The Savvy Checklist
A list of essentials for your journey towards financial freedom. The more points you can tick off, the better By Aniruddha Bose
Photo Credit : Shutterstock
Whether you are single or married, working in an office or as a homemaker, here is a simple money checklist to help keep you firmly on course towards the attainment of financial freedom.
Be ‘money aware’: “A huge percentage of women still do not take their own investment decisions, and are reliant on their fathers or husbands for the same,” notes Prableen Bajpai, Managing Partner, FinFix Research & Analytics.
While there is no need to spend all your waking hours browsing business news channels, a rudimentary working knowledge of financial products is absolutely vital. “Women often don’t understand various aspects of saving, investing, or borrowing — and are thus seen as soft targets for being duped with wrong financial products”, observes Bajpai.
Apply three simple rules: First, make sure that you understand the risks and rewards associated with all your investments. Second, don’t shy away from asking questions before you sign up for anything new — if it sounds too complex or “too good to be true”, give it a wide berth. Third, get involved in your household’s investment matters and actively participate in the investment decision making process.
Work on building an emergency fund: A safety net in the form of an emergency fund is critical for any person, and this assumes a higher level of significance for women. Unfortunate incidents such as the sudden death of a spouse or a divorce has the potential to severely discompose your personal finances, and readiness is key.
“Without an emergency fund, women might be forced to sell or mortgage assets, or avail loans at high interest rates. In fact, married women should maintain separate emergency funds for themselves,” advises Radhika Binani, Chief Products Officer, Paisabazaar.com.
Know your risk profile, and diversify your investments: Two things will play a vital role in your future success as an investor. First, a crystal-clear awareness of your attitude to risk taking; and second, your ability to avoid becoming a “one asset wonder”!
Risk, it would seem, is the only real ‘controllable’ within an investment portfolio. Returns, especially over the short run, are less predictable — being subject to the invariable vagaries that characterise all securities markets. If you are a naturally risk-averse person who has undertaken an especially risky investment, panicky decision making will stand in the way of your wealth creation. Similarly, a high-risk taker will quickly tire from the muted returns that fixed income investments offer, and may end up flipping her asset allocation at just the wrong time. For this reason, it is important that you know exactly where you stand on the risk tolerance scale before you invest.
Cover your risks: If your family members are financially dependent upon your future income stream, you may require life insurance. Single mothers should be especially conscious about their need for adequate life insurance coverage, or they may end up compromising the quality of their children’s future. Do not let your natural risk aversion snare you into purchasing one of those low-yielding, opaque traditional plans that provide negative real returns.
In today’s age of frighteningly expensive medical care, it is vital that you have a comprehensive health insurance plan in place, too. You may also want to consider purchasing a women-specific critical illness or health insurance policy, which includes maternity benefits, or lump sum pay outs in the event of your contracting a disease that could temporarily hinder your earning capacity.
Chart your course: A robust financial plan is the cornerstone of long term, sustainable wealth creation. But for women, financial planning assumes supernormal significance.
“A woman’s nurturing instinct and risk averse temperament are perfect for goal-based planning. These traits encourage her to think long term and prevent her from making rash and speculative investment decisions,” observes Priya Sunder, Director, PeakAlpha Investment Services.
Sunder goes on to note that despite the above, the odds are heavily stacked against women when it comes to creating wealth — considering that they (on an average) earn lesser than men, take frequent career breaks, quit working earlier, live longer and incur higher healthcare costs.
Considering these challenges, a well-constructed financial plan that is flexible enough to accommodate life-changes, becomes imperative for women investors. According to Sunder, financial planning is essential for extrapolating the implications of one’s present actions into the future, so that corrective steps may be taken today in case retirement or other goals appear to be getting compromised. “If, for instance, a woman plans to take a career break, she can immediately see how the move will impact her financial independence; and then decide on whether to actually take the break or not,” says Sunder.
If you haven’t got a financial plan already, it would certainly make a lot of sense to get started with one right away.