Widely read:
When it comes to investing, women show more prowess than men. In fact, Warren Buffett stated once that he invests 'like a woman.' This hints at the fact that women have a temperament better suited to this discipline.
The numbers back this theory, too. According to Fidelity Investments, women investors tend to achieve 40 basis points (0.4 per cent) higher returns based on the study of the annual performance of 5.2 million accounts. A separate study by Berkeley University found a difference of nearly 1 per cent in investments made by women.
That's because women aren't as concerned by the constant market fluctuations, and they do not look to outsmart the market by tinkering with their investments. In short, they keep investing simple.
Yet, some women take a backseat.
A primary reason can be the social prejudices that continue to hold them back. Statements such as 'women are not good with numbers' or 'men are better at math' often discourage them from making financial decisions. Men are at the helm of household finances, too, leaving women (even highly educated ones) out of key decisions.
So, how can more women start making financial decisions on their own? One way would be to break the biases that exist. For this, you need to start learning about personal finance to build up their confidence. To start off, here is a four-step action plan to help achieve your goal.
#1 Seek adequate insurance
With medical costs rising, it is a genuine concern that a health issue may wipe out your savings. To protect yourself from such an eventuality, you should get medical insurance.
If you have dependents that you need to care for, then we suggest going for term life insurance as well. Ideally, it should pay out 10-12 times your annual income when you pass away. This will ensure your loved ones are financially secure in your absence.
#2 Control your expenses and plan your savings
By tracking expenses and budget planning, you can avoid impulse purchases.
Take the help of online calculators to determine your savings goals. Only after you have computed how much to set aside for savings and expenses should you make discretionary purchases.
Then, keep track of the amount allocated to your monthly savings, essential expenses and occasional spending. This will help you identify any leaks like outstanding credit balances and loans.
#3 Build an emergency fund
Suppose an unforeseen event pushes you towards the brink of poverty. While it is an unpleasant reality, an emergency fund can help tide over tough times. It should cover at least six to eight months of expenses. This will help relieve stress and soften the blow of a sudden financial setback.
#4 Plunge into the world of investing
While you save for a rainy day, you invest to create wealth. That's the difference between saving and investing.
So, where do you begin? The process is quite simple. Start off by investing small amounts of money, and remember these two ground rules:
- If you have an investment horizon of four to five years, go for fixed deposits or debt mutual funds. While they may offer lower returns as compared to equity funds, they carry much lower risk.
- For investments you plan to keep for the longer term (five years or more) to meet your major financial goals (home, retirement, child's education, etc.), choose equity mutual funds . Compared to many investment avenues, they have the potential to offer attractive returns.
Here's a pro tip for first-time investors: Begin by investing in an index fund that tracks the Nifty 50 Index. If you want to play it even safer, opt for an aggressive hybrid fund. They invest in a mixture of equity and debt. A small allocation to debt cushions the downfall during sharp market declines.
Follow this roadmap to become financially independent in the long run. You might make mistakes on the way but don't get disheartened. It is more important to start investing today. It will be your stairway to financial heaven.
Also watch: Are you financially empowered?
New episodes every Friday
