Financial Planning For
Women
A
Session by Gaurang Jhaveri at International Money Matters, Bangalore on 7th
August, 2010
Financial Planning for Women
Our society has seen a lot, from
women's liberation to understanding independence to recognition of single
women, call it what you like. With increasing exposure and integration with
the world, our society and the role women play in our society is undergoing
rapid transition. The next logical step is financial independence and
without which all the above stand nullified.
Just like the fundamental
differences between men and women financial planning for women differs
significantly.
I state, "Financial Planning is
important for men but is mandatory for women."
Let's Understand Why?
Women today play a much more dynamic role in our society. They believe in
taking more control of their life. Women are taking brave and independent
decisions. Though the priority is given to career she does not compromise on
responsibilities on the home front. The woman of today exercises her choice
such as delaying marriage, providing more for her parents etc. Even married
women today want to remain independent in many decisions. Needless to say
all this also has financial implications and it is therefore critical that
their financial environment is aligned in a manner more suitable to
themselves.
Education has also played its part
in driving women towards the corporate world. More women are taking to
education than before. Armed with a degree, they naturally want to put it to
good use by taking up a job. The past few years have seen a steady rise in
the number of working women in India.
Apart from working women, homemakers
too should take to investing. They can save from the monthly allowance they
get to run the house. Not only will this enable them to plan better for the
family's future but the savings will also prove to be handy on a rainy day.
After all, women are considered to be better savers than men!
These are just some factors that
should compel women to think on the need to invest. And of course, drive
them towards actually investing money on a regular basis into various
investment avenues.
But before we get on to that, a
gentle reminder: For women, as with all individuals, investments form an
integral part of financial planning; investments generate returns for the
future and take care of your financial needs. This is especially necessary
in light of the big question -- 'What if'?
'What if' your husband has not
planned your finances well enough? 'What if' there was an
eventuality in your family? 'What
if' your children's career plans cost you a hefty packet? After all, it's
the children who decide on their future, not the parents.
As a woman, probably in your late
50s, 60s or more, you must ask yourself this question: 'Am I prepared if I
were suddenly alone, say for instance, if my spouse passes away? Will I be
financially secure in his absence?'
Now you need to shoulder more
responsibility, right from paying the electricity bill to filing tax returns
to managing social relations. You may have never done any of these your
whole life, and it could leave you feeling very disorientated. It's a good
idea to prepare yourself while he is still around.
Here
are some things to do:
1.
Financial security: Get to know what is
where, how much, and who is managing it, ie advisor, broker, CA, planner,
lawyer etc.
2.
Is
the Will in order for both of you?
Depending on the asset size and family dynamics, find out if the Will is
registered. It's important that a Will is drawn up specifying exactly how
the assets will get transferred in the contingent absence of any one spouse.
3.
All
information on receivables that is likely to come to you:
a.
Life
Insurance: What is the policy? What is
the likely death benefit going to be? How do you file the claim? Is the
agent accessible? These days banks sell insurance and if you really need
help, be sure to know where and whom to get your claim from. When that money
comes in who will help you manage it? You must have all the answers.
b.
Pension: This is with regards to spouse
pension payments. Is the money going to come into the bank account directly,
or do you need to file a claim? What is the procedure to transfer the
pension payments in your name?
c.
Other investments: Are all investments
likely to get transferred to your name? There can be numerous procedural
bottlenecks. For example, dematerialisation of shares, joint holding with
children and not you etc. There are numerous instances where you can see
your money but cannot touch it. At times like this, you wish you had kept
all your paperwork in order.
4.
All
information on liabilities:
a. General management of
bills/utilities: This is your responsibility now. How will the utility bills
get paid? It is a small thing but can you live without a mobile or telephone
or electricity?
b. Do you owe money?: Are there any
loans or monies owed to anyone that need to be paid off?
5.
Healthcare: Are you covered by the
company your spouse was working in? Is there adequate funds for this? If the
medical Insurance is not available what are your options?
6. Another most critical area, that
is never even thought of is
POA
or Power of Attorney. As you age and if
your health declines, you may not be able to write our own signature
properly. I don't need to tell you what happens if your signature does not
match. But imagine the plight, only you can sign but your current signature
does not match your earlier one. In this case, choose someone you trust, and
give them the general POA or specific POA.
The list goes on. But if you have
the above in order, it will be a whole lot easier for you to manage.
What
is the Immediate Action, Then?
Take another decision; exercise another choice, the choice of dominating and
controlling your financial world.
Here are 3 steps to help you
kick-start this process.
Step
1: Count Your Money
Make a list of the equity shares &
mutual funds with their current value.
Prepare list of bonds, fixed
deposits & other investments you have.
What is the value of real estate
properties you own?
If you earn from business or salary
what is the amount you have left annually after contributing for home
expenses?
If married prepare a list of what
you got from your parents on marriage, this is your "Streedhan".
Step
2: Know What is Available...
Yes, it sounds like being nosy...
but it concerns you and you ought to be nosy. It is very important to find
out what you own and what is available to you. Honestly... do not depend on
anyone and do not forget the "What if" question.
What if you are on your own
COMPLETELY some day? Whether you like it or not you face that risk. Know
what assets in your family you are likely to be a part of. It's of
importance to you and your children (or future children if you don't have
any now). God forbid if something were to happen to your husband or father
do you know what insurance funds will be available, what investments can be
liquidated which cannot be, what pension is likely to come in to support the
family etc.
Step
3: Be a Part of All Decisions...
It's nice to have the comfort of
leaving everything to your husband or parent as the case may be, but don't
forget that, that is all you have and you ought to know what is happening
with your money. It's very simple "" If you have money you ought to know
what your money is doing. It's just like if you want to travel by public
transport you ought to know where the bus is going. Please note I am not
suggesting that you should not trust you family members with your money nor
am I against family values, all I am saying that you got to be a part of all
financial decisions around you, more so if it concerns your hard earned
money.
Here is a simple six-step plan for
financial planning for women.
6 steps to financial planning
The most arduous of journeys begin
with a small step. When it comes to something as important as planning for
child's education and marriage, that small step means setting an important
objective for yourself.
To put it plainly, the fundamentals
of investing are no different for women; so you have to plan your
investments, execute the investment plan and track it regularly. If this
sounds a little complicated, don't worry, we have simplified the process for
you.
Step
1: Define your objectives
The most important thing to do while
you sit down to plan your finances is ask yourself why you want to invest.
For a married woman with kids, the answer could be child's education or
child's marriage.
When we began compiling a list of
likely objectives for women we came up with some interesting options:
Saving for your own marriage 5 years
from today.
Saving for your child's education 15
years from today.
Saving for your child's marriage 20
years from today.
Saving for a small business that you
want to set up at a later date.
Saving for an overseas trip, maybe
even a pilgrimage 5 years from today.
Saving for a gift for your spouse or
parents.
Saving for your retirement 30 years
from today.
This may sound daunting, but it
isn't, when you consider that it's your investment consultant who has to
draw up the investment plan and your role is limited to giving him inputs in
terms of your investment objective, appetite for equity-linked investments,
investment time frame, tax-efficient returns and the like.
Step
2: Identify the investment consultant
Since your investment consultant has
such an important role to play in helping you achieve your investment
objectives, it is important that you 'connect' with the right consultant.
If you have been reading the
newspapers even cursorily, you would have observed several instances of
agents getting their clients to invest in unsuitable investments only to
boost their commissions without a thought to the client's investment
objective and risk appetite.
In the long run, this could have a
ruinous impact on your investment plan. To make your job simpler, we have
prepared a checklist to help you select the right investment consultant:
Both insurance and mutual fund
consultants need certification before they begin advising clients. Insurance
agents must be certified by the IRDA (Insurance Regulatory and Development
Authority), while mutual fund agents must be certified by AMFI (Association
Mutual Funds in India). The agent must have the certification on his person,
so it's relatively simple to affirm whether your consultant is qualified.
Does your investment consultant
offer a complete investment solution? Or is he the type who only collects
the application form, cheque and submits it to mutual fund/life insurance
company? Remember you are looking for an investment consultant not a
delivery boy. An investment consultant should be competent enough to
understand your financial objectives and chalk out an investment plan that
can best help you achieve them.
It is critical that investment
consultants are objective and unbiased in their advice. Being objective
means placing the client's interest over your own. How do you discern that
your agent isn't taking you for a ride? There are ways to find out. For
instance, if you are a low-risk investor and your agent recommends a
sector-specific mutual fund or an aggressive ULIP (Unit Linked Insurance
Plan) then you can be sure that your investment objective is being
sacrificed to fill his pockets. The investment consultant should be faithful
to the plan that he has prepared for you and his advice must revolve around
it.
Value-add investment services is
another area that your consultant must treat as priority. Tools and
calculators, stock and mutual fund alerts, portfolio tracker, research on
mutual fund schemes and life insurance plans are some of the value-added
services that investment consultants provide. Of course, there are few
consultants who do this, but those are the ones you must identify. Some of
these tools are web-based and should appeal to women who are net-savvy.
Even after you have taken the
insurance policy or invested in a mutual fund scheme, you relationship with
the investment consultant continues. You may need feedback on your
investment, account statement, premium cheques to be submitted to the life
insurance company, follow-up on dividends on your mutual fund investments
and the like. It is the responsibility of the mutual fund agent to provide
prompt after-sales service and resolve these issues efficiently.
Step
3: Preparing an investment plan
Once you have identified the
investment consultant, you must get down to actually implementing the
investment plan keeping in mind the investment objectives. For this you need
to bare your 'financial' soul and tell him exactly what you want to achieve,
the time frame over which you want to achieve the investment objective, the
amount of money you want to invest in equities (this is important because
equities can give a push to your savings, but also carry higher risk).
If you find this a little too
detailed and even unnecessary remember it's important for the consultant to
know this so that he can prepare a well-defined investment plan. It's a bit
like telling your doctor everything so that he can prescribe the right
medicine.
Step
4: Executing the investing plan
After preparing the investment plan,
your investment consultant will help you execute it. This involves, for
instance, taking the child insurance plan for your child's
education/marriage, or the diversified equity fund to build a corpus to buy
property after 10 years.
All the investments and insurance
options that have been outlined in your investment plan have to be bought.
Of course your consultant will help you with it, but it pays to be
personally involved up to a level.
For instance, to the extent possible
fill the application forms yourself so you learn about the relevant details.
While filling the insurance application form, you have to give a true and
fair picture of your medical history, accurate information on your weight
and height and other details of this nature.
Giving inaccurate information on
these points could lead to rejection of claim at a later date. Your
investment consultant is unlikely to know these details better than you, so
personal involvement is necessary. Likewise, appointing a nominee is common
across mutual funds and life insurance, so ensure you have those details
correctly filled in.
Step
5: Review the investment plan
Setting the investment plan in
action is an important step towards achieving your financial goals. But to
ensure you stay the course, a regular review of the investment plan is
necessary.
Of course, this will also be done
under the guidance of your investment consultant. There could be several
reasons why your investment plan may need to be adjusted from time to time.
One instance is when stock markets
change course over a period of time, they disturb your asset allocation. So
you may have to redeem some of your equity investments or buy more of them
depending on how much risk you are willing to take.
As you approach the milestone
(child's medical admission or marriage), you need to get out of equity
investments since equities are risky in the short term. That money should be
invested into short-term debt, which is relatively safe.
Again, all this may sound very
complicated, but your investment consultant is the one who will keep his eye
on such events and will make necessary adjustments to your investment plan.
On your part it helps to be informed since it's your money on the line.
Step
6: Redeem your investments
As the event you have been saving
for, is upon you, you need to redeem your investments. With a mutual fund
investment this involves signing on the redemption slip and having your
consultant submit the same to the mutual fund. In case of a life insurance
policy that you have taken, it involves having your consultant submit the
policy documents to the life insurer and follow up for the maturity
proceeds.
Then you will need to sit down with
your consultant and understand the taxation issues involved with the
redemption of your investments.
As you can see, setting financial
goals, outlining an investment plan, executing it, reviewing it, is not
really a difficult task. It may be time consuming but it's certainly not
difficult. With a systematic and disciplined approach to investing and by
identifying the right investment consultant, financial nirvana could
be closer than you think.
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