Managing finances is critical for women

Managing finances is critical for women

If a woman handles her own finances she would be well prepared to handle money matters individually if the need arises

Women need to handle their finances differently from men. Because of the differences in earning patterns and priorities that women set for themselves their finances should be managed in a different manner. The basic goals of personal finance remain the same, i.e. l Ability to meet daily expenses and lead a quality life l Provide for emergencies and unplanned expenses and l Savings for life after retirement However, the ways in which men and women achieve these goals are different. While men earn money uninterrupted throughout their working lives, women often need to take a break, especially when they have children. Other reasons like orthodox family background, change in location after marriage, change in spouse's job location, household responsibilities, etc force women to put their career on the back burner. We have the much debated case of Sudha Murthy, wife of Narayana Murthy, founder of Infosys. The couple was instrumental in building the Infosys dream. As the business started taking shape, they decided that one person was required to take care of their home and family. Sudha Murthy gladly stepped aside to be the homemaker and let her husband fulfill their dream. Cases of women going abroad on dependent visa with their husbands are not uncommon. So, if a woman earning `50,000 per month takes a five year break from her job because she wants to be at home with her child, her earnings and thus savings take a hit of `30 lakh. We have not yet considered any increment in her salary. If we consider that her salary increment is 20% each year, her loss of earnings will come to `44.65 lakh. That's a big number. Also, when she resumes work, she may have to compromise on the job profile, position and hence salary. Therefore, the percentage of savings should be higher for women during their working life. Besides, the life expectancy of women is higher than men. So, the amount of retirement savings for women should also be higher. Statistics show that, on an average, women live five years longer than men, earn 25% less during their life time and work 11 years less in their careers. Separate personal plan It is important that women have a separate personal finance plan from her family. With changing times the need for separate finances too has increased. The rise in divorce rates is alarming. The surety of life is also lower with increase in accidents and stress-related ailments. If a woman handles her own finances she would be well prepared to handle money matters individually if the need arises. Knowledge of different investment avenues, savings and expenses is important to run a family. A separate personal finance portfolio will prepare a woman to face financial challenges. Also, she will not have to bear a monetary loss in the event of a divorce. Products and benefits There are many products that are created for women. For example, insurance companies have special policies for women. The country's banking system has several products launched for the female audience (see first table). A personal finance plan for women should include the following: l Regular income. Even when women take a break from their careers, it is a good idea to earn income from working a few hours a day. Taking tuitions, teaching a hobby, etc are common ways to earn a regular income even when one is not working full time. l Keep an emergency fund. Do not touch it unless it is a real emergency. l Save and invest as much as you can. Invest in high return investments. Some part of the savings should go into stocks and mutual funds as they have high earning potential. Look for women-oriented products. l Time your investments for known expenses likes children's education or marriages. l Demarcate clear boundaries with your spouse for routine expenses. It will be easier to determine personal monthly expenses and hence monthly savings. l Track your savings and investments regularly. l Have a financial plan. Save as much as you can at an early age when you have limited responsibility. Assuming you plan to save 50% of your income every month and wish to invest in different investment products, you could compartmentalise your investment into various risk categories (see secondtable). You can change the portfolio as per your risk appetite. Life insurance is a must. However, it is advisable that you set aside the money for making premium payments even when you are not working. The writer is CEO, BankBazaar.com, an online marketplace for personal, home and car loans