Well, there’s a reason why women are called superheroes, it isn’t easy juggling a full-time career, family and a fast-paced social life. But often in this rigmarole, money management can take a back seat. And a few financial mistakes can jeopardise their dreams of a secure financial future. Hena Mehta, Co-founder and CEO of Basis, an online platform that focuses on the financial independence of women through supportive communities and curated advice and tools, stresses that women should begin planning their finances early on in life. She highlights certain basic financial mistakes that you need to avoid.
Mistake #1: Not budgeting - and worse, not saving
*yawn* Who has time to create a budget, right? Well, it’s all about prioritising. By not creating monthly budgets, you’re not setting roadmaps for your money, and may end up spending on non important things, or even worse overspending - and not saving enough for your future goals. Here’s a quick hack that Hena suggests. “Chalk out 30 minutes at the beginning of the month. Evaluate the prior month’s expenses and if you were able to stick to your budgets, and plan the current month’s budgets and expenses. A simple Excel sheet should do the trick. A neat way to ensure that you’ll actually make the time for this is by rewarding yourself once you’re done with the monthly budgeting exercise. If you don’t expect major changes month-on-month consider doing this quarterly,” says Hena. Now, that seems manageable - right?
Mistake #2: Not setting financial goals
Financial goals are the best way to tell your money where to go. You could have short, medium or long term goals. And the investments you make for these goals will depend on the time horizon, and your overall risk appetite.
“Let’s say your short term goal is a vacation in 2023. And this costs Rs. 1 lakh today. An investment of Rs. 4700 a month—assuming you have a moderate risk appetite—can get you to that vacation goal (after factoring in inflation). If you need help coming up with this amount, the goal planning tool on Basis will be your best friend! You can automate these investments using an SIP, or systematic investment plan. Set it up once, and the system will do the magic and invest that money for you every month,” says Hena.
Mistake #3: Being reactive to the market
The only thing that is constant about the market is that it goes up and down in the short term (the professionals call this “volatility”, but don’t worry about the jargon). “Markets are cyclical. Your investments don’t need to worry about this, especially the long term ones. Let’s say you’re saving up for your kid to go to college in 10 years, and the market crashes today. This should make ZERO difference to your 10-year long goal. Panic selling must be avoided,” says Hena. Don’t check your portfolio every day, or even every month. For long term investments, an annual checkup is good enough, she suggests.
Mistake #4: Not taking risks
The biggest risk you can take with your money is by not taking any risk with it at all. Sounds like a contradictory statement? One word will solve this conundrum for you: inflation. Yes, the phenomenon due to which prices of things go up. If your money isn’t growing at least as fast as inflation, then you’re getting poorer. And to create investments that beat inflation, you need to take some risks. “Average inflation in India is around 5-6%, which means you need to be making returns of at least that much (post tax. Don’t forget to factor in taxes!). Putting all your money into a safe place like a fixed deposit is not going to cut it. Here’s a quick back-of the-envelope calculation to demonstrate the point -
- You’ve put Rs. 1000 into an FD that’s giving you 5% interest.
- In a year, your investment is with Rs. 1050, yay!
- BUT, your interest of Rs. 50 is taxed at your income tax slab rate. Let’s say that rate is 30%. So net, you make Rs. 35.
- Your net rate of return is 3.5%. Inflation is 5-6%. You’re poorer,” advises Hena.
The takeaway? Explore instruments such as mutual funds, take some calculated risks, and diversify where you’re putting your money.
Mistake #5: Ignoring the details, and following the herd
Understanding investments, insurance, loans can be daunting and overwhelming. “Which is why the Basis app has broken it down for you. Which is why signing up with a trusted financial advisor who doesn’t fleece you with ridiculous fees is important. Understand terms, conditions, fees, taxes for everything you are doing with your money. And better yet, talk about this with friends and family. Remember, personal finance is personal—and so just following what everyone else is doing may not work for you,” cautions Hena.
Avoid the above, and that remote island retirement (or whatever your dream retirement is) could become a reality!