March 8, 2008

Start saving in summer of your life to survive in winter of your livelihood

Chhaya Kothari & Neeta Reshamiya

"Karyeshu Mantri".........As written in Hindu Scriptures - "Manu Smruti"-, it is known that since ages women are ably playing the different roles through out the life. And today, while 21st Century, is believed as "Women Century", I take liberty to change this statement as "Karyeshu Rani".

Yes, friends, today while women are taking the center stage in several fields, undeniably she is worth to be called as "Queen", who leaves no stone unturned on the roads she travels.

As known, "Queen" enjoys both; authority as well as responsibility, while "Mantri" has always the responsibility and hardly any authority. Highlighting the same, today's women own both, power and passion. They balance the several fronts of social and emotional,  finance and economical, very smartly.

When I am sharing all these big things, question lingers, How much percentage fall under this category? Obliviously answer is - very small. Though small but very strong, worth exampling from current age are Indra Nooyi, Sonia Gandhi, Kiran Mazumdar-Shaw, Shikha Sharma, Kalpana Morparia, Sania Mirza, Kajal Oza-Vidya and more....... who laid new milestones for women.   Hence, the idea is surely to enhance those percentage with this article, Personal Finance for women is written by woman and presented on International Women's Day – March 8.

Let's start from the beginning

Let's understand first, What is Personal Finance? Simple! It is money owned, under the personal rights. Whether self earned, saved, received or borrowed. Now, going further with the simple theory; "If you have something, make use of it", I would say, not just make use of it but make best use of it.  Similarly, it applies to Personal Finance. When you have money or expecting to have it, make the best use of it. You should plan in such a way, that it grows in multiple and gives the optimum returns.

Today, financial planning process is becoming an integral part of wealth management value proposition, worldwide in each individual’s life just because personal financial planning is the process of meeting the life goals through proper management of the finances. Life goals, whether dream driven or need oriented, both needs proper planning.  

It is generally seen in our society, that mother teaches all the basic lessons to daughter as far as home front is concern. Whereas, the most important lesson of financial independency is ignored, believing that it is the domain to be managed only by male.  Moreover previously, in marriage institution it was believed that husband  is to spread the safety net for wife's future financial needs, all as per his calculations and understanding which is well extended in due course of time to son or father-in-law or any other male member of the family. So by majority, women were always called as home ministers, though good planner and manager; and were rarely given a complete charge of the most coveted portfolio of finance ministry.  These emerged the misconception that major women suffer from inferiority complex, low confidence, high fear to fail, treating the planning of finance as the most complicated task. But factually it is not always, which is already proved. Today, literate women community has a mission to make every one aware of this fact, whenever needed.

Surely, knowledge of some basic simple principles will make their mission; much easier, faster and meaningful.

Let's see some of the basics of Personal Finance:

Spend less than you earn.

Pay your self first

Get pre-approved for a mortgage before you begin house hunting.

Pay off credit cards before other debts.

Keep credit card balances below half of the credit limit.

Always pay credit card bills on time

Always shop off-season.

Savings:

For non working women, saving itself is an earning. Simple as such: "Coin saved is note Earned". So surely any money, whatever pocket exchange program it may undergo, if handled with ulterior motive of saving, it is a positive habit, not a negative burden. Moreover, whether you are working or not working, generally, saving is a best financial tool to fight any challenge. 
Parents demonstrating such habits in their family, their children learn it effortlessly. Wisdom lies in making this habit, an addiction, which can help all the generations see their hard-earned money growing rapidly.

Always have an emergency fund available which equals to 3 months pay.
For any contingency specially illness, accident or loss of job etc., the 3 month rule is applicable to get through without having to dip into any long-term investments.

Health is of prime importance. So:

Don’t Skimp on Healthcare.
No idea is worst than tosave money on monthly expenses by cutting over the healthcare.  Saving a few hundreds a year is hardly worth having to pay 100,000+ in medical bills a few years down the age.

Non life Insurance

Don’t file small claims on your homeowners or auto insurance policy.

Life insurance

Life Insurance should be purchased to help care for your dependants in the unfortunate event of your untimely passing. Or buy for retirement needs.

Investing:

Keep some of your investments in liquid assets.  

If you don’t understand an investment product, avoid It. Choose a trustworthy financial advisor.

Understand difference between saving and investing.

Investment Opportunities:

Investment can be done keeping in mind short term as well as long term needs or goals along with the contingencies. The different avenues are:

Equity
Mutual Fund
Unit Link Insurance Schemes
Other Traditional Life Insurance Schemes
Small Saving Schemes like NSC, KVP, PO Deposits etc.
PPF
Real Estate
Gold, Bullion, real jewelry.
Art, Paintings and antiques 

Retirement :
 
If you can not build an asset for next generation, no problem
But avoid to pass on the liabilities.

Don’t depend on Children.

Plan your own retirement in such a manner; that you are never ever dependent on your children. In this fast moving competitive era, they might not be having enough resources to feed two families even though they might be willing to.

Taxes:
 
Take the best advantage of section 80 deductions along with the housing interest & EMI benefit. Get certificates of TDS & other receipts for charitable donations.

U/s. 80 C:
The investments that fall under Section 80C:

• Provident Fund
• Public Provident Fund
• Life insurance premium
• Pension plans
• Equity Linked Saving Schemes of mutual funds
• Infrastructure bonds
• National Savings Certificate

Besides these investments, the payments towards the principal amount of your home loan are also eligible for an income deduction.

Tax Working/Saving Computation for Women below age 65

If earning Income of Rs. 5,00,000/-p.a.

Final Tip:

Money is important, but it isn't everything:

Health and happiness are the most important things in life, but that doesn’t mean that you should play foolish with your money.  Fighting and worrying about money is not going to solve any problems and could, in fact, destroy your health and happiness.  A bit of planning, commitment and conviction to achieve a goal and sheer determination will help lay the stepping stone of success to build strong and sound financial future.

Chhaya Kothari, Certified Financial Planner (CFP) and she is also Director, Global School of Financial Planning

Neeta Reshamiya, Human Behavior Analyst and Director, Global School of Financial Planning