The thing I have discovered about working with personal finance is that the good news is that it is not rocket science. Personal finance is about 80 percent behavior. It is only about 20 percent head knowledge - Dave Ramsey, American radio show host and businessman.
Financial security and financial planning are crucial to lead a good life and aren’t gender based in their context. It’s important for everyone to save and plan the way they use their money so there’s sustainable funds that are available for all kinds of requirements that could crop up.
While I have had a long career and have had multiple forms of income over the years, I have made terrible mistakes with money and I write from personal experience. I never saved and I didn’t have a clue what compound interest meant and how it would build and create value. While I don’t regret the life I lived without savings, I do think I should have made small consistent investments that would build and grow.
There is some amount of conscious and unconscious bias towards women when it comes to the financial industry and this is even though I know a lot of women who are the financial decision makers in the family and manage all the funds. While there is one segment that is aware and manages their money well, the penetration is low.
While women tend to be great at everyday financial planning and money management, they tend to take a back seat when it comes to financial investments and assets. Active participation in the planning process can help them make good investments and gain good results but this isn’t the case currently.
There’s a difference between managing money and planning and actual financial security. The numbers show that women aren’t as financially secure as their male counterparts across segments. The numbers also prove that while there is pay gap, the standard of living is the same but the cost of goods and products for women is far higher than their male counterparts. Add to this the breaks they take or the fact that a lot of them are home makers pushes them into a downward financial spiral.
The way women are treated as consumers of financial products doesn’t really do justice to the average, collective intelligence of this gender. There is enough data to show that women as consumers of financial products and investors will help push the economy in the right direction.
A few common mistakes women make when it comes to money and money management are:
- Thinking that investment decisions aren’t my prerogative and should rest with my partner
- Not understanding the financial space and what it has to offer
- Not finding a financial advisor that works for me
- Not planning for emergencies
- Not planning for retirement
- Not taking financial investment risks for better returns
The way you spend, what you save, what you earn are all indicators for building a smart investment profile. Tracking and watching these can be smart indicators in the way you manage your future financial investments.
Whatever the earning capacity, employed or unemployed, most women have access to a regular inflow of money. Salaries or expense money, both ways it’s good to plan, watch what expenses are repetitive, which ones are one off and then track these trends so there is an understanding of what works well.
Its good to have a regular saving mechanism that has both a contingency fund plan and an emergency need plan. This can be a small saving every month in a piggy bank or a small RD in a bank.
A lot of new companies have sprung up in the personal finance space and can be downloaded as apps onto the phone. These help give a standard framework for analysing expense patterns and give recommendations on how to manage them better. When you manage your money better it also helps save more. When you save more, it can be invested in growing your investment portfolio.
Easy steps to building a good corpus fund:
- Assess your income
- Study and track your expenses
- Increase the monthly savings pool
- Cut down on unwanted expenses
- Widen the net beyond regular tax saving
- Explore your options – Real Estate, Gold and Fixed Deposits are low return and long term
- Insurance is a good idea for long term planning
- Mutual Fund investments are a good way to build a strong corpus
- If nothing else, a regular RD in the bank also goes a long way
- Plan to have minimum three months of income kept in the bank for exigencies
A systematic investment plan in the market and as mutual funds is a good way to regularly invest money as they have a higher rate of interest and there is a lot of content available to make informed decisions.
If the stock market works for you, that’s a great way to invest and make money too. This needs a keen understanding of the markets work and how they can work for you.
A good financial plan is a mix of money in many places, generating a steady income and building a pool for more. It’s a good idea to budget spends and to see what months need more and what months need less. Building a strong portfolio early always helps sustain for long term.
From an expense point of view, if there were to be areas earmarked like travel, shopping, books, eating out, education and if each of them got a share put away or used every month, it would help ease sudden expenses that crop up. Each fund can be used according to need and that way, there’s also predictability built in, which makes it simpler to manage.
My mother used to always tell me that whatever I earned, I should spilt it into three parts – 33% each and one part should be used on regular life expenses like running the house, paying bills, transport and such things. The next portion would be personal indulgences like shopping, travel, fine dining, so that would be money spent on the self. The last third would be for savings.
That makes sound logical sense, so it’s a good thing to follow.
Let’s redefine this space and own it!
The LeadNOW Smart Balance Pledge identifies Financial security as one of the important factors for a woman to reach her full potential. Take the pledge here https://leadnow.in/smartbalance and promise yourself, a better YOU.