Thirty-five-year-old Smita Sinha has no plans to get married or to have children anytime soon. She has a fulfilling career and a wide circle of friends. While she enjoys being single, she also knows that going solo will not be an easy ride financially.
Although she lives with her parents, she plans to buy a house of her own soon. She will fend for her parents in their old age. And she also wants to build a substantial kitty so that she can retire comfortably by the time she’s 55 – or earlier, if possible – with sufficient funds to travel the world and pursue her passions.
As a single woman, Smita does not have the safety net of a double income family to fall back upon. So, she must secure her financial future to be able to fulfil all her dreams and aspirations. This requires financial planning and discipline.
How should she do so?
Identifying goals and creating a financial plan
The first step is to list out her short-, medium- and long-term financial goals such as:
- Securing healthcare insurance for her parents
- Funding a substantial health insurance plan for herself
- Investing in a term protection plan
- Creating an emergency fund
- Taking a big holiday in India or abroad each year
- Owning a house
- Building a retirement kitty
- Buying a new car every five years
Creating a financial plan is essential to meet all these goals. This will entail:
- Setting aside a portion of her earnings as savings every month
- Calculating the future cost of every goal, taking inflation into account
- Choosing the appropriate investment avenue for each goal based on a bucket-investment strategy
- And investing in each bucket accordingly
Smita can take the help of a certified financial planner for this. Regardless, financial literacy is important to understand her investment options and track her financial investments. Above all, financial discipline is key.
Short- and long-term investment options
Smita can pick investment options to suit each goal. For instance, she can
- Invest a defined portion of her savings in a debt or hybrid mutual fund for short-term goals
- Start a systematic investment plan (SIP) in an equity-based mutual fund or a unit-linked insurance plan (ULIP) to build a healthy corpus using the power of compounding for long-term goals – equities are known to provide the highest returns over other asset classes in the long term
- Diversify her investments through sovereign gold bonds (SGBs), which carry tax benefits, do not have the storage costs of physical gold, and have the option of coupon payments. The first tranche of SGBs, which matured after 8 years, has given a return of 12% CAGR
- Invest in other long-term investment avenues like public provident fund and/or national pension scheme (NPS) for retirement goals. The NPS proceeds can be redeemed on retirement and on the purchase of an annuity plan from an insurance company. A number of tax breaks are also available at the time of investment and withdrawal
Think insurance for a secure future
Apart from investing her savings, Smita must also protect her future with a term life insurance plan. The insurance amount can be determined basis her income and financial requirements.
She should also consider covering her loans with a credit life insurance policy so that her parents do not have to bear the burden of repayment.
Moreover, as healthcare and hospitalisation costs continue to rise significantly, healthcare cover, either through a single or family floater plan, has become critical. Health insurance premiums are usually eligible for tax deductions under Section 80D of the Income Tax Act.
Prudent financial principles
To sum up, while specific financial instruments help in multiplying your money, a set of prudent financial principles should go hand in hand with financial knowledge and literacy:
- Have a trusted financial planner who can help you navigate the territory
- Maintain separate investments for short-term and long-term goals
- Make your contributions regularly and do not withdraw money from long-term funds
- Create an emergency fund with at least 12 months’ expenses
- Refrain from hasty decisions triggered by stock market fluctuations – staying invested for as long as you can is the key to building wealth through the power of compounding
- Diversify your portfolio across different asset classes to limit risk exposure to one asset class and simultaneously derive benefits from investments that beat inflation
- Finally, regularly monitor your investments
Being financially independent empowers a woman and increases her confidence. While it comes with responsibilities, it can also be a source of joy and pride. With sound financial planning, women can lead a comfortable life on their own terms.
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