Women and the Science of Managing Financial Health

Family comes first”

“My father (or husband) handles my finances as he knows best”

“I would rather buy a house than dabble in risky instruments”

 If these statements sound familiar, you might happen to be one of the many women who tend to neglect their individual financial affairs as they busy themselves putting their family’s interests over their own. You can, however, take solace from the fact that it’s not only the ‘everywoman’ who ends up making financial mistakes; expert money managers are not immune to them either (See: Money Lessons From the Women On Top). Read on to ascertain the pitfalls you must avoid and the money mantras you must abide by to secure your financial future.

 Avoid common traps

Leaving financial decisions to male members of the family tops the list of mistakes women make. “Even educated working women tend to adopt this approach. Some women do not access their net banking ID and password and are not aware of the nitty-gritty of the joint accounts they hold with their husbands,” points out certified financial planner Tejal Gandhi, CEO and founder Money Matters. Often, they are not in charge of their finances. “It could be because they do not draw an income or they wish to avoid fights with their male relatives – usually the spouse,” says financial planner Shweta Jain, CEO and founder Investography.

Quite frequently, women ignore creating any assets of their own – a mistake that could have serious consequences later. “Even those who hail from well-off families need to create own assets. Some end up splurging their family’s or own income, only to regret later,” says financial planner Kavita Menon. If your spouse has taken on the responsibility of paying EMIs while you take care of the household expenses, make sure you have a share in the property. “Some fear numbers and assume that making financial investments involves complex figures, which isn’t their cup of tea,” points out Gandhi. Also, don’t follow the herd. ”Don’t buy a house or gold simply because you have started drawing an income. Evaluate your liquidity and future needs before locking money into physical assets,” she adds.

 For a safe future

The first step towards a safer financial future is to raise your levels of financial literacy, without which you will be vulnerable to frauds perpetrated by unscrupulous bank officials, distributors, cyber thieves, or even close relatives. Also remember, investing in ‘safe’ instruments like bank fixed deposits or a public provident fund (PPF) will not suffice. You have to look at staying invested in equities to achieve your goals.

Women are rated higher than their male counterparts when it comes to risk management and patience. “Most women are risk-averse by nature. They need to invest in instruments that beat inflation. They can test the waters first with SIP (in equity schemes) or small-ticket investments,” advises Jain.

So prioritize your goals and allocate resources to each with a well-thought-out strategy. Finally, make sure that you have a pure protection term cover and a health insurance plan in place.

preeti@outlookindia.com

 Money Management Lessons From the Women on Top

How do ace investment managers handle their personal money matters? Preeti Kulkarni speaks to four such women money managers for insights.

 Anuradha Rao

MD and CEO, SBI Funds Management

Money Advice From Mother

I would say that I have a learned lot by observing my mother over the years. She was a working woman who started her career after marriage and children. It was a sheer determination that enabled her to achieve this feat. She was a teacher, a profession that has always been highly regarded. My father passed away when she was 36 and she shouldered all responsibilities since then. One might say she did not have any scope for planning or saving. But she invested in her children. She kept me away from household responsibilities so that I could focus on my studies. She considered education to be the doorway to a bright future. She provided financial support for my education, through scholarships that I won also helped. With a sharp focus on the future, she insisted on me doing my post-graduation. She got me to fill up my State Bank application form. She was clear that I should have a career and not just a job.

  Money Lessons Learnt

I had purchased a plot of land long ago and got a house built, as is typical of my generation. However, I live in Mumbai and it is difficult to maintain the house and the ancillary supervisory activities it calls for. You need to look for tenants, keep track of rent payments, maintenance and so on. Besides, my 13-year-old daughter is unlikely to need this house. However, making a decision to sell isn’t easy as real estate is not a liquid asset. Moreover, my daughter is not overly fond of gold, so my investments in gold too have limited utility value. Financial investments, on the other hand, are liquid investments that can be liquidated and used for any purpose you wish.

Money Mantras

Start early, save first, and spend later. Don’t invest merely what you are left with, but make it a priority. Invest regularly. Remember, bank fixed deposits are for contingencies. If you want to grow your wealth, you must invest in equities as only this asset class can beat inflation in the long run. When you save, keep in mind that the cost of living would rise after 30 years and plan your investments accordingly.  Also, when you need to use funds from your investments to fulfill a financial goal, explore options like SWP (systematic withdrawal plan), which help you get regular cash flows in a very tax efficient manner.

 RM Vishakha

MD and CEO, IndiaFirst Life Insurance

 Money Advice From Parents

I learned a lot from observing the behavior of my father towards finances. He always emphasized the importance of financial security. He was of the view that you can compromise on what you eat and how you dress, but never in your home. Being frugal and eating one meal a day was palatable, but the shelter was the most critical element. I also learned the importance of financial savings from him; he has always invested in corporate bonds and fixed deposits at a time when most people did not think beyond LIC policies and bank fixed deposits. I imbibed the spirit of maintaining the balance between risk and returns, learning not to be overambitious – or overcautious, for that matter.

 Money Lessons Learnt

One big lesson that I learned was to never invest in under-construction properties. I burnt my fingers in a project that faced delays. The completion period turned out to be completely different from what I envisaged it to be.

 Money Mantras

Keep the focus on your needs at the time of investing. The purpose is very important. Look at the fundamentals of the instruments and not merely the returns. Returns are outcomes – they should not be drivers for decision-making. If you invest in a strong fund, it will rebind even if there is a blip in the interim. Make sure you choose the right instrument. You have to buy life insurance from a long-term perspective, with your goal in mind; you cannot compare it with a mutual fund. This is a risk-management tool that protects you against the risk of dying too early or living too long.

 Lakshmi Iyer

Chief Investment Officer (Debt) and Head, Products, Kotak Mutual Fund

 Money Advice From Parents

My parents followed the old school of thought that placed emphasis on prudent money management, which is of relevance even today. They always believed in saving enough for a rainy day. I have realized over the years how valuable that lesson is. It may seem old-fashioned, but being thrifty helps you throughout your life.

Money Lessons Learnt

You always tend to feel you ought to have started earlier when it comes to investing in equities. I feel so, too. Warren Buffett started investing when he was 10 or 11. And the importance of starting early is the key lesson I have learned. My biggest regret is that when I started my career I had the misconception that insurance equals investment. I have realized over the years that insurance is actually a risk cover and not an investment tool. There are other avenues available to make good investments.

Money Mantras

The most critical thing – and it’s an evergreen point – is to believe in the power of compounding. It is indeed completely magical. It is very clear and easy to understand too. I keep quoting it in my meetings with retail as well as institutional investors. This is the whole and sole mantra for me.

 Aditi Kothari Desai

Additional Executive Director and Head, Sales & Marketing, DSP BlackRock Mutual Fund

 Money Advice From Mother

My mom always told me that I should be financially independent and not depend on anyone else. She made it clear that I should get a job, feel confident in my abilities, and earn my own money. She stressed that I should know that I have the ability to get a job and earn on my own. So, at the age of 20, I got my first pay cheque when I was doing an internship in New York. It felt so good that I did not need to depend on anyone anymore. My father always believed from the outset that I should manage my own finances. So, after college, I was told that he was not going to help me with this and that he’s left it to me and my sister to manage whatever money we had. We had to find our own financial advisor that we were satisfied with and make our own decisions – he wasn’t a part of it. Essentially, it boiled down to ‘earn your own money and manage your own money’.

 Money Lessons Learnt

I think I should have invested better during my early days. My portfolio had always been a bit on the conservative side. Ideally, when you start off, you need to have approximately 70-75 percent invested in equity and around 25-30 percent in fixed income (for short-term needs). I had more like 50:50 in both—and that was at an early age.

 Money Mantras

When it comes to money, I barely keep any money in the bank. Money should always be invested. It could be in liquid funds if you need the money in the short term. Never ever leave it idle in the bank. Also, don’t keep obsessing over your portfolio. Get a good advisor, make a good asset allocation, and stick to it. The other thing I learned is to invest in mutual funds and not in individual stocks. One has no time or knowledge to undertake research and keep monitoring stocks. Leave that to the experts. If you earn or inherit money that’s yours, you should be the one to invest it.