How To Manage Your Finances Effectively As An Independent Woman?
If you are an independent working woman, it is important that you manage your finances effectively so that it fits in with your financial goals. When both spouses in a family are earning, financial planning needs of a couple become slightly different as one income complements the other. Here are the things you should do to manage your finances effectively.
Mar 2023
5 mins read
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Have an emergency fund in place
Emergencies may strike without any warning and in such situations, you may need some cash to fall back upon. You should have an emergency fund equivalent to 6 to 12 months of your expenses in place. To calculate your monthly expenses for this purpose, consider your essential expenses and also include your EMIs and insurance premiums. You should be able to withdraw such funds immediately without paying any penalties. So, it is recommended that you park your emergency corpus in short-term liquid funds.
Manage income and expenses with a budget
The process of budgeting is one of the foundations to personal finance. It is very important to manage daily expenses in a systematic way so that you know where your hard-earned money is going. This is important, as there will be no money to invest, if you spend all your income. Divide your expenses under discretionary and non-discretionary expenses. See if you can cut down on your non-discretionary expenses like partying, eating out, and luxury spending to create a larger surplus. Having a budget will help you understand how to manage your expenses and save more. You can follow the traditional way of listing all your expenses in a diary. Alternatively, you can use an app to manage household expenses. Creating a budget and sticking to it also prepares you on how to deal with unexpected expenses.
Get adequate insurance
It is important that you have adequate insurance cover, whether it is health insurance or life insurance. Health insurance and its benefits are many as unexpected medical expenses can mean that you have to dig into your savings if you are not covered with health insurance. Rising medical expenses mean a health cover of Rs 5 to 10 lakh may no longer be adequate. You need to have adequate health insurance for family of a higher amount. Even if your employer provides you with health insurance, it is advisable to buy your own health insurance. A family floater policy, where both spouses and children are covered, is recommended.
Also, if you are contributing to your family’s finances, it is important to understand why life insurance is required for you. In case of an unfortunate occurrence, it will help you protect your dependents like children, parents or in laws. It is recommended to choose a term plan with a coverage six to ten times of your annual salary along with coverage for critical illness, accidental death, and disability. You can buy health insurance online and the same goes for life insurance.
Get on top of your debt
You could have several forms of debt— home loans, car loans, credit card dues, and also personal loans. While debt helps us achieve our goals, it is also important to manage it properly. Always make it a point to clear high-cost debt like credit card outstanding and personal loans at the earliest. Plan in such a way that you are done paying your EMIs for your home loan well before you are 50 years old. You can use windfalls like a bonus to make lump sum payments towards your home loan and also increase the EMI payment with an increase in salary.
Identify your goals
Goal setting in financial planning is an important step as it gives direction to your financial planning process. It tells you how much you need to save and invest to realisee those. So, it is important to set personal finance goals for your 30s. Your short-term goal could be planning for a foreign holiday and your medium-term goals could be buying a car or a house. a house. Your long-term goals would include saving for child education, and planning for retirement.
Plan investment for retirement
Since the cost of living is going up, it is important to do investment planning for retirement for both spouses. Also, since women are said to have a higher life expectancy than men, it is important that they spend time preparing for retirement.
When you are in your 30s and have time on your side, the way to build a retirement corpus is to invest in smart systematic investment plans (SIPs) in equity mutual funds. Your asset allocation should depend on your risk profile. When in your 30s, you can invest up to 90 per cent of your investments in equity. Investing in an Equity Linked Savings Scheme (ELSS) is a way to save taxes while investing in a diversified equity mutual fund. These tax saving funds help you to save up to Rs. 1.5 lakh each year in taxes under section 80C. In fact, investing in equity mutual funds has been shown to beat all other asset classes when it comes to generating returns over a longer period. In the last 5 years the category average return from large cap equity funds is 14.6 per cent. For ELSS mutual funds, the average return stood at 14. 8 per cent.1
To get an idea of how much corpus you need at retirement, the monthly SIP required and other details, you can use a retirement investment planning calculator. While the above financial planning steps are important for any woman, it is even more important for single women as they would have to handle all the responsibilities on their own. It helps if you have personal finance knowledge, but it is recommended that you sit with your financial advisor for a financial plan and investment planning advice.
Disclaimer: Mutual fund investments are subject to market risks, read all scheme-related documents carefully.
(as on 26 October)
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. Read more
All the Mutual Fund investors have to go through a one-time KYC (Know Your Customers) process. Investor should deal only with the Registered Mutual Funds (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit https://www.pgimindia.com/mutual-funds/ieid.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. Read more
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