Do you have a financial cushion?

Do you have a financial cushion?

Do you have a financial cushion?

As someone who not just nourishes her family,but also shares the responsibility of being a bread-winner, a woman must educate herself on managing personal and family finances, urges Vijayalakshmi Shivaram.

I remember celebrating women’s day a few years ago at my office. That year, our centre head (a woman) suggested that we, all the women in the organisation, have three goals for the year; one of them was personal financial management. Most women do not
bother to plan their personal finances. Many are completely ignorant of anything to do with finances, unless you count the savings made in piggy boxes and rice sacks. It is quite common to hear stories about women struggling to get hold of the family finances when some ill befalls their husbands.


It all begins with understanding the concept of income, expenses and savings. Those of us who are salaried often assume Income - Expenses = Savings. For a financially sound life, the formula must be: Income - Savings = Expenditure. Start with charting your life’s goals, that’ll tell you what your financial goals should be like, which in turn will help you realise the importance of saving.

Jot down the family income, family size and family needs. Next, note down the outstanding loans, EMIs, monthly expenditure, emergency medical expenses and insurance premiums. You will need to set money aside for these as contingency fund (preferably in a fixed and/or recurring deposit as you need ease of access, in case you need to remove it in case of any emergency).

After that, categorise your needs and wants into short-term (buying a new mobile phone or planning a family vacation), mid-term (renovating the kitchen or buying a car) and long-term (buying a house or saving for kids’ marriage) goals.Basically, understand what you need or want, how much and by when. This will also tell you where you should invest your money.

While most of us are aware of bank deposits, surprisingly, many are ignorant about the benefits of investing in National Pension Scheme (NPS), Public Provident Fund (PPF), National Savings Certificate (NSC) and the like. There is a tendency to believe that money put in the bank is “savings”, which is safe, while money put in equity is “investment”, which is risky. Nothing could be farther from the truth. Our idea of risk and safety is too narrow.

Consider this: You have put a certain amount in a bank’s fixed deposit for five years, because you believe it is “safe” and will give some return as well. What you haven’t considered though is inflation. Every year, we face a hike in gas price, petrol price and with that, daily commodity prices as well. At this rate, your fixed deposit’s interest will not effectively yield you any returns, because inflation will nullify your returns.

So, by “safe”, if you mean not losing your principal amount, then, yes, your bank deposit has kept it safe. But if you thought your bank deposit will help you keep up your lifestyle five years from now, you chose to risk your money, by losing the interest amount to inflation. This is why, mid-term and long-term goals need equity-related
investments to counter inflation.

As a general rule, financial planners advise every individual to categorise their financial goals, as per the following timeline: short term (6 months - 2 years), mid term (3-5 years) and long-term (5 years and beyond). They recommend bank deposits (fixed and/or recurring) and liquid mutual funds for short-term goals, a mix of bank deposits and
conservative style equity-related mutual funds for mid-term goals and balanced to aggressive style equity-related mutual funds for long-term goals.

Financial experts say

10 percent of our income is the bare minimum we all should save; 20 percent is healthy; 30 percent or more is healthy and wealthy.

Consider your risk appetite (you can use an online tool to find that out) and inflation rate before investing in any financial instrument.

Always assign nominees to even the smallest of savings and investments. In an age where every woman is rushing from emancipation to empowerment, financial stability and planning are highly crucial. As someone who not just nourishes her family, but also shares the responsibility of being a bread-winner, a woman must educate herself on managing personal and family finances. Not only is it a wise move in terms of family welfare, but also her pathway to financial freedom.

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