How women can manage money

Usually, International Women’s Day is not an event that gets us folks at PrimeInvestor excited. Being a women-powered platform, we believe that much of the financial advice that we give men applies equally to women. We are also quite skeptical of ‘special’ products branded with names such as Lace, Pink and Silk that financial firms seem to think would suit women. 

This time though, we decided to use this day to urge women to be more money-minded, by sharing the lessons that we’ve personally learnt from managing our own money for the last 15-20 years. If you missed our Twitter Spaces on why women should be money-minded, here are the key takeaways.

What we mean by money-minded

Traditional stereotypes encourage men to think actively about money and to be bread-winners of the family. Women are encouraged to focus on loftier things such as the management of the home and the welfare of the family, while leaving prosaic money matters to men. But we urge our women readers to consciously be more money-minded on three counts.  

• Confidence: Whether we like it or not, we live in a society that values professions based on their monetary value. Women may put unstinting hard work into being home-makers, nurturing children or being reliable caregivers to the elderly. But as long as these services remain unpaid, they’re unlikely to be valued as they should. Being an earning member of the household or managing money on her own can bolster a woman’s sense of self-worth and confidence.

• Risk mitigation: One of the important lessons Covid has taught us is the need for risk mitigation in family finances. When unfortunate events take away a father, a brother or a husband, the woman may be forced to take over the reins of money management. Doing this at a time of deep grief can be unsettling and traumatic. Knowing your way around the family finances right from the outset can help you handle life-altering events more easily. 
• Contributing member: Earning and managing your own money can help you be a contributing member of the household. Being able to fund a vacation for your parents or chip in with their healthcare expenses can bring in joy. So can the ability to contribute to your child’s college degree or marriage. Your building and managing a portfolio that is distinct from your spouse’s can give him greater confidence to explore a career break or take an early retirement.

What it means to be money-minded

If we’ve convinced you that being money-minded is a good thing, here are three things you must do. 

• Discuss your career plans, savings and spending habits, existing assets and loans openly with your partner before you decide to commit to a relationship or a marriage. If you’re single or live with your parents, have the same discussion with your family and siblings so you can step in for each other. 
• Don’t confuse love or respect in a relationship with mutual dependence. Even in a happy relationship, having a separate set of bank accounts, credit and debit cards and investment portfolios uncomplicates life decisions and reduces the scope for disagreements.

• Don’t take emotional decisions when it comes to finance. Talented women tend to give up too easily on their career when life-changing events such as marriage, motherhood or the illness of parents intervenes. Resuming after this break can be quite difficult. If there’s a family emergency or crisis at the family business, don’t pledge a disproportionate amount of your earnings, savings or assets to salvage the situation. When taking on joint loans, ensure that you have joint ownership in assets too.

Making a start

Many women shy away from managing their finances either because they think they don’t know enough about money matters or because they don’t have time for the task. But in investing, more than in any other activity, you get better only by making decisions on your own, committing mistakes and learning from them. 

To quote a cliché, a journey of a thousand miles begins with the first step! Whether you’re a young woman starting on her first job, a homemaker with some surpluses or a career woman, take these simple steps. 

• Set up a bank account in your name, for your salary or savings. 
• Get a credit card and be systematic about paying off the entire outstanding on the due date every month. This helps you build up a credit history that can come in handy if you need loans later. 
• Open a Public Provident Fund (PPF) account and make regular contributions to it every year. With tax-free interest of 7% per cent plus which automatically compounds, the PPF can be a simple yet powerful tool to build long-term wealth. Annual investments of upto Rs 1.5 lakh in the PPF earn you section 80C tax exemption on your income.  
• If your employer offers EPF, track and increase those contributions. This is another long-term avenue that can give you safe debt returns with compounding. 
• Open a three-way trading/demat account with a leading bank, to allow you to invest in NCDs, IPOs, ETFs and shares that may come by later. 
• Open an account with a Direct MF platform and set up SIPs in funds within the 10^th of each month, to ensure that you save before you spend. Choose index funds if not confident of choosing the right active funds. 
• If you receive a windfall or bequest, resist pressure from bank relationship managers or others to immediately invest that money. Park it in lower risk short-term debt funds and deploy it gradually, following the same rules as you do for other investments. 
• Share your CAS details (email ID/Password) with your spouse and request him to do the same, so that both of you are aware of the state of each other’s financial investments at any given point in time.

Investing on autopilot

Between juggling your home, the needs of family members and/or your job, as a woman, you often have little time to micromanage your money. But the good news is that you can build a very healthy long-term portfolio for yourself without micromanagement! 

Here are a few simple tips to accumulate a good-sized investment corpus while putting your investment decisions on autopilot. 

• Convert your main salary account or savings account with your bank into a sweep account. This facility allows you to set a threshold balance (say Rs 25000) beyond which the bank will automatically convert the excess money into a Fixed Deposit or FD. This prevents your savings from idling away at 3.5-4% until you decide where to invest. 
• If buying bonds or mutual funds, always opt for the Cumulative or Growth option, respectively, so that the interest or dividend you receive can get reinvested into the same product without your having to intervene. 
• Own two separate bank accounts for your salary/savings and investments. Make sure that when any of your FDs/MFs/bonds mature, the final proceeds come into your investment account. This will ensure the money doesn’t get spent. Same rule for rent, dividends and interest income from your portfolio too.   
• When setting up SIPs, opt for long periods of 10 years plus so that you don’t have to tinker with them. If an emergency strikes, you can always pause SIPs. 
• If you are confident of rising savings or income, opt for step-up SIPs, so that your investments rise by say 5% every year to keep up with your improving lifestyle and inflation. 
• Sign up for NSDL or CDSL Consolidated Account Statement (CAS). This free statement, which lands in your inbox monthly, gives you a one-shot view of all your equity, mutual fund, listed NCD, ETF and Sovereign Gold Bond investments at one place. The CAS makes it easy for you to work out your overall net worth and your rough asset allocation pattern, to gauge if you’re on the right track. 
• When stock markets correct, and you don’t have time to do homework on stocks or funds, add to your index fund investments to capitalize on low prices. 
• Lock into long-term debt options such as tax-free bonds, government bonds, NSC, NCDs from top-rated companies and NBFC deposits when interest rates are high. Typically, Indian interest rate cycles peak when the yield on the 10-year g-sec hits 8% levels and bottoms when it hits 6%.   

If you manage to persist with the above for a few years, you’ll be in a position to offer tips to your male family members, acquaintances and colleagues, when future International Women’s Days come by!