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Save before you Splurge

You are a young and single working woman with a fat pay package and lots of opportunities to splurge. But remember, what you decide to do with your money today goes a long way in shaping your financial future.

While some deliberately neglect financial planning, some women juggling their household and corporate lives fail to give any time to such planning. If, however they can commit to certain basic steps towards financial planning, the path for managing finances in later years become

CAREER BREAK

Breaks in the career of a working woman due to marriage or pregnancy or any other family reasons are a common occurrence, making planning all the more important.

HOLDING BACK

Women often take a back seat when it comes to family finances as they think it is the husbands’ domain. Instead, they should adopt an active role in shaping their family’s financial future.

PRIORITIES

Identify your immediate and longterm priorities early on in your career. You can save for your aging parents, or young siblings, or even your marriage.

FIRST THING FIRST

Initially in your career, your earnings should go towards creating an emergency fund, which should be at least six months of your household expenses. Keep three months amount in a savings account and the rest in shortterm or liquid mutual funds.

COVER THE RISKS

Once you have set up a contingency fund, it is time to cover risks, primarily to life and health, including parents’ health if they are dependent on you. Buy a pure term insurance plan for the maximum age or the term available. Keep reviewing liabilities every five years and increase coverage to at least 10 times of your annual income.

INVESTIBLE SURPLUS

Do not run away from spending. After all, that is the very reason you are earning. But follow the classic rule - ‘Earn-Save-Spend’. So, go ahead and pamper yourself with whatever remains after saving.

INVESTMENTS

Carve out a financial plan to meet goals at different life stages. If you want to try your hands at equity investing, go for the safest option-equity mutual funds. Choose 3-5 equity MFs and start a systematic investment plan (SIP). By investing through SIPs you can own units at lower cost. However, if you looking at saving tax, equity-linked savings scheme (ELSS) could be a good option, but it has a lock-in period of three years.

Public Provident Fund (PPF) is another tax saver that can prove very beneficial. It’s a 15-year scheme offering 8.8 per cent currently and needs a deposit of at least `500 a year to be active, while the maximum one can invest is up to `1 lakh each year. Open a PPF early in your career and avoid making withdrawals unless hard pressed for funds. Use it for accumulating tax-free retirement funds.

SERVICING DEBT

Wisely used, loans can be a great tool for creating assets. However, impulsive usage can wreck your finances and can even land you in a debt-trap. So, before you borrow, ask yourself whether it will finance consumption or investments. Debts taken for higher studies or to buy a house are investment debts. The rest are mostly consumption debts that are best avoided.

CONCLUSION

Learning the tricks of investment early on can go a long way in managing finances for a lifetime. And for all you know, impressed by your expertise in financial planning, your husband might seek investment tips from you.

Next To Come: The Double Income Edge