Q1: I am a new, young mother. My child is now 6 months old. My husband is suggesting that we should now start planning and set the funds aside for the future. Both of us are working and live a comfortable life. We have recently bought a house and barring that, we do not have any other loans. How do we go about the investments? What should we keep in mind?
The first few months after having a baby must have been a roller-coaster ride for you. However, it is wonderful that your husband and you are already prioritising managing your finances. With a new member getting added in the family, your responsibilities – both personal and financial change and increase. While you plan for the child’s education and life events like birthdays and other ceremonies, do not forget to have a plan in place for yourself. Inculcating healthy money habits will help you be future-ready.
Set a budget - This will help to make sure that you do not end up spending an exorbitant amount on occasions like birthdays, mundane etc. Finance should be the least of your worries in this beautiful phase of your life where you are seeing your child grow and celebrating the phases. A proper planning will provide comfort to you as a young mother. Create a budget for the expenses and create a fund for yourself.
Make sure that your insurances are in place - With the increased responsibilities and the child’s future, it is important that you and your husband have personal insurance and health insurance for the family in place. Since both of you are working, your employer must have covered a certain portion of your health insurance needs. However, having an additional personal health and life cover always helps.
Building a corpus for the child’s needs - Start investing for your child’s future expenses like education, wedding etc. A regular investment through SIPs and recurring deposits also helps, while you add some lump sum funds. Do not let the portfolio be skewed towards one particular investment class. A well-diversified portfolio built from the early age of the child will give compounding effects to your gains in the longer run.
Build an emergency corpus - Change is the only constant in life, and emergencies come unannounced. You should have a part of your corpus readily available when you are in need. Ideally, it is advisable to maintain a corpus of 3 to 6 months expenses available.
Do not forget yourself - While you are busy raising a little, beautiful soul and providing the child with the best of both worlds, do not forget about yourself. Build a corpus slowly and regularly for your own future, your retirement, your holidays, and your personal goals. You can start with SIPs, NPS, PPF, or even long-term investments for yourself – which will give you a sizable amount of corpus by the time you retire or whenever the need arises in the future.
Q2: I am 55 years old and a mother of a 25-year-old daughter. I am working with a private organisation, and I plan to retire in the next 5 years. We have a diversified portfolio - invested across mutual funds, stocks, and FDs over a period of years. Our daughter is completing her post-graduation this year and has got a pre-placement offer from a renowned company in the same city. What do I keep in mind for retirement?
Retirement is not the end of the road; it is the beginning of an open highway. While managing the job and household, you have also taken care of the financial well-being of your family. You have built a portfolio over years, and as you have grown in personal and professional life, your goals and plans would have changed too. With these transitions, it is important to review your portfolio on a regular basis and make a retirement plan, which can help you lead a stress-free life on the financial front.
Remember - when you retire, your requirements will not retire. You will still have to manage your expenses and investments along with your incomes. When you retire, you will still have to generate sufficient income from the portfolio to maintain the lifestyle, without getting exposed to additional risks. Also, you have dreams of getting your daughter married, and pass on your legacy to her. It is advisable to review your portfolio and decrease your exposure to risk. A review and re-work on your portfolio will also help you keep the tax liabilities at bay. You should look at building a portfolio with a fixed-income and market-linked product mix.
Systematically and gradually transfer your portfolio to debt-oriented instruments - Equity investments are volatile in nature. They cannot always be relied upon to earn regular incomes or fixed returns. However, instead of taking a complete exit from the markets, STPs from equity to debt are advisable.
Asset allocation - Allocate your assets smartly between equity and debt. Approaching retirement does not necessarily mean that you invest only in debt/fixed income instruments. Equities are required in the portfolio as they generate higher returns and can beat inflation. A combination of debt and equity can help you generate good returns and can help you meet your regular expenses and goals.
Calculate your net-worth and plan the legacy - When you retire, check your net worth, which in simpler terms is assets minus liabilities. This will give you an idea of where you stand in terms of planning your retirement. For this, your Financial Advisor and Financial Planner can help you. Even if you need to make changes in the portfolio before you retire, this exercise shall help you.
Plan the expenses for your daughter and the goals you have set as parents. If you are planning to pass on the legacy to her, decide on what quantum you would want to pass to her, and see how that affects your retirement. Do not neglect the potential healthcare costs. Consider the taxation, and if you are planning to create a trust or give the inheritance as a gift, do check the legal and compliance requirements along with the taxation.
Do not take financial decisions based on emotions - When you are retired, there will be a lot of changes for you. Emotions can be overwhelming at times. Do not take any financial decision – whether investing or redeeming (withdrawing) based on emotions. Sometimes, when the markets are volatile and investments do not give good returns, we tend to fear and transfer all investments to instruments with minimal risk and end up losing the earning opportunities that the market offers. Discuss with your financial advisor before taking any hasty decision.
Q3: I am a stay-at-home mother, and plan to remain a homemaker. My husband is working with the Government, and we have our own house. We are parents to two daughters – 5 & 7 years. As a homemaker, how can I contribute to planning the finances?
Being a mother is the best job in the world, and the toughest at the same time. As a stay-at-home mom, you may have decided to take a sabbatical or quit the job and spend time with your kids, but it is important for you to be involved in the financial decisions. Whether working or not, every woman needs to have a financial plan in place. Even a stay-at-home mom needs to be prepared for unforeseen situations.
As a stay-at-home mother, you are taking most responsibilities towards household chores and looking after your children. While you may say it is normal or negligible, it is a lot more worth than you can imagine. Because of you, your partner now has more time and energy to invest in his job and career, and this would not have been possible without your support. So, do not hesitate to ask about finances – incomes, expenses, debts, and assets.
Be a part of decisions - In this age and time, it is very crucial for both the partners to know how the finances are being managed. While you are already managing the day-to-day expenses, you also need to know where the investments are being done, how the retirement is being planned, what the debts are and what are the provisions for emergencies. Keep a close tab on the education fund of children, any other goals that you have set for yourself and them.
Communicate - If you are not a part of financial decisions yet, start having regular conversations with your partner on financial aspects. Start learning about the investments being done or advised, discuss with your partner on whether you also are comfortable with the philosophy behind those investments or not.
Storage of data and documents - Be aware of all the investments that are being made or have been made. Go through the details of the documents. From statements to receipts of investments made – keep a copy in your records as well. If you are not a joint holder in the investments, check if nomination is updated in the investments. Keep a note of all bank accounts, FDs, mutual funds, PMS, NPS, PPF or any other investments that have been made.
Plan the finances - While you are already managing the household finances and day to day expenses, plan for the expenses that may incur in the near future as well as the longer term. Create a budget for regular expenses. Since your children are young, make a separate savings plan for their education, weddings, travel etc. For your and your partner’s retirement, plan now so you can live a comfortable and financially stress-free retired life. This also holds true for bigger goals like buying a property.
Insurance - Make sure that you and your partner both are insured – both life and health insurance. You may think that since you are not earning, you may not get life insurance or life insurance is not necessary. This is not true. Even when you are not working – having a job, you are taking care of a lot of chores for which would otherwise be needed to pay. Hence, do opt for your life insurance as well.
Similarly, the employer may have provided health insurance cover for your husband and for family to some extent, insisting on having a family health cover. This is important as this health cover will help when the cover provided by the employer is not adequate. Most health insurance policies cover general ailments only. Also, if your husband is in between changing jobs or on a sabbatical or for any reason loses the job, your medical costs can be covered.
Have savings in your name, too - While you may have a joint account and your husband is taking care of all the expenses, have savings and investments in your name, too. Whatever small amount you can save from the household expenses budget, which can also be invested/deposited in your savings account. No amount is smaller when it comes to contingencies. It will also give you a sense of financial freedom and help you learn about investments.
Q4: I am a 35 years old single mother of a 5 years old son. Professionally, I am a successful designer and run my boutique. I do not have any loans in my name, and I have been investing in mutual funds. How should I plan my investments to ensure financial safety and well-being of my child and myself?
Being a single parent is not easy - As a single mother, you have the responsibilities as both mother and father to your son. You must manage both your work and home. You need to start planning for your child as well as yourself. It is good that you have some savings and have been investing through SIPs in mutual funds. There are certain points that you need to keep in mind to ensure your financial well-being.
Ask the expert - If you are not good at managing your finances or do not have an expertise in managing the investments, appoint a financial advisor to guide and help you. Do not handover the funds to friends or relatives who are not certified or authorised to advise you on investments. Take help of a financial advisor and planner, who can help you invest in the right product mix, plan your future expenses, tax planning and can review the portfolio on a regular basis.
Ascertain the finances - Start by ascertaining the current financial status. It is necessary to have a fair idea of investments that you have, objectives and how you plan to achieve them. List down your income sources and expenses. List your movable and immovable properties. Discuss with your financial advisor, and they should be able to tell you which of the goals you can meet with your current financial status. This will help you make calculated decisions.
Life insurance - Being a working woman and a single mother, it is important for you to calculate your human life value and get insured. Life insurance will ensure financial safety of your child. Ideally, the insurance would be 20X your annual income. Currently, there are good insurance plans available in the market which have an option of regular income after a certain time (which can also form a part of your retirement planning) and child plans to ensure that the child’s education is not hampered. Understand the features of these plans and invest into them.
Have the right product mix in your portfolio - It is especially important that you do not invest all your savings in the same product. Diversify your portfolio well with the objectives in mind and according to your risk-bearing capacity. You can also decide to invest based on your short term, medium term, and long-term goals. There are many investment options available today like mutual funds, recurring deposits, PMS, NPS, PPF etc. This will also help in tax planning. Depending upon the horizon, you can choose to invest in liquid funds or short-term funds or long-term debt or equity funds.
Emergency fund - Create a corpus that can act as an emergency fund when needed. At least 5 to 6 months expenses should be set aside as emergency corpus. In case of events like Covid that we experienced recently, setting up an emergency fund will make sure that you do not have to interrupt your long-term investments.
Prepare a will - Make a will, set up a trust since your child is minor. You need to appoint a trusted guardian in case of an unfortunate event.
Take a hold of your finances before it is too late. Proper knowledge and correct advice from your financial advisor will help you make the right decisions. And with the right decisions, you can enjoy better financial freedom and achieve all your financial goals.
Note: This story is for informational purposes. Please speak to a financial advisor for detailed solutions to your questions.
International Money Matters Pvt Ltd is a SEBI registered personal finance firm.