How Should Women Handle Their Money?

Whether a serious investor or not, everyone wants to manage his/her finances well and for this one adopts a dual approach of saving and investing. Thus it becomes important for a person to know how to deal with his/her money, right from the banking procedures to the investment areas, in order to achieve financial independence.

Rita has got her first job in a private company. As per company policy, her salary will be paid by cheque only. But Rita is worried about the whole banking thing as she had not handled her money matters till date and left it to her parents. Now, she does not wish to depend on anyone for her financial requirements and hence would like to know more about banking and the investment field that is not too difficult and also easy to implement.

Analysis

When it comes to money, the mere mention of the term 'finance' sends a lot of people into a tizzy. This happens as the term creates a kind of fear in the minds of people. However, with proper knowledge and understanding one can overcome this fear and make use of the available resources effectively.

Let us start with the first area Rita has to deal with, i.e., banking. Every transaction that Rita will undertake will start with some banking connection, so to understand this working properly she will have to begin with her account.

A) What is a savings account?

Savings accounts are meant for people who would like to make deposits and withdrawals but not a large number of transactions. This allows account holders to deposit cash and cheques and similarly withdraw cash and issue cheques for payments to be made.

The balance in the account receives interest at 3.5 per cent. The lowest balance between the 10th and the end of the month is considered for interest calculation. This means if you make deposits after the 10th, you will not get interest for that month. Similarly, issuing cheques during this period will mean that even if this is issued 3 days before the month end the lower balance will be used for calculating interest.

Rita can make payments by cheques but she needs to cross the cheques and make them 'account payee' for safety purpose. In case of 'at par' cheques, these can be issued for outstation payments within the country otherwise the depositor would take longer time to realise the amount.

B) Using ATM facility

Today, new technologies have been introduced in many industries, including banking. As a result we see a lot of the transactions taking place through the ATM. Rita's bank will issue her a debit card which she can use to access the balance amount in her account through ATM as well as for purchases. But she has to protect the PIN code that allows usage of the card. She can also use the card at other banks' ATMs without paying extra charge, but needs to keep a proper record of the use of the debit card. This record should be tallied with the actual statement so that all the entries are accounted for properly.

Now let us turn to the investment part:

Investment is a tricky issue which can also lead to a loss. The risk in a transaction is proportional to the return that can be earned. This means that if the chance of earning a return is high then there is also a higher chance of losing money.

For example, investment made in a bank fixed deposit generates a fixed and known return. Though it is usually not much higher than the inflation, this is balanced with the fact that the risk is limited. On the other hand, investing in equity shares can give a large amount of return but there is also a risk to lose the invested amount.

Rita needs to frame her goals for investments. She has to be clear that certain objectives have to be achieved in a specific time period and this will determine the investments and assets that are actually selected. This will ensure that the entire investing and routing of money is done based on a plan that is very clearly laid out and specified.

For example, since Rita is young she can take a higher amount of risk. Hence, she can invest a larger proportion of her retirement portfolio in equities. Since the investment is for a longer period it will fetch a good return for her, building a strong retirement corpus.

But what if Rita does not want to take big risk as she fears the prevalent inflation would devalue the rupee and eat away her return. In this case she might select mutual funds to achieve her objectives because these funds offer debt, balanced, equity and even gold as an investment option. This is useful for a person like Rita who does not have considerable experience in the markets and hence can use professional help and advice in managing her investments.