number of working men and women remain single for various reasons, including choosing not to get married, divorce, or loss of a spouse.

More importantly, women tend to live longer than men. As per World Health Statistics 2022, the life expectancy of Indian women at birth was 72.2 years as against 69.5 years for males. This means they need access to financial resources in their twilight years when they will possibly be on their own.

As a rule of thumb, women are expected to live three to five years longer than their male cohorts. This means greater post-retirement expenses for women.

Women are generally conservative in their savings and investments and mostly opt for relatively safer but low returns instruments such as bank fixed deposits, gold & silver jewellery and life insurance plans. 

But financial planning for the long-term is all about the right asset allocation and not investing in the least risky assets. Here are five tips to start your financial journey.

1.  Select your job and organisation carefully. This advice may sound patronising and even offensive to some of our women readers but the selection of a 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.

Also Read: How to get the right mix of equity, gold and fixed income in your investment portfolio

2.  Buy a house. The first thing that a working woman should plan for is to invest in a house of her own. 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. 

Beyond convenience and peace of mind, a house is also a financial asset that can be used as collateral to raise low-cost loans in an emergency. 

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. Lastly, the home prices in big cities such as Mumbai, Bangalore and Pune have largely kept pace with the rise in the equity market, making them an excellent investment avenue for the longer term. 

Also Read: 10 equity mutual funds that have defied market correction in the last 6 months

3. Buy women-specific health insurance. Various studies have shown that healthcare 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 bills in future. But don’t go for general-purpose health insurance as they are optimised for ailments that most 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.

Also Read: Why women need separate health insurance cover & how to go about it⁠⁠⁠⁠⁠⁠⁠

4. 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. 

As a thumb rule, an emergency fund should be equivalent to at least six months of your living expenses including rent and fuel and utility bills. 

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.

Also Read: Top 10 Retirement Mutual Funds

5. Invest in an index traded fund or ETF mutual fund: Investment in ETFs or index mutual funds are the best way to gain from a rise in equity prices at the minimum risk. ETFs portfolio mirrors the composition of benchmark equity indices such as BSE Sensex or the NSE Nifty50 index in the same proportion. This way the returns offered by an ETF are very similar to the appreciation in the value of these indices. 

In contrast, diversified mutual funds tried to beat the benchmark indices by building their unique portfolio of stocks. Quite often they manage to beat the Sensex of Nifty50 but at the cost of a higher management fee or total expense ratio (TER). But high TER results in lower net returns for investors. In contrast, TER on an ETF is a fraction of that on diversified funds resulting in higher net returns for the investors. 

Lastly, the best fund managers find it tough to beat the benchmark index year after year. Given, these ETFs offer the best risk-adjusted returns over the longer term. Invest in a basket of 2-3 index funds through a systematic investment plan (SIP) every month. ETFs can also be used to create a retirement fund.

(Karan Deo Sharma is a Mumbai-based finance and equity markets specialist).

Also Read: Five best ways to save tax and create a retirement corpus

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