Wealth Guide: Women’s Day Special – “Earning more money does not give you financial independence, developing skills to manage it responsibly does.”
Wealth Guide: Women’s Day Special – Women have worked hard to make a mark for themselves in all spheres of life. Their journey, from being confined to their roles as daughters, sisters, wives and mothers to being global role models, has been phenomenal and inspiring. Today, more women globally are joining workforce, progressing in careers, and inheriting wealth, owing to which they are gaining control of a growing amount of wealth. However, owning a huge sum of money does not always ensure financial independence.To help you with the same, Radhika Binani – Chief Product Officer, Paisabazaar.com, shares a few tips that women must follow to be financially independent-
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1 – Be financially confident
Radhika Binani advises, “Earning more money does not give you financial independence, developing skills to manage it responsibly does. Most women depend on others for managing their finances because they lack adequate financial knowledge and thereby, the confidence to formulate sound financial decisions. Anyone who is willing to learn can start by reading financial literature. Having finance related conversations with their parents, partners or even financial advisors would gradually make you confident enough to take financial decisions independently. Lastly, but most importantly, ask questions as much as you can because if you don’t ask, you will never know.”
2 – Prepare yourself to tackle financial emergencies
“Financial contingencies, which can temporarily disrupt your regular income flow such as sudden job loss, accident or severe illness, can put your financial goals in jeopardy. Having an adequate emergency fund, ideally amounting to at least six times your recurring monthly expenses, can help you tide over such exigencies. To earn steady interest income and capital appreciation, you may consider parking your emergency funds in high yielding savings accounts or short-term debt funds,” Binani suggested.
3 – Buy adequate term and health insurance covers
“Purchasing adequate life insurance cover is essential to protect your family from life’s uncertainties. In case of your untimely demise, your term insurance will protect your family by providing a replacement income. This will help your dependents in repaying EMIs, meet daily expenses and continue financial contributions towards crucial financial goals like child’s higher education, retirement, etc. Ideally, your life insurance cover should be at least 10-15 times of your annual income. However, many end up confusing insurance with investment and thereby, purchase life insurance products like money back, endowment insurance plans and ULIPs, offering both inadequate life cover as well as sub-optimal returns. Instead, opt for term insurance plans as they offer much bigger life covers for very low premiums,” she added.
“Considering the ever-rising cost of healthcare, a single hospitalization bill can wipe-out your lifelong savings. Depending solely on your savings or employer’s group health policy would not be enough. You can either choose health policies specifically designed for women or opt for regular health insurance policies featuring maternal and childcare benefits; or go for a family floater plan if you have dependent family members. Keep in mind that both health and term insurance premiums offer tax benefits under Section 80D and 80C of the Income Tax Act, respectively,” she advised.
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4- Prepare a financial plan
“To devise a sound financial plan, it is important to first identify and prioritize specific financial goals. Doing so will help you make investment decisions as per your risk appetite and investment horizon. Also, make sure that every investment you make is tied to a specific goal. Also, remember that to accumulate the required corpus, each of your financial goals – be it buying a vehicle, house, or accumulating corpus for retirement – require timely investments in the right investment instruments,” she added.
5 – Take steps to build your credit score
“Credit score is essential to meet loan eligibility criterion and, in some cases, for securing a job. Therefore, you must take right steps towards building your credit score. Women who are new to credit can build their credit scores by repaying their credit card bills by their due date and in full, keeping the credit utilization ratio within 30% and avoiding multiple credit applications within short span of time. Those who fail to get regular credit cards can consider availing a secured credit card. Since, it is issued against your fixed deposit, it involves less stringent eligibility criterion,” she opined.
6 – Do not ignore retirement planning
“In 20s and 30s, retirement seems decades away and before we know it other life goals such as buying a home, vehicle or accumulating corpus for your child’s higher education and marriage often take the center stage, thereby, drifting us further away from developing a retirement plan. Ignoring the need to create retirement corpus now forces most individuals to strain their finances in the later years. Hence, one must start investing towards their retirement as early as possible. This will give your money more time to benefit from the power of compounding. Also, while estimating the target corpus, remember to factor-in the inflation cost and longevity risk as well, to avoid accumulation of inadequate corpus,” she conclued.
