5 must-know money tips for women

When women get together, sports and men may feature in their conversation. Stocks, however, will most probably not find a place on their preferred list of topics.

Which begs the question -- if money means different things to both the genders, should investing advice be different for men and women?

Differentiating and common factors

Certain principles stay constant for any investor. For example: Be disciplined. Set goals.

Also, one cannot and should not differentiate between men and women when it comes to certain good investment options. A good stock, for example, will be a good investment for either gender.

Ditto with a good mutual fund.

However, there are certain areas where differences can occur.

Women are more likely to take a career break than men, as they tend to take on the responsibility of raising a family or taking care of parents. They are also more likely to opt out of a full time job faster or retire earlier than their male counterparts.

This affects the income they earn (and consequently their savings).

Additionally, women have a longer life expectancy than men. That translates into preparing for a lengthier retirement.

Since they tend to live longer and spend fewer years working on an average, they need to plan their finances differently.

Here are some smart investing tips for women.

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1. Get more aggressive

A friend of mine, Swapna, dabbles heavily in stocks. So does her husband.

She will enter the market (a snazzy term given when you buy shares) with a few thousand rupees. He will buy thousands of shares. When the prices start rising, she tends to pull out faster (sell the shares). He will take the chance of the price rising still more and hold on to his shares.

This is broadly typical of most women; they tend to be too financially conservative and less aggressive than men. Swapna, however, at least invests in shares; most women just put their money in fixed deposits, bonds and post office schemes. While these give you the security of fixed returns, you must put a portion of your savings/ investment in equity. One can buy shares directly or invest in a diversified equity fund.

Over time, equity gives the best returns as compared to other investments. Equity is the best bet if you have a long term horizon in mind. So, if you are in your twenties, you should definitely look at equity.

2. Get adequate insurance

Since women tend to live longer, a proper life insurance plan and medical insurance is mandatory.

One illness with no medical cover can wipe out all your savings. Take a medical insurance cover. Read Medicalim: What to look for; this will help you choose a good medical insurance policy for yourself.

Even if you are given a medical insurance cover by the office, you should think of taking one on your own. Read Why office mediclaim is not enough to understand why.

Take an endowment cover as well. Here, you pay annual premiums to the insurance company and, after a particular age, a lumpsum will be returned to you.

3. Force yourself to save

When you draw a salaried income, the Provident Fund is a forced saving done by the employer. This stops when you quit your job.

When my sister took a part-time job after her baby was born, I noticed she would barely put any money in her Public Provident Fund account. She would just put in enough to keep it running. This was in total contrast to the days when she had a full time job and invested at least Rs 50,000 per annum in PPF.

It was a big drop in her savings -- no more PF and the amount going into PPF had dipped.

When I asked her about it, her reply was that she was not earning that much anymore.

There was some truth in this. But there is a way to get around it.

The years where you earn should be the years where you save heavily and invest seriously in long-term options. It would be wise if, every year, you manage to put the maximum of Rs 70,000 in your PPF. Also, make sure that if you quit your job and withdraw your PF, you put it in a long-term savings instead of spending it.

If you have loans to repay, the sooner you pay them back the better. Opt for loans with a shorter repayment tenure because the longer the tenure, the more you end up paying by way of interest.

4. Curb spending

To make yourself save more, you have to spend less.

This can become a bit difficult at times because women are known to shop. They shop impulsively, they shop to celebrate and, when there is a sale, they tend to buy something even if they do not really need it.

Let's say you are 25 years old and work for a software firm where you earn Rs 30,000 a month. You share an apartment with three other girls.

List your spending.

Now break it up into normal expenditure and lavish living.

For instance, it could look like this. 

In the above example, your expenses amount to Rs 15,500. But if you were to live lavishly, it would shoot up to Rs 22,500.

By making a table like this, you can clearly see where your money is going and what limits you must place on it.

5. Start early

When I tell my younger sister to save, her response: "What's the hurry?" Well, no tearing hurry but it works really well if you start early.

Let's take the above example and say you save Rs 10,000 every month. Let's also say you earn a return of 8% per annum (compounded per annum) on your savings.

So, every year, you add Rs 1,20,000 to the kitty. After 20 years, you will get a little more than Rs 59 lakh.

Most women have to multitask in their lives -- they have to ensure they look after the home, the kids, the family and their careers. Being a good investor is time consuming and hence tends to put them off.

However, if you devote some time to it, it is easier to move on, particularly if you have a financial plan in place.

Being an astute investor is not rocket science. All it needs is a dose of common sense.