In the old days, women were often dependent on men for financial support, but times have changed for the better. Gone are the days when relying on men for financial security was the norm. Today, women are making huge strides, starting careers, and building their businesses. In the world of finance, you can even find many qualified women financial advisors who bring a unique perspective to the table! However, despite this progress, the importance of financial literacy and financial planning for women cannot be overstated.
The good news is that women often already have strong financial skills from managing household expenses, budgeting, and saving for emergencies. But since there’s always room for growth and improvement, we’ve got seven tips that can empower your financial planning. Let’s go!
Financial Planning Tips for Women
With proper financial planning, you can take control of your finances and secure your future. Here’s how you can kickstart your adventure:
1. Assessing Your Financial Situation
The journey of achieving financial independence for women begins with an honest assessment of the current financial situation. Start by taking stock of your income, expenses, savings, assets, and liabilities. This will give you a full picture which can help you identify areas where you’re doing well and areas where there is room for improvement. This will also help you calculate your net worth. You can do this by subtracting your total liabilities (such as credit card loans or education loans) from your total assets (such as savings, properties, and investments). Net worth is a powerful metric that can tell you about your financial health. It can help you track your financial growth over the years.
2. Setting Your Financial Goals
Now that you know where you stand financially, it’s time to start setting meaningful financial goals. Whether you’re aiming to save for higher education abroad, plan a dream wedding, secure your child’s education fund, or prepare for retirement, SMART goal planning is how you can turn your dreams into reality. SMART goal planning means setting goals that are specific, measurable, achievable, realistic, and time-bound. For example, if your goal is simply to go on a vacation, you can make it SMART by saying “I’ll save ₹10,000 each month for the next 12 months for a trip to Goa next year.”
This gives you a specific, measurable target that you have to achieve each month and clearly states the time horizon. An important thing to remember is to be realistic. Your savings goal is something you should be able to achieve without putting undue strain on your finances or sacrificing essential needs. Such clearly defined goals help you stay motivated which makes you more likely to achieve them.
3. Budgeting
Budget planning is all about creating a framework that dictates how you will spend your money every month to achieve your goals. To create a simple budget, classify your income into three categories – essential expenses, non-essential expenses, and savings. Prioritise your savings and try to save before you even spend a rupee.
The most common way to allocate income is by spending 50% on essential expenses, 30% on non-essential expenses, and saving 20%. A benefit of budgeting is that it helps you identify areas where you can make cutbacks, but remember, like your goals, your budget should be realistic. If you make too many cutbacks and make too many sacrifices in your lifestyle you will lose the motivation to stick to your budget and ultimately abandon it.
Also, remember that creating a budget is not a one-and-done thing. You have to review your budget regularly to account for the changes in your life and make adjustments to stay on track.
Also Read: Role of Financial Literacy in Empowering Women Entrepreneurs
4. Build Emergency Fund
Preparing for emergencies is a big part of financial planning. An emergency fund is a reserve of cash that acts as a safety net that provides financial security in unexpected situations such as a loss of employment or costly hospitalisation. To build an emergency fund, you should aim to save at least six months of your living expenses in a separate account. There are many benefits to doing so. First, it gives you more financial independence, meaning you won’t have to take big loans to get through unforeseen situations. Secondly, it reduces the need to liquidate any long-term investments you may have. Just knowing that you have a financial safety net to fall back on if things get tough will also bring you peace of mind.
5. Retirement Planning
When you are young, retirement may not be one of your immediate concerns, but it’s important to plan for it as soon as possible. Starting early allows you to take advantage of compounding interest and build a big corpus over time.
Many investment options are specifically designed for retirement planning such as the National Pension Scheme, Unit Linked Insurance Plans, and Public Provident Fund. Equity mutual funds are in general a great option to achieve long-term goals such as retirement. But every investment option has its underlying risks and returns. It’s important to understand these factors before you make any decisions. Seeking professional advice from a retirement planner can help you make decisions that are suited to your financial standing, risk tolerance and needs.
6. Investing Wisely
Just saving money isn’t enough. Idle money loses its value due to inflation. You’ve got to put your money to work for you. Not only will this protect your money’s value, but also allow it to grow. This is why investment planning is so important. It may seem a bit intimidating if you have never invested before but don’t worry. Start by educating yourself about different investment options, such as stocks, bonds, mutual funds, gold, and real estate. You’ll learn that each category has thousands of products, each with its risks and returns. To find suitable options, you have to assess your risk tolerance and financial goals.
For example, if you have a long-term investment horizon and a high-risk tolerance, you may be more inclined to invest in equity mutual funds. If you have a shorter time horizon or a lower risk tolerance, you may prefer safer options such as debt products.
7. Insurance Coverage
You already know how to build an emergency fund, and while it’s a great financial shield it’s not enough on its own. Any financial plan is incomplete without comprehensive insurance coverage. Term insurance can take care of the financial needs of your loved ones in case of any unfortunate event. Health insurance can help you take care of big medical bills. Property insurance can help protect your home against damage due to fire, theft, or natural disasters. Every individual is exposed to many kinds of financial risks that have the potential to wreak havoc on their stability and plans. Insurance protects you and your loved ones from these risks and provides peace of mind.
Conclusion
There we have it. Seven simple yet game-changing tips that can change the way you think about your finances. Other than these, if you have any poor financial habits such as impulsive spending try to change them. If you have any debt, work on eliminating it quickly and live below your means. Learn about the different ways you can save on taxes. Make yourself more financially literate and be disciplined to achieve financial independence.
The foundation of an effective financial plan is built on clearly defined goals and a realistic budget. Prioritise your savings and invest them to achieve your goals. Have comprehensive protection in the form of an emergency fund and adequate insurance. Start planning for your retirement early so you can take advantage of the magic of compounding.
