Money management tips for working women

Ever wonder why there are numerous articles written about women and money management. The reason is working women find themselves in unique situations -- home maker, mother, caring for the elderly. Working women experience greater disruption in earnings in their life as they take career breaks for different reasons -- relocation due to marriage, to raise children, tend to their elders or accommodate family contingencies et al.

Statistically it is found that women generally spend seven years out of the workforce to have and raise children. In the long term however, such disruptions hurt the family's wealth creation and though a woman and a man may have started their careers at the same time, she ends up earning far less when they both retire.

Also, studies across the globe show that periodic income disruptions make women risk-averse. This means that they invest in lower-risk and fixed-income investment options such as fixed deposits and bonds for fear of losing money due to factors such as stock market fluctuations. The outcome of the preference for fixed-income assets is obvious -- just her savings will not suffice in her old age, and she'll have to depend on the retirement funds of her husband, or other sources.

And then there is the reality of a divorce which can be even more painful for dependent spouses. Regardless of how modern the majority claim to be, studies indicate that they lag significantly behind in one area compared to their male counterparts -- that area is financial planning. Most women leave the management of their finances to their fathers/husbands. Failure of marriage, unequal inheritance of wealth, non avoidance of old age, etc all the more necessitates us to be self reliant.

However, taking into consideration the above factors, women need to have a holistic financial plan, that too from a very early age in order to make good the time lost in such career breaks. In the current scenario, personal empowerment and financial independence are the need of the hour. After all, financial independence is true empowerment. You know you are empowered when you do not need anyone to tell you how to live your life or spend your money. Also, whether or not a woman has her own income, she still needs to know how her family's money is invested. There is no justification for you to not participate in the financial planning that will lend itself to your future.

So the following are money management tips (though not exhaustive) which will help working women manage their finances better:

Begin early
One should begin managing one's finances early on. There is some magic to be found in "compound interest". The earlier you start, the smaller the amount you can invest for a higher gain. Also, when you start early (and continue to invest) you can take greater risks (like investing in equities, equity mutual funds). But remember that compound interest can only work its magic if you give it time. So, start saving now, if you have not started yet!

Inflation and interest rate risk eat into the purchasing power of your money if you parked your money in lower risk investment instruments. So investing early in growth assets like equities and equity funds is imperative. Don't limit yourself to conservative investments such as money market accounts and CDs. Use asset allocation to diversify your portfolio.

Build an emergency fund. Ideally, six months' monthly expenses could be put in a liquid fund. Without one, losing your job or incurring a large unexpected bill could force you to take on heavy credit card debt, and could put you into a financial hole that will be difficult if not impossible to dig your way out of.

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Cutting down on impulse buys and spending money prudently and training the same to children goes a long way in sensibly managing your money.

Invest in insurance
Insurance is a must-have investment to protect your own and your family's health costs and your physical assets. Also to provide financial security to your dependants in your absence. Insurance helps transfer the financial risk from one party to another, ie, from you to your insurer.

When together, plan your finances together
Invest jointly with your spouse. Share expenses. Ensure expenses are covered by one income, try maximum to avoid loans to help you quit your job if needed. Ideally all money matters should be discussed by couples. Be prepared for the worst; even if you don't want to take complete charge of your financial future, try and understand where the money is coming and where it is going.

Educate yourself
Personal financial planning and management is not complex. All you need to do is to understand your life goals and plan as per your requirement. You could read some useful books to educate yourself about the subject. Then even if you hire a financial consultant due to lack of time to self manage, you would understand what he/she is doing with your money.

Suggested reads
Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money-That the Poor and Middle Class Do Not! By Robert T. Kiyosaki

The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)
By Benjamin Graham, Jason Zweig, Warren E. Buffett

Smart Women Finish Rich: 9 Steps to Achieving Financial Security and Funding Your Dreams (Revised Edition)
By David Bach

If Your Life Were a Business, Would You Invest In It?: The 13-Step Program for Managing Your Life Like the Best CEO's Manage Their Companies
By John Eckblad and David Kiel

The Guru Guide to Money Management: The Best Advice from Top Financial Thinkers on Managing Your Money
By Joseph H Boyett and Jimmie T Boyett

Illustration: Uttam Ghosh

The following are the benefits given to women under different laws:

Income Tax Act, 1961: Total income of up to Rs 1,90,000 per year is exempted for woman assessees (below 65 years of age).

The rates of income-tax for FY 2009-10 (AY 2010-11): Married Women's  Property Act, 1874: Under MWP the spouse can assign his life insurance policy in the name of the trust created for the benefit of his wife and/or children. The money set aside in this form is free from creditors, court or tax attachments (even in case of insolvency) forever, provided that the trust under MWP has not been effected to defraud the creditors. The MWP Act, 1874 creates a ring fence protecting the interests of the beneficiaries and safeguards the family against uncertainty of future and possible adverse financial conditions.

Alimony: The purpose of alimony is to avoid any unfair economic consequences of a divorce, even after property is divided and child support, if any, is awarded. For example, a Muslim woman would be entitled to maintenance from her divorced husband as long as she doesn't remarry.

Estate planning (Wealth Transfer): An effective estate plan can be made by the couple jointly. As the surviving spouse (generally the wife) is likely to end up being the executor of her husband's estate plan, so ignorance cannot be afforded. It is useful to keep a record of inventory of assets and their beneficiaries for smooth transition of assets to the intended beneficiaries.

These are some important things to consider in your financial planning that are not very different from how a man may approach the same subject. The key is to start early and continue being invested. As a woman, you have a longer life expectancy than a man does. Therefore, your financial planning must encompass the fact that you have more years to fund. Having your finances in order is just one way that you can move toward your ideal lifestyle. Maybe your goal is purchasing the home of your dreams, or going into business by yourself. An active and independent retirement is also a goal. Many people no longer feel confident that they will be able to rely on pensions or social security cheques after they have retired. Most goals take more planning than just a savings account and good intentions. Financial planning involves long-term strategic involvement...but it is worth it.

By sticking to your financial plan you can avoid excessive spending and unmanageable debts. You will have a sense of freedom from financial worries that come with lack of planning, so that you can use your spare time in activities you desire to do but don't have the time for. As quoted by Diane Ackerman, an American poet, "I don't want to get to the end of my life and find that I lived just the length of it. I want to have lived it the width of it as well.