How many times have we heard our colleagues rueing on how they had to take a long sabbatical to look after their children? Some others seek a career break to decide and charter an altogether different future or maybe begin an entrepreneurial venture. In all cases, many women have shared how taking a sabbatical from work took an immediate hit on their finances. Taking maternity leave and a long time off to raise a child are common reasons for many women to be away from work for a prolonged period.
While it makes sense to slow down and pursue something different or focus on starting a family, how does one manage personal finances in the absence of a continued income stream? The answer to this question lies in how you define the break and the duration of your sabbatical from work. Besides, why you are seeking the break is the most important factor that will help you decide on your next course of financial planning.
For example, if you have decided to take an entrepreneurial break, how long would it take for your business to break even and earn profits? If you are looking to switch to some new career, how long do you have to wait before you see the money flowing in? Most importantly, if you are on a maternity break or planning to break away from the corporate world to raise your child, how do you plan to restructure your income in a way that helps you pay off your systematic instalment plans (SIPs) towards your investments.
Wannabe mothers must be clear about their milestones lest they run the fear of prolonging their break and get rigid about income prospects that may be futile in the long run.
You must have a corpus to support your plans of taking a break. This means that you have saved and invested enough to see you through your break period without forcing you to take up an alternative income source. Also, bringing up a child entails responsibilities that require money. This means that you must set a financial goal beforehand that will not only help you pay for your child’s upbringing but also ensure that you do not fall short of finances in the long run/
This Mother’s Day, let us look at how women must arrange their finances in a way that does not stop them from enjoying motherhood.
Invest early in life
We all know how the power of compounding helps to create wealth. Only a few realize that one must invest early for this element to show its effect. Women intending to marry and raise a family, in the long run, must allocate their earnings to various investment options depending on their risk profile. Prefer large-cap mutual funds that are relatively more stable and yield returns that beat the inflation rate. However, they may also consider making investments in gold like parking a part of their money in sovereign gold bonds or gold mutual funds or gold exchange-traded funds.
Invest in a health insurance plan with an add-on maternity cover benefit that would pay for both pre-and post-hospitalization expenses.
Resort to remote working
You may not be able to replace your current income source while you will be on your maternity break. You may however take up a remote working opportunity that allows you to work from home. This way you can fund your mandatory and discretionary expenses while allowing you to save some money too. Set aside some money for an emergency fund that can be used to pay your SIPs when you would not be working. Alternately, you may look for a smaller income source that can pay off your routine expenses without causing you too much strain.
A backup plan might help
New mothers soon find themselves making new spends that they may not have anticipated earlier. Cutting corners may not help as the majority of these expenses would be towards childcare and treatment. However, mounting expenses can leave many of them leaving anxious. This implies the need to have enough liquid funds in them. Small amounts invested in fixed deposits and short-term debt funds will ensure that you have enough capital in your hand as and when required.
Don’t lock your funds
Real estate can help you multiply your investments within a few years, but this also means that your funds would be locked in risky assets. Also, it is difficult to liquidate fixed assets like these, so you must avoid investing in land or property. Try to keep a balanced portfolio of equity, debt and gold. Small SIPs in your equity funds will keep your corpus growing, the interest from debt funds would pay for your regular expenses while sporadic investments in gold for a prolonged period when its prices are down ensure that you gain the most from gold investments when the prices go up.
Outstanding debt like a huge home loan or a credit card debt will be nothing short of a burden. For the time being, do not think of taking any loan. Even if you have to take a loan, ensure that its repayment terms are flexible. Get rid of your credit card debt before you go on a break. If you cannot pay your credit card bills every month, stop using them for the time being.
Being free of debt is the best form of financial security that so many people underestimate.
Work through your plan thoroughly
It is not necessary that everything would fall into place as you had planned. No matter how well you may have planned your break, unseen hiccups can cause a big barrier in your break. Discuss your plans with your family members and your spouse. Let them tell you where you are slipping so that you may modify your plans accordingly. This way you can avoid making unforeseen financial blunders with your loved ones constantly nagging you when you go wrong. Have faith in what your partner tells you. Do not overlook risks. An overambitious attitude may translate into overbearing behaviour if not checked in time.