Mother and financial well-being of a family

A woman’s best protection is a little money on her own,” said Clare Boothe Luce, American author, famously. Such a cache becomes even more important if she is a single mother or the sole earning member. Often, women are unaware of the true state of their family’s financial affairs until they are thrown into it due to an unstable environment – death, divorce, disability, and disaster – denting the future of their children as well.

Yet, traditionally, we have seen how our mothers showed an innate ability to look after the family’s financial planning within (available income) limits, amazingly fulfilling most of the family needs to a great degree. Thus, enabling the mother with a basic financial plan (including its long-term wealth management objectives) is key for a family’s survival and progression, especially for a sound future of the children. A smart mother can usher in financial well-being and a sense of stability by prudently managing her family’s budget.

This Mother’s Day let us impart some smart financial management ideas to every mother.

Budgeting: Mothers seem highly gifted when it comes to financial planning and budgeting given their knowledge of the family’s income and expenditures. A well-planned budget, often the result of experience and ingenuity, helps mothers monitor expenses, save and progress towards set goals. Simultan eously, it is important that they keep a check on their cash flow, broadly elaborating sources of income, allowing them to seek additional sources or adjust their lifestyle.

Goal Setting: The primary financial skill – setting goals and then working towards achieving each one – is the beginning step for a mother. As she pins her targets across spending, savings and investment, she gets an idea of her finances, straightaway. This stage is crucial as it also plans for the rainy day and a decent life post-retirement.

Mothers must be advised to prioritise their goals and assign them values as well as target dates. By setting targets for short-term (planning a vacation to lowering your borrowing) and long-term goals (buying a house or car to planning an educational fund for children), one can work towards achieving them in a systematic way. In fact, one of the major long-term goals is saving for retirement, which needs every penny that can be set aside.

From the word go, mothers must have a backup plan for the unpredictable aspect of life – be it a divorce, death or medical emergency.

Being flexible with goals: While setting goals is one of the fundamental tasks, by no means should it be treated as sacrosanct. One may have to revisit objectives and adjust them to reasonable expectations due to changing circumstances. For example, a mother may have to take more investment risk in terms of switching allocation to equities or to measures that would ensure higher capital growth in time. Equally, automated savings plans are highly desirable. But as a primer, a mother must ensure that her household has a financial cushion (about six months’ worth of living expenses set aside) for emergencies.

Seeking financial advice: Despite the ability to contribute positively to the family’s financial plan, quite often, given hectic schedules, a mother may end up leaving financial planning and investing to her spouse. But financial well-being of a family is the joint responsibility of both spouses and hence in the event where she is not actively involved in financial planning, it is imperative that she remains aware of the financial decisions that her spouse is making. This would help mothers assume control of finances lot more easily in the event where they are left to make decisions on their own.

A useful tip for mothers would be to maintain a basic repository of information like all bank account numbers, demat account numbers, insurance policies, PPF accounts, mutual fund common statements, nominations and the like.

Mothers must be made confident to ask relevant questions and plan with the help of a financial adviser, besides imparting them with some basic education or training in financial management. A trained professional can help mothers with an ideal financial plan that takes into account their actual situation and future goals. Mothers can also be guided if they are looking to start a business or seeking redeployment, as they may need additional investment in education and training.

Investing slowly but surely: When it comes to investing, mothers must be made to understand that saving alone would not be enough; they need to invest in means that could generate a good retirement corpus or a good education fund for children. But for them, plunging headlong into investments could be difficult due to anxiety. Hence it’s advisable to start slowly with a small amount in something simple like a mutual fund, especially one that tracks the indices.

Often, mothers tend to be more conservative than their spouses in their investing lives especially when it comes to investing in stocks, which have higher risk but better reward. Thus, mothers must be advised appropriately and illustratively to create diversified portfolios inclusive of pension or retirement accounts and other balanced regular income plans. One way to empower is to encourage reading financial dailies or go through basic guidelines available online.

Plan for retirement, early: The vagaries of today’s economic scenario can have a negative impact on a working mother’s career and life. Thus, retirement planning must begin early on, guided by a wealth management consultant or adviser to secure the financial stability in golden years. In fact, many advisers would tell you that a mother has to prioritise retirement savings over every other expense to remain financially self-reliant. And typically, investing 10-12 per cent of income on a regular basis can make your retirement comfortable, but one needs to start early.

One of the major expenses in our daily lives is towards healthcare. Thus, availing a health insurance (including a disability coverage) that would take care of your needs without denting emergency funds or savings is critical.

Handling debt: Often many people fail at handling debt, ending up paying more for the borrowed sums. An understanding of the ability to take debt vs the ability to repay is important for mothers. Thus, they must not be encouraged to take expensive loans for pure consumption like buying jewellery or holidays. At the same time, mothers must not be afraid of debt, as in the long-term, borrowing is useful while buying a home, educating children and starting a business.

An education loan is often one kind of debt that many families own due to exorbitant education expenses. Even here, a smart mother can explore options to reduce the debt burden, seeking better repayment options or switch over to cheaper means.

Estate planning – be insured enough: Being covered well for an eventuality, especially that of the earning member or a single mother, is comforting for the family as a whole. A mother can reduce the risk on her home, car and properties by using relevant insurance plans and ensure that the financial security of the family remains intact. Estate planning is also an imperative, especially if you are a single mother. The process involves creating a will, a “power of attorney”, which gives someone the legal right to make decisions on your behalf and a Trust to provide for your children.

Tracking progress: Despite smart planning and initiation, many end up in disaster due to poor monitoring and course correction. The financial world is dynamic and hence constant correction is required. Mothers who may get caught in the labours of life are likely to fall victims, hence the task can be assigned to a financial adviser.

We have come a long way in making mothers equal partners when it comes to financial planning within the family. A mother’s role in financial planning is also an opportunity to inculcate a healthy attitude towards money in children. Through her financial habits, a mother can instill in her children the importance of financial discipline, prudence and planning. As sound financial principles show, managing a family’s financial plan requires smart planning and smarter execution. So, mothers get ready to inspire and influence generations to come by improving your own financial knowledge.

(The author is head of investment products at Sanctum Wealth Management)