It is a mistaken belief that if you are earning an income, you are financially empowered.
A working woman may be financially independent but if her money decisions are being made by her spouse, parents or in-laws, she cannot be considered as financially empowered.
The belief that they do not understand anything about finances but that their spouses do, leads many women to blindly accept all money decisions taken on their behalf.
These women need to understand that finally they are responsible for their money and if the person on whom they are so completely dependent passes away or does not manage the money well, they are the ultimate sufferer.
Financial empowerment comes from understanding the implications of their financial choices and still making those choices. Hence a minimum basic level of financial literacy is definitely required.
This may sound a little overwhelming to the readers; hence there are a few basic easy to do steps, which you can start with.
Reorganise your Financial Life
Step 1. Go through all the investments you and your spouse own; Bank accounts, fixed deposits, Mutual Funds, Demat accounts and even real estate assets including your residential home. Check whether all of them have joint names or at least a nomination. If there is neither on any of these assets this is the first task you have to perform. These are small but tiresome tasks to perform, but just thinking about the repercussions for a moment should galvanise you into action.
Step 2. Go through all the Life Insurance Policy documents. All insurance policies have nominations but policies bought before marriage have one of the parents as nominee. Surely you would want to change this. Another tiresome but a very important task to perform.
Now that you are at it, also check the amount of insurance cover your spouse has. Nowadays, most families are double income families. This generates a feeling of complacency and the thought that even if I die my spouse earns and will be all right so I don’t really need life insurance. But if you observe their lifestyle, asset purchases and the amount of liability and EMIs they take on, it reflects the repayment capacity of dual incomes. If either spouse dies, it is very difficult for the surviving spouse to continue with a suddenly depleted income amount. Hence it is essential to purchase an insurance cover, which will take into consideration the liabilities and the future goals, and the corpus of which will ensure that the loss of income is filled.
Financial decisions can never be adhoc. We believe everyone should have a Financial Plan. However, Financial Planning is done for families and not individuals. If your spouse is reluctant to get into the process, doesn’t “believe” in Financial Planning or is simply lax about the whole issue, you can and should chart your own course.
Basic Steps to Financial Discipline
1. Create a pool account where both spouses contribute a specific sum towards household expenses including EMI and insurance payments, if any.
2. Create a separate emergency fund equivalent to 4-6 months of the above expenses. In a situation when for any reason the income temporarily stops or is reduced, this fund can act as a buffer. For those of you who are responsible towards an elderly dependent who does not have a medical insurance cover, you may have to increase the emergency fund to cover the eventuality.
3. Buy adequate Life Insurance for the reasons cited above.
4. Buy adequate health insurance even if your Company covers you. Remember, health insurance requirement is most felt in the sunset years but ironically at that time it is most difficult to obtain, so basically you are subsidizing your future claims by paying today’s premiums.
All your remaining income can be saved and invested. Remember however, saving is not investing. In fact, with inflation at 8% and savings interest at 5% you would realize that with every step you take forward you are actually going 2 steps back.
So an investment strategy becomes very important.
Starting Point to Investments
A good starting point could be Bank FDs. As an income earner you would always be saving money on a monthly basis. Start a monthly investment programme in an equity mutual fund, popularly known as Systematic Investment Plan (SIP). Understand that this is a long term investment. I would link it to your PF or PPF in which a part of your income is deposited every month/ year and you do not even think about it. If you develop the same attitude towards SIP, you will be amazed at what the combination of power of compounding and the efficacy of equity over long term can do for you.
I have had instances where individuals started with Rs. 10,000 to 15,000 and as they developed confidence slowly increased it over a period of time and in a decade have become crorepatis. This happened of course mainly because they resisted the temptation to withdraw midway through.
Role of Investment Advisor
At this juncture, you need to seek the help of an investment advisor. Do understand that your spouse, friends, colleagues are not your investment advisors. Nor are agents and distributors who talk about the “fantastic products” they have that are just right for you.
A good investment advisor will have conversations about your future goals, aspirations, and your savings/spending habits.
He will work with you to articulate those goals, establish timelines for their fulfillment and create an investment strategy to work on the same.
He will also explain to you his conclusions and the whys of his investment strategies. He is the one who will slowly make you financially literate as he helps you fulfill your goals and aspirations.
After all it is not the accumulation of money but how it can be used to fulfill your goals and aspirations that will bring happiness and fulfillment.