Women today are independent and compete on an equal footing with men. They head businesses and serve as doctors, engineers, teachers, pilots, chartered accountants and lawyers. Sadly, independent women still leave financial decision-making to the males in the family. This must change if women are to enjoy true freedom. On International Women's Day, following are a few tips to help single mothers, unmarried women and divorcees reach financial stability:
Make a budget
Make a budget accounting for every rupee earned and spent. Identify money coming in and track spending. Set financial goals and a plan to achieve them. Make course corrections to keep the budget on track. Single women must save 20 per cent of income. Even if the budget is tight, put some money into savings. Try the 50/30/20 rule. Allocate 50 per cent of take-home pay to necessities, 30 per cent for lifestyle choices and 20 per cent for financial goals.
Create an emergency fund
It's vital for divorcees and single mothers to have an emergency fund. Save at least 6 months of living expenses in an emergency fund. The emergency fund must be liquid to avoid penalties like exit loads or pre-withdrawal penalties. Liquid funds allow instant redemption with money credited to linked bank accounts. Choose investments, which offer decent returns, but don't compromise on liquidity. Spread investments across liquid funds, short-term recurring deposits and debt mutual funds.
Invest for higher education and marriage
Unmarried women should invest for higher education, marriage or long-term goals like buying an apartment. Single mothers and divorcees have the added responsibility of children's education and marriage. Invest based on risk profile. Unmarried women must invest for short-term goals like higher education or marriage only in fixed income. Stick to traditional investments like fixed deposits, post office schemes, liquid funds and fixed maturity plans.
Hybrid savings accounts of banks, and shift money in savings accounts above a threshold to fixed deposits. The money earns high returns with liquidity like a normal savings account.
Invest in equity for long-term goals like buying a flat or a car. Equity mutual funds are risky, but yield high returns over a long period. Invest in midcap equity funds for greater growth potential over 5 years or more.
Single mothers and divorcees with a high penchant for risk, may consider equity mutual funds for child goals. Consider child education plans, which are a combination of insurance and investment. These plans ensure a child's financial needs are met on an unexpected demise. Most child education plans have an inbuilt waiver of premium rider. If the parent dies within the term of the plan, the sum assured is paid immediately. The insurer pays the remaining premiums and the child gets the maturity amount at the end of the tenure.
Insurance for risk protection
Single women must have life insurance and a health insurance plan. Avail life insurance for risk indemnity and not tax saving alone. Term life insurance plans offer cover against risk. Insurer pays the sum assured to nominees on death of the life assured within the policy term. Unmarried women must avail term life plans with parents as nominees. Single mothers and divorcees opt for children or a guardian as nominees.
Avail individual health insurance plans, even if covered with employer group insurance. Unmarried women entering the work force need comprehensive coverage for women specific diseases. Single mothers and divorcees may avail family floater health insurance to cover young children.
Get rid of debt
Get out of debt to enjoy financial independence. Think twice before splurging on unnecessary items using credit cards or a personal loan. Credit cards and personal loans charge high interest. Delaying repayments or a default, leads to a loan trap and a bad credit score.
A loan trap is not the end of the road. Learn money management and read books and articles on personal finance. Take the help of a financial advisor to get out of the loan trap.
Plan for retirement
Women must save at least twice as much as men to build a retirement corpus. Women have a high life expectancy and retirement planning is crucial. Save at least 20-25 per cent for retirement. Single mothers and divorcees can invest in PPF, EPF and fixed deposits for retirement. Tax benefits of PPF and EPF enhance returns, building a sizeable retirement corpus. Unmarried women have lower expenses and could consider equity mutual funds for retirement.
Single mothers and divorced women must ascertain the financial situation and prepare for financial life without a partner. Disclose life insurance plans and investments to beneficiaries. Take help of a professional financial advisor to save, invest, borrow and spend.
Be Wise, Get Rich.
(The author is CEO and Founder of IndianMoney.com)