For a long time, the responsibility of financial planning and investment has been perceived as a male-dominated domain, leaving many women dependent on their parents or husbands for such matters. Despite the fact that the number of women contributing to household finances has increased significantly in the past decade, this gender-specific mindset has resulted in a significant gap in the financial literacy ratio between both genders.
Though we all are aware that financial planning is a critical aspect of our lives that helps us to achieve our goals and ensure long-term financial stability, this gap makes women more prone to make some of the most common mistakes while financial planning. Therefore, in order to address this disbalance and to help women to lead a stress-free, financially independent life, here are five financial planning mistakes you must avoid;
- Not negotiating your salary: Women sometimes earn less than men for the same work and failing to negotiate your salary can lead to long-term financial consequences. Though this wage gap parity has been reduced significantly over the years, women still need to fill this wage gap with better negotiation with their employers.
Negotiating your salary early in your career can have a significant impact on your earnings over time, and it’s crucial to advocate for yourself and your worth.
2. Relying too heavily on your partner’s income: Women should not rely solely on their partner’s income as depending solely on someone else’s income can leave them vulnerable to financial abuse or control, and also limits their choices and opportunities. They may also have to compromise on their career goals or delay education if their partner’s income cannot support these pursuits.
Moreover, life is unpredictable, and circumstances can change anytime. In the event of divorce, illness, or death of the partner, a woman who has not established financial independence may find herself in a difficult situation.
Therefore, every woman must focus on increasing her financial knowledge and taking an active role in managing her finances as it will empower her to make informed decisions, achieve financial goals, and ultimately live a financially independent life that will give her a sense of security and control of her life.3
3.Not planning for career interruptions: Women are more likely to take career breaks for family or personal reasons, which can have a significant impact on their earnings and retirement plans. It’s essential to plan for these interruptions and consider options such as part-time work or job-sharing to maintain a work-life balance.
A prudent approach to avoid this mistake is to have an emergency fund equivalent to at least six to twelve months of your mandatory expenses which could be parked in liquid investments such as bank fixed deposits or liquid mutual funds.
Additionally, women planning to take a career break due to family or personal reasons should make a separate emergency fund to cover expenses and finances for the said period along with the core emergency fund.
4. Not saving enough for retirement: Women often live longer than men and need to save more for retirement to cover their expenses. It’s essential to start saving for retirement early and consistently, even if it’s a small amount.
Contributing to a mix of retirement-focused plans such as Employer Provident Fund, Public Provident Funds, Mutual Funds and National Pension Scheme can help you to create a sufficient corpus for a happy post-retirement life. Women tend to have a lower risk appetite but investing in a mix of equity mutual fund schemes through the Systematic Investment Plan (SIP) route can help them in generating good inflation-beating returns.
5.Not having a comprehensive estate plan: Women often outlive their spouses and may need to manage their finances and estate on their own. It’s essential to have a comprehensive estate plan that includes a will, power of attorney, and health care directive.
An estate plan can help to ensure that your wishes are carried out and provide security for your loved ones.
In conclusion, women face unique financial planning challenges that require careful consideration and planning. Negotiating your salary, maintaining financial independence, planning for career interruptions, saving for retirement, and having a comprehensive estate plan are critical components of women-centric financial planning. Remember, taking small steps now can lead to significant financial rewards in the future.
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