Importance of Financial Planning for Single Woman:
Radha is a busy professional who would turn 30 in a few months. She works as an Assistant Professor at a leading university in Bangalore. She has just finished her doctorate and lives with her father who is financially self-reliant. Her career is very demanding which requires her to do extensive research and paper presentations. Being single and having no dependents makes her care-free about financial planning. She is fond of traveling, eating out and shopping. During weekends, she mostly spends her time in going out with her friends. At the beginning of each month, she is mostly worried about how to manage expenses owing to no savings and impulsive spending habits. As far as money management is concerned, she has left all her financial decisions on her father. On one fateful day when she was getting ready to go to work, her father got a heart attack. Her father was rushed to the hospital, but the doctor could not save him. Emotional loss apart, the life of a carefree girl was put into jeopardy as she had no idea how to go about managing her finances in the absence of her father.
This is the predicament of Radha and many other female professionals who are single and do not decide about their finances. Recent statistics identify that single women constitute nearly one-fourth of India’s female population. Among them, less than one-fourth of working-women take financial decisions on their own. Women are generally risk-averse and less aggressive as compared to men at the time of investing. The fact that In Tier II & Tier III cities there is significantly less number of female investors as compared to urban areas is a testimony to the above fact. Usually, financial jargons turn-off women from investing leading to the vast population of untapped potential female investors.
While the basic principles of financial planning remain the same for both the sexes and is gender neutral but based on the following social and economic factors planning for women need a special consideration. Following are 3 reasons which prove that you being single woman should participate in financial planning:
Women are here to stay longer than men:
Science has proven that women are at a biological advantage than men with respect to life expectancy. The lifespan of a woman is 5% more than that of a man. So, in terms of financial planning, it translates as you would lead a longer post-retirement life as compared to men. Consequently, you need to build a larger corpus to sustain yourself for a longer period than men.
However, as more women are joining the workforce, their vulnerability towards critical diseases is increasing. A study conducted by The Associated Chambers of Commerce and Industry among 2800 working women aged 32-58 years in 10 cities found that 42% of working women were afflicted with lifestyle ailments such as obesity, diabetes, depression, chronic backache and hypertension. A study conducted by Saffolalife in four metro cities among 624 respondents found that 67% of working females over the age of 35 in India are at the risk of cardiovascular diseases. Another study conducted by Dr LH Hiranandani Hospital in Mumbai found that out of 300 women executives, 33% suffered from reproductive and hormonal issues owing to a sedentary lifestyle, long traveling and work pressure. The Institute for Health Metrics and Evaluation has established that breast cancer has become the leading cause of death among Indian women. The treatment of these diseases involves a huge out-of-pocket expenditures that may create financial instability. Hence, you need to start allocating money via financial planning towards health insurance and life insurance to address these issues.
Women earn less as compared to men:
United Nations Development Programme (UNDP) report reveals a startling statistic that women perform 67% of global work but earn only 10% of global income and possess only 1% of global assets. According to The Gender Development Index (GDI) Report 2014; developed by the United Nations as a measure of gender equality, the per capita income of women in India was $2116 whereas the per capita income of men was $8656. Mercer – NASSCOM Gender Inclusivity: Building Empowered Organizations study highlighted that women occupied only 7% of the top level managerial positions across industries.
Women are thus making less money on the job as compared to men. In financial terms, it means that lesser superannuation benefits would be available to you to fulfil your post-retirement needs.
Women score low on financial literacy:
Financial literacy implies possession of knowledge with respect to personal finance. A financially literate individual knows practical application of money management, debt management, investment planning, tax planning and risk management. It is regarded as the key component in financial planning and empowerment of women. The S&P’s Ratings Services Global Financial Literacy Survey 2014 threw light on gender gaps in financial literacy. Globally, men were 5% more financially literate than women. In India, in comparison to 73% of financial illiterate men, there were 80% of women not being financial literate.
The following graph illustrates the phenomena of the gender gap with respect to knowledge of financial products, risk diversification, compound interest and inflation.
The combination of longevity, low income, as well as financial illiteracy, makes women more vulnerable as well as dependent.You may follow what Jim Rohn says “If you don’t design your life plan, chances are you’ll fall into someone else’s plan.”
Financial Planning Tips for Single Woman
Planning is the key to accomplish your financial life goals; Noel Whitaker has rightly opined that “Life is full of uncertainties. Future investment earnings and interest and inflation rates are not known to anybody. However, I can guarantee you one thing, those who put an investment program in place will have a lot more money when they come to retire than those who never get around to it.”
Trust me personal financial planning is no rocket science. Here is a 5-Step Action Plan to kick-start your financial planning
Be Wise Moneywise:
I would like to emphasise that financial literacy and discipline is the key to one’s financial freedom, more so if you are a single woman. Increasing your financial literacy score can help you in getting adept at financial planning. You need to be familiar with financial terms like Risk diversification, compound interest, inflation, asset allocation, time value of money, etc. You can gain deeper insight into the matter by subscribing to mymoneysage personal finance blog.
Books like “The Single Woman’s Guide to Retirement” by Jan Cullinane, “Financial Planning: A Ready Reckoner” by Madhu Sinha, can also enrich your financial quotient. Understanding the difference between saving, investment and insurance is the maiden step of financial planning. Saving means parking money aside to meet the urgent needs in instruments which are risk-free but yield lower returns. Investments have lower liquidity, volatile returns and meant for long-term. You need to invest, review and modify your portfolio to suit your financial goals and risk appetite. Insurance implies entering into a contract with an insurer to make good any financial loss due to health/line risks in consideration for payment of premium at regular intervals.
Women tend to see investment as a risky proposition more than men. But worrying about risk and getting insecure will not minimise it. Instead, risk needs to be managed prudently. You need to understand that risk is of two types: Personal Risk & Property Risk. Personal Risk implies risk on life due to illness, disability, accident, death, etc. Property Risk implies loss of property due to damage and destruction. Both kinds of risk can be effectively covered with the aid of Insurance. You can buy a standard term insurance cover which provides life coverage to a dependent child also. Additionally, you can get a critical illness rider and accidental death benefit rider by paying some extra premium.
Set up a Contingency Fund:
A contingency fund is required to meet your short run monetary demands especially at time of emergency or during huge cash outflows upon layoffs, prolonged illness, etc. When you are earning a regular income, then you need to build a contingency fund that would take care of 3 to 6 months expenses. If your income fluctuates then you need to accumulate a fund equivalent to 9 to 12 months of expenses. The fund so established may be invested in instruments like Saving Bank Account, Fixed Deposits, Recurring Deposits, Treasury Bills, etc. that give you liquidity.
Invest in Yourself:
You can increase your expertise by getting certifications in your area and augmenting your resume on a continuous basis. This will not only develop your personality but also enhance your negotiation capability. You should not forget to maintain your health and have a balanced diet along with your professional life. Give yourself sufficient time to interact with family, friends and relatives as it goes long way in cementing relationships.
Set financial goals & start SIPing:
List down all the financial goals that you want to achieve after 5-10 years down the line. Set a time frame for every goal. Make sure that you keep retiring rich as one your goals and determine a particular age at which you wish to retire. Once you are finished with setting goals, start SIPing. SIPing implies Systematic Investment Plan wherein, instead of single lump sum investment, you contribute a small amount every month in mutual funds through regular and disciplined investments towards wealth creation.
You being a single woman should plan your future while remaining in the present itself. It is bliss to be financially self-reliant, but it’s equally vital for you to be aware of your cash flows. Do not wait to cross the bridge when you reach it. Instead, start building wealth now to lead a resourceful retired life afterwards. Remember, if you do not care for your money, then you cannot expect someone else to take care of it.