If you are contemplating a career break, rest assured that finances can remain in the pink of health with some careful planning. With numerous financial products available online with just a few clicks, saving for a break is now easier than ever before.
Whatever may be the reason for a woman to take a break from her career, one thing is sure: a break need not necessarily translate to a slowdown in the growth of her finances. If you are contemplating taking a break at some point, rest assured that finances can remain in the pink of health if one saves for it. With so many financial products such as Mutual Funds and Recurring Deposits available online, saving for those breaks is not very tough.
Plan Well Ahead Of Time
Ideally, one should start saving for a break at least 2-3 years before actually taking it. This is more important if it’s going to be a very long break like a sabbatical for a year or more. However, before doing that, ensure that you have an emergency fund in place. This is for all those times you might need money urgently. This will ensure that you don’t dip into your career-break savings during emergencies.
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Build Your Emergency Fund
To create an emergency fund, you can invest in liquid funds that invest in fixed-income securities such as government bonds. These are Mutual Funds that give returns that are slighter higher than those offered by Fixed Deposits. At present, they can yield a return of 6%-7% every year. These funds don’t have an entry or exit load. So, you can invest and withdraw your funds any time without having to worry about charges. Love Fixed Deposits? You might have to pay heavy penalties for premature withdrawal. Once you have your emergency fund in place, you can start investing for those breaks. The question is where to begin?
Diversify Your Investments
Remember that food pyramid we all learned about in school? You need to take in more of those veggies, fruits and cereals (‘good for your health’ stuff), before you go on to enjoying the nuts, meat and fats in lesser quantities. Just like the pyramid, have a solid base of stable investments such as Fixed Deposits and bonds before you start investing in riskier assets. You need to look at safer investments as you grow older. Why? Just like you can’t digest fat as you grow older, digesting risks will not be easy when you are old.
The younger you are, the more risks you can afford to take. Invest more in Equity and Equity-based Mutual Funds when you are young. Starting a Mutual Fund Systematic Investment Plan (SIP) is the best way to save money for a career break quickly. Investing through an SIP in equity diversified funds can give you great returns if you stay invested for three or more years. A good financial base is even more important if you are planning to take up a flexible, lower-paying job after the break. Here’s how you could invest for some of the most commonly cited reasons for career breaks.
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Financial Planning For Common Career-Break Reasons
Wedding: Start saving for this at least four-five years before you actually get married. Invest most of your funds in equity diversified Mutual Funds and stocks. Hold them for more than a year to enjoy tax-free long-term capital gains. Gold is another investment you should consider. Want to get a better resale value? Buy gold bars and coins instead of jewellery and exchange them for the latest in gold and diamond jewellery when you get married.
Childbirth: If you are not planning to get a maternity insurance cover, start saving for your pregnancy at least two years before you have your child. You could consider Corporate Deposits and Debt Mutual Funds. You could also invest in Fixed Deposits if you are getting better returns.
Caring for the elderly / an ill dependent: Most times, this might just be for a few months due to illness or an accidental disability. You can look at ultra short-term Mutual Funds and government bonds if you want to save some money for this break.
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The Importance Of De-Risking
The most important point that most people miss is de-risking. What is that? De-risking is moving out of risky investments such as stocks and putting that money in safer and more liquid investments at least a few months before you actually need the money. This is how you protect all those gains you might make from investing in riskier assets.
When you have a plan in place, your break can actually turn out to be a blessing in disguise.
This article was originally published on LinkedIn