A commitment towards investing your money smartly and adhering to your goals will keep you financially fit forever.
Working women or a housewife, both have an important role in making key financial decisions and working towards creating wealth for self and the family. It is not that people become wealthy as soon as they start working, but it takes a long-disciplined life to create wealth. Patience and goal-oriented approach are essential to create wealth in the career.
On Women’s Day, we tell you 5 ways which can help you create wealth.
Managing Tax Efficiently
Tax is an important aspect that women should focus on while planning to create wealth. With greater wealth creation, tax obligation also increases simultaneously, so it is better to focus on tax saving methods regularly in your career. Women do not get special privilege when filing income tax returns (ITR) and the responsibility towards timely and regular tax payment is same for the women. Women may need to pay tax at the rate of 5%, 20% and 30% depending on applicable tax slab rate. With proper tax planning, women can save and build a big corpus to accomplish their short and long-term financial goals.
Let’s understand this with the help of an example. Sweta’s income is Rs 11.5 lakh per annum. If she does not invest in tax saving scheme, then her tax liability would be as follows:
- 0- Rs 2.5 lakh: NIL
- Rs 2.5 lakh to Rs 5 lakh: 5%, i.e. 2.5 lakh x 5%= Rs 12,500
- Rs 5 lakh to Rs 10 lakh: 20%, i.e. 5 lakh x 20%= Rs 1 lakh
- Above Rs 10 lakh: 30%, i.e. 1.5 lakh x 30%= Rs 45,000
Total tax liability would be Rs 12500 + Rs 1 lakh + Rs 45,000= Rs 1,57,500
Now, let’s assume ‘Sweta’ invests Rs 1.5 lakh in a tax saving scheme Under Section 80 (C). Her tax liability would be calculated as mentioned below:
- 0- Rs 2.5 Lac: NIL
- Rs 2.5 lakh to Rs 5 lakh: 5%, i.e. 2.5 Lac x 5%= Rs 12,500
- Rs 5 Lac to Rs 10 Lac: 20%, i.e. 5 Lac x 20%= Rs 1 lakh
- Above Rs 10 lakh: 30%, NIL in this case
Total tax liability would be Rs 12500 + Rs 1 Lac= Rs 112500
So, Sweta can easily save tax of Rs 45,000 per year and use this amount to invest in an instrument that can help her create wealth in long term.
It is better to start investing as early as possible in the career. Early investments help in growing the wealth with the help of compounding returns. Regular investment ensures that you can easily handle the inflation in the long term and build a bigger corpus. There are a wide variety of investment products available in the market in which women can invest according to their financial objectives and risk appetite to get maximum returns.
For example, if a woman starts investing early in the career, maybe at the age of 23 and she invests Rs. 1000 per month in an Equity Mutual Fund continuously for 25 years and able to get a return of 16% per annum, then she would be able to get a wealth of Rs. 39.65 lakh while the principal investment is only Rs. 3 lakh in 25 years period.
Planning Your Expenses
Unplanned expenses often result in unnecessary debts while putting pressure on the other financial goals. If expenses are planned in advance, then it can help a woman save money for a specific purpose and earn a good return. Planning can also reduce the urge to spend money and therefore it inculcates a saving habit. There are discounts and offers available on Credit Cards, e-wallets, etc., women can take advantage of saving money by selecting the appropriate payment instrument.
Maintain Adequate Contingency Fund
A contingency fund is important to ensure that women do not fall into financial stress when her normal source of income is choked for some reason. Ideally, women should maintain a contingency fund which is adequate to pay regular expenses for 6 to 8 months. Contingency fund should be kept in liquid investments like Savings account and liquid mutual fund schemes. It is also important to review the contingency fund requirement in regular interval. Women can also discuss the need for a contingency fund with her life partner and maintain a mutual contingency fund.
Women should keep contingency fund in liquid investment such as RD/FD or liquid fund and earn a return on the amount. For example, if she wants to maintain contingency fund of Rs. 4 lakh, then instead of keeping it idle in cash mode, she should put it in FD or liquid fund and earn a return at 7% to 8.5% Pa. In around 100 months if she keeps such fund invested, then her Rs. 4 lakh can become Rs. 8 lakh (@8.5% Pa).
Having adequate Insurance Cover
Like men, women too need a risk cover such as Life Insurance and Health Insurance policy. If you are a working woman and there are dependents on you such as children, spouse or parents, then you must ensure their financial security by covering your life with an appropriate insurance policy.
Health complexity is more in case of women as compared to men. If you intend to live a financially independent life, then a health policy is a must as it will not only take care of exorbitant medical bills but will also give you mental peace.
Women can create wealth gradually in long-term by staying financially fit, by avoiding unnecessary debt, investing money smartly and adhering to the financial goal without any compromise.