As women gain financial independence more rapidly than ever before, it is imperative to have open and meaningful discussions about money and investments.
There is little doubt that women in India, whether homemakers, self-employed or salaried professionals, are becoming increasingly savvier about money. According to a 2019 survey, around 76% of women make their own financial decisions. When conducted a year later, in 2020, the survey pointed out that 77% of women contribute to the income of their households. And interestingly, women in tier 2 cities contribute a higher share of their income.
Today, as women gain financial independence more rapidly than ever before, it is imperative to have open and meaningful discussions about money and investments. As we salute the women-power this Women’s Day, let us look at five smart financial decisions for every woman to manage their finances confidently.
Decision 1: Build an emergency fund
More often than not, an unexpected contingency could erode your savings or force you to withdraw some of your investments. Stories of women selling their jewellery to help when the family is in distress are relatively common. Such unforeseen situations interfere with your financial plans and derail you from the path of fulfilling your life goals. Instead of relying on your assets, like jewelry, it is better to stay prepared for financial emergencies.
You can start by building an emergency fund worth at least six times your monthly income. Open a separate account and regularly contribute till you accumulate the requisite amount. Ensure that the emergency fund is liquid and easily accessible so you can use them without much hassle in times of great financial need.
Decision 2: Don’t be afraid to increase your equity exposure
Women are naturally good savers. But when it comes to investments, many women may tend to be risk-averse. Perhaps this can be traced back to the natural caution women exercise while making everyday decisions. However, in the long run, being risk-averse can prove to be detrimental to financial returns.
If you have been focusing only on safe-haven assets, it may be a good decision to increase your portfolio’s risk exposure. It is imperative to include equity in your investment portfolio to generate inflation-beating returns and accumulate wealth in the long run. You can opt for the mutual fund route to leverage the know-how of professional fund managers. Remember that you only have to take on as much risk as you can tolerate.
Decision 3: Focus on tax planning
No financial plan is complete without tax planning. Many working women find it challenging to manage their taxes which impact the amount available to save and invest. If you have not paid much attention to tax planning so far, this year may be the right time to get started and take measures to maximize your tax benefits.
You can choose safer tax-saving investments like the Public Provident Fund and tax-saving fixed deposits, or you can opt for market-linked tax saving options, like Equity Linked Savings Schemes (ELSS).
Many expenses are tax deductibles, such as home loan EMI payments and education loan EMIs. If you incur these expenses, ensure that you take advantage of them to reduce your tax burden.
Decision 4: Diversify and rebalance your portfolio as needed
Merely investing is not enough; it is only one-half of the story. You must monitor your investments regularly and diversify your portfolio sufficiently. It can be tempting to put all your money into an asset or two that you find comfortable. Such an approach limits the true potential of your investments as you may tie your savings in assets offering limited returns. It can also increase the risk of losing a significant part of your capital if that asset performs poorly.
A better approach is distributing your investment across different asset classes based on your life goals. Every once in a while, say six months or a year, you can revisit your portfolio and rebalance the asset allocation if needed.
Decision 5: Seek expert guidance if you need it
Lastly, don’t be afraid to seek help from a financial expert. At times, our limited knowledge and lack of confidence hold us from making the most of our money. The assistance offered by a financial advisor can make it easier for you to understand how your money works and how you can make it work better for you. And this one decision can pave the way for more rewarding financial decisions down the line by making you savvier and more confident about investments and personal finance.
Conclusion
Making savvy financial decisions and taking the necessary steps in the right direction can help the women of today take control of their money. These money decisions can help you take charge of your finances and achieve financial independence while maximizing your contribution towards your individual and family goals.
by, B Gopkumar, MD and CEO, Axis Securities