Women’s Day Special | Six ways in which women can achieve financial independence

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Women have come a long way in empowering themselves in almost every front, and financial independence shouldn’t be an exception.

Women must actively participate in investment decision-making for their own financial goals as well as those pertaining to their households.

Let’s take a look at six financial moves that every woman should consider to achieve financial independence:

Create and maintain adequate emergency fund 

The main purpose of creating an emergency fund is to help you deal with financial emergencies arising due to job loss, illness, disability, etc. This fund should be big enough to cover unavoidable expenses like daily expenses, utility bills, EMIs, insurance premiums, monthly contribution towards crucial financial goals, etc for at least 6 months. Having an adequate emergency fund in place will prevent you from defaulting on existing loan repayment obligations, liquidating investments for crucial financial goals or availing loans at a much higher rate of interest to meet their financial goals.

As financial emergencies can come anytime, ensure to park your fund in high yield savings accounts. Doing so would allow you to make instant withdrawals without attracting any extra charges for such withdrawals. Those comfortable with internet/mobile banking can even park their fund in high yield fixed deposits of scheduled banks.

Prepare financial plan

Effective financial planning can help achieve financial goals according to your investment horizon, risk appetite and cash flow. Apart from providing a direction to your investments, it helps in creating an optimal asset allocation strategy to achieve your financial goals.

Estimate the amount needed to attain each financial goals, presumed rate of return, time horizon left to achieve them and inflation. Once you have a fair understanding about the size of your goals, use SIP calculators to figure out the estimated monthly contributions needed to achieve it.

Begin investing early for post-retirement corpus

Women tend to rely on their spouse and children to handle their finances and post retirement plans (partially, if not entirely). We underestimate how good we can be at financial decision-making, especially when it comes to long-term financial planning. Setting aside contributions towards your retirement corpus will eliminate the need to depend on your family members during your retirement years.

Note that, the sooner you begin your investments towards your retirement corpus, the lower would be the monthly contribution required to build your retirement corpus. Starting off early would help instil financial discipline, as well as benefit from the power of compounding.

Use credit cards to build credit score

Credit card issuers and lenders consider your credit score while approving credit card and loan applications. Most lenders also charge lower rates of interest to those with strong credit scores. As there can be no credit score without a credit history, those without a credit history can build their credit score by using their credit cards responsibly. Transactions made through credit cards are equal to taking loans and hence, those also reported to the credit bureaus. Such transactions are factored by the credit bureaus to calculate the credit scores. Those unable to avail credit cards owing to inadequate income, unserviceable locations, etc can opt for secured credit cards to build their credit score.

Purchase adequate term insurance to provide a replacement income to dependents

The primary objective of buying a life insurance policy is to provide a replacement income to your dependents in case of untimely demise. Ideally, your life cover should be equivalent to at least 15 times your average annual income. However, many confuse insurance with investment and buy life insurance with high premiums and insufficient life cover. Instead, you should choose term policies as they will buy you adequate life covers at low premiums.

Purchase adequate health insurance to meet rising healthcare costs

Many working women make the mistake of being solely dependent on their employer-provided group health policies. However, the size of the health covers provided by group health policies can be inadequate to meet the rising healthcare costs. Also, such policies lapse as soon as you change your employer, leaving you without any health cover before you join another organisation providing group health covers. Thus, ensure to purchase a separate health policy in addition to your employer provided health covers to protect yourself and your family against the rising medical expenses.

(The writer is Chief Product Officer, Paisabazaar.com. Views expressed are personal)