Money Management: How You Can Plan Your Finances as a Woman?

As more women become financially independent, they are trying to figure out where to put their hard-earned money in to get maximum benefits. Financial independence is the first step towards achieving the ultimate goal – financial freedom.

Although women may earn a huge amount, often, they are stuck due to lack of clear & guided information, and here are some ways how they can take control of their money.

Start building a budget/financial plan

Most women take care of their home budgets by clearly outlining how much money is spent on necessities, how much is saved, and how much can be spent on other things. Additionally, most women have managed to save at least something from the available amount.

The first step to take control of your money is to build a budget. A rule of thumb is to spend around 50% of your income on necessities and home expenses, 30% on self-care and leisure, and 20% on investments. However, you can modify this ratio based on your circumstances.

Create realistic financial goals

Like most people, you may also have several desires like going on a dream vacation, buying that diamond necklace, and much more.

However, important goals like children’s education, buying a home, and saving for your retirement should not be overlooked.

Achieving all of this is possible by being realistic and segregating these into short, medium, and long-term objectives to ensure you stay motivated and make clear plans.

Also, you must prioritize all your goals and start investing in different financial plans to meet these.

Use different tools to understand your current investments returns

Creating financial goals and investing is not enough. You must regularly track and monitor the performance of your investments to know which goals are achieved.

Several online tools are available, which enable you to track the profit and loss in your investment portfolio. Be sure to understand the total returns (profits on the principal plus any income earned), yield, and other parameters to know the status of your investments.

You can also use online resources, such as salary calculators, public provident fund (PPF) calculators, and employee provident fund (EPF) calculators to determine the estimated returns on your investments.

Reduce monthly bills

You can start with your fixed expenses to see where you can reduce your spending. Use your electricity and water efficiently to reduce the bills.

Moreover, if you have availed of a loan, check with your lender to see if you can renegotiate the interest cost. Further, shop around for low-cost insurance, Wi-Fi provider, and phone services.

And eliminate gym memberships, subscriptions, and cable if you are not using these regularly. To make it more fun, give yourself an allowance after meeting your expenses and savings for things you enjoy doing like shopping or traveling.

Cut down unnecessary expenses

You can significantly reduce your variable expenses by being frugal. Cut down on clothing and entertainment costs.

If you eat out frequently, start cooking at home. Plan a monthly menu to make the process easier. It not only reduces your dining out expenses but also allows you to buy groceries in bulk while avoiding wastage.

Pay off your debt

Start by listing down all your debts and check which ones you can clear first. Begin with the smallest amount and continue paying till it is completely paid off.

Continue putting aside money to pay off the next loan until all your debt is repaid. You can also start repaying the most expensive debt first to reduce your interest expenses.

Build an emergency fund

An important aspect of how to manage personal finances is to build an emergency fund. Generally, it is recommended you put aside between three and six months of your expenses.

However, women are advised to maintain a higher emergency fund as they may take a longer career break than men. Often, you may take a sabbatical to stay home with children, which can create a financial strain on your family’s income.

So, it is recommended that you build an emergency fund that covers at least one year of expenses.

Use credit cards wisely

Often, you may use credit cards to make ends meet. However, this is dangerous, and you may end up in a pile of unmanageable debt.

To gain control of your finances, use your credit card wisely, analyze the credit limit and clearly outline what things you can buy using it. Opt for debit or cash cards or open short-term savings account to pay for large expenses to avoid credit card debt.

Start saving a portion of your salary

Being disciplined about savings will help you achieve your financial goals quickly. Using an auto-debit facility to transfer a portion of your salary to an investment account is advisable.

Ensure the account does not allow you to easily withdraw money to stay on track with your savings.

Invest smartly

You may choose from different types of investments like fixed deposits (FDs), mutual funds (MFs), index funds, equities, exchange-traded funds (ETFs), bonds, and much more.

Before making any decision, determine your financial goals, investment horizon, and risk appetite. Ensure you conduct extensive research on various options to invest in instruments that fit your requirements.

Protect your investments

After repaying your debt and saving some amount, the next step on how to manage finances is investing. Always invest in those products that align with your financial goals.

Investing for the long-term in stocks allows you to build a passive income stream via dividends along with capital gains.

Get insurance

Often, women overlook insurance as they are not the primary earning members. However, they are an important contributor to their family’s finances, and having adequate insurance is crucial.

Ensure you have sufficient life cover along with health insurance to take care of any unexpected situations.

Improve your job skills and get a better-paying job

Invest in your education and upgrade your skills, especially if you want to return to work after a sabbatical.

Learn new skills that will help you find a better-paying job to enhance your income and lifestyle.

Find additional sources of income

When it comes to how to save money for the future, most people advise on cutting down expenses. But sometimes the financial issues may be due to inadequate income and not excessive spending.

So, it is recommended to increase your income by finding other sources like content writing, part-time accounting, tutoring, or other jobs. You may find many available options online.

You may also invest in real estate to earn rental income, which adds to your total earnings.

Build a retirement fund

The career path for women is challenging because reasons like marriage or childbirth may put a break on their job, sometimes for several years, which significantly impacts their total earnings.

Generally, women at 40 years reach the peak of their salaries. Additionally, life expectancy for women is longer than that for men. So, it is important that you start saving for your retirement early.

You must set aside between 15% and 20% of your income to build a retirement fund. Also, continue adding more money to it with any bonus or appraisal to build a huge corpus.

Different kinds of investment strategies for women

1. 30-30-30-10 Strategy

• 30% in Equity/Stocks:

  • Purpose: Growth potential, inflation protection.
  • Risk: High; subject to market volatility.
  • Suitable for: Retirees with a higher risk tolerance and a longer time horizon.

• 30% in Fixed Income (Bonds/FDs):

  • Purpose: Steady income, capital protection.
  • Risk: Moderate; lower returns but more stable.
  • Suitable for: Providing a balance between income and growth.

• 30% in Real Estate:

  • Purpose: Long-term appreciation, rental income.
  • Risk: Moderate to high; illiquid, market-dependent.
  • Suitable for: Retirees with surplus funds looking for diversification.

• 10% in Cash/Liquid Funds:

  • Purpose: Liquidity for emergencies.
  • Risk: Low; but minimal returns.
  • Suitable for: Immediate cash needs and emergencies.

2. 50-30-20 Strategy

• 50% in Fixed Income:

  • Purpose: Capital preservation and regular income.
  • Risk: Low; suitable for conservative investors.
  • Suitable for: Retirees focused on preserving wealth rather than growing it.

• 30% in Equity:

  • Purpose: Moderate growth, inflation protection.
  • Risk: Moderate; some exposure to market risks.
  • Suitable for: Retirees who want to balance growth and safety.

• 20% in Cash/Liquid Funds:

  • Purpose: Liquidity, short-term needs.
  • Risk: Low; used for immediate expenses and emergencies.
  • Suitable for: Ensuring easy access to cash when needed.

3. 40-40-20 Strategy

• 40% in Fixed Income:

  • Purpose: Income generation, lower risk.
  • Risk: Moderate; provides a steady stream of income.
  • Suitable for: Retirees needing consistent income with some growth potential.

• 40% in Equity:

  • Purpose: Growth, inflation hedge.
  • Risk: Moderate to high; offers growth with higher risk.
  • Suitable for: Retirees with a moderate risk tolerance, seeking a balance between income and growth.

• 20% in Alternative Investments (Gold, Real Estate, etc.):

  • Purpose: Diversification, protection against market volatility.
  • Risk: Variable; depends on the type of alternative investment.
  • Suitable for: Retirees wanting to diversify their portfolio beyond traditional investments.

4. 33-33-33 Strategy

• 33% in Equity:

  • Purpose: Growth and potential for high returns.
  • Risk: High; subject to market fluctuations.
  • Suitable for: Balanced approach for moderate growth.

• 33% in Fixed Income:

  • Purpose: Stability and regular income.
  • Risk: Low to moderate; provides a safety net.
  • Suitable for: Ensuring income while mitigating risk.

• 33% in Real Assets (Real Estate, Gold):

  • Purpose: Physical asset protection, diversification.
  • Risk: Moderate; tangible assets with potential for appreciation.
  • Suitable for: Retirees looking for a mix of stability and growth.

5. 100 minus Age Rule

• Formula: Invest a percentage of your portfolio in equities equal to 100 minus your age.
• Purpose: Adjust the risk exposure based on your age.
• Example: If you are 60 years old, you would invest 40% in equities and 60% in fixed income.
• Risk: Adjusts with age; reduces equity exposure as you get older.
• Suitable for: Retirees who want a simple, age-based allocation strategy.

Take help from Robo advisors or financial planners

If all this seems overwhelming, you can always take help from an experienced financial planner.

They will understand your current situation and evaluate your financial goals and risk appetite to provide investment options that maximize the available benefits.

Technological development has also made financial planning and investing simpler. With the advent of Robo advisors, you can invest in different products based on your specific requirements. Robo advisors consider your risk-bearing capability, investible surplus, and future objectives to build an investment plan comprising different types of financial instruments.

The more you understand about money, the better your decision making will become. It is recommended you learn the basics of earning, spending, saving, and investing to achieve financial freedom.

Being organized and disciplined will ensure you are able to meet your goals without any difficulties. And if you are confused, do not hesitate to seek the help of an experienced professional to discuss money, savings, and investments.

It is recommended you list down all your queries and questions before the appointment to make it more beneficial.

Taking control of money is all about investing in self. You must start doing things differently, plan smartly, and stick to it to achieve financial stability.