It’s never too late to start saving and be money-wise, says financial expert Hena Mehta

It’s 2019, and women are taking on more roles in the workplace than ever before. They are aiming for the skies and closing billion-dollar deals on terra firma.

But the trouble is that after years of deferring money management to men, a lot of women still find it difficult to make decisions to actively manage their money and invest for the future.

However, it’s critical that women understand money and take control of their financial wellbeing as soon as they begin working. For financial independence is a must. But how can she do it? How can she get beyond financial terms and jargon and plan a future?

It’s not difficult, says Hena Mehta, founder of Basis, a first-of-its-kind platform to make personal finance and investment accessible and inclusive for the Indian woman.

Having spent over eight years in fintech in the US and in India, Hena leads Basis and is excited to empower the emerging Indian investor. She has a BSE in computer science from the University of Pennsylvania and an MBA from The Wharton School. When she’s not building Basis, she runs Lean In Bangalore, a network for women professionals that she founded in 2015, and does yoga. Prior to Basis, Hena worked at Goldman Sachs, Ezetap, and Square.

In a Community Chat with members of HerStory – Women on A Mission page on Facebook, Hena answered a number of questions ranging from planning for retirement, risk-taking, mutual funds, and more.

Edited excerpts of the conversation:

Q. I have just started earning and I need some guidance on keeping my expenses in check. What's an efficient way to track them and make sure I have savings?

Heena Mehta: To make sure you have savings, spend after you save (and not the other way around). If you’re not already saving, I'd recommend that you start with saving one-two days’ worth of your income every month. Let's suppose someone's income is Rs 50,000 a month with 20 working days; that's 2500 a day - so save 5000 a month to start with - and use the rest for your expenses. A good rule of thumb is to save 20-30 percent of your monthly income, so one can work their way up to that. The key thing is to make savings a habit, not do it as a one-off exercise.

In terms of managing expenses, there’s a method we can follow called the “cookie-jar method”. When you get your salary, divide it in separate “jars” for your needs, emergencies, investment and even charity. There are also expense management tools you can use to track your spending and savings on a regular basis.

Q. RDs or FDs: what's a better way to save a small amount each month?

HM: The first thing about both recurring and fixed deposits is that they don't have a great tax-effective return, especially if you are earning more than Rs 5 lakh annually. If your income is greater than Rs 5 lakh, then you pay 20 percent or 30 percent as taxes on the interest you earn from the deposits - which means your net returns are lower than current inflation (inflation rate in India is currently 6 percent).

Now, if you’re in a lower tax bracket (less than Rs 5 lakh) and are looking to pick between RD and FD, I’d say pick RD because it automatically creates a habit of saving/investing.

If you’re in the greater than Rs 5 lakh bracket, you could consider debt funds based on your investment tenure.

Q. When and how does one prepare for retirement? How early can one do it?

HM: In theory, retirement planning starts as early as when you get your first salary. If you're working, you are already saving towards retirement via EPF (Employee Provident Fund). 

In terms of how to plan for retirement, a simple calculation can be:

(1) Expected age of retirement (say, 60 years) minus current age (say, 25 years) = number of years to prepare. (35 years)

(2) With the average Indian life expectancy at 70, by the above calculation, you have at least 10 years of retired life to provide for.

(3) If you want a similar lifestyle that you lead today, calculate the monthly expenses after you factor in inflation (inflation is the rate at which prices are rising – currently at around an annual rate of 5 percent in India).

(4) This amount multiplied by 12 months for 10 years (remember, inflation is annual, so make sure you factor that in!) is what you will need as a corpus for retirement. Any investments you make should be able to lead you to this goal.

Q. I am always wary of investing in SIPs or mutual funds. I would rather go the FD-life insurance route? Am I being too cautious?

HM: That is not surprising as most investors are averse to the word "risk", which is usually attached to mutual funds/ stocks. However, in the longer term, FDs + life insurance will not yield more than 5-7 percent in interest. Life insurance should be considered as protection, not as an investment.

In order to create a corpus of wealth that will actually give you inflation-beating returns, taking some risk is inevitable. Mutual funds/stocks are known to be the best assets for long-term returns, if invested wisely based on your financial goals.

Q. When my RD matures, what would be the ideal utilisation of that sum? Should I put the entire amount in a FD or look at mutual funds options as well?

HM: What you do with that money really depends on your personal goals and risk-taking capacity. If you don't require the money for more than five years, considering equity/balanced mutual funds may be a better route to take since they are wealth creators over the long term (of course, with an element of risk), as opposed to FDs, which are wealth protectors.

If your goal is more short term, it might make sense to stick with short-term RDs/FDs.

Q. What kind of savings give us tax benefits?

HM: Here are the usual tax saving options:

– Employee’s share of PF contribution

– National Savings Certificates

– Life insurance premium payment

– Sum paid to purchase deferred annuity

– Five-year deposit scheme

The preferred investment option if you are looking to make an investment in the equity markets and benefit from the tax deductions is Equity Linked Savings Schemes, or ELSS. These come with a lock-in period of three years. It is advised to stay invested in them, post maturity as well. If you are working, a term insurance + ELSS is a good combination for a portion of tax savings.

Q. What are the investments to go for if you are in your late 30s for retirement? Is it too late to start?

HM: It's never too late to start.

Some options you can look at:

NPS (National Pension System), equity oriented mutual funds (since your time horizon is >5 years), PPF (if you already have an EPF through your employer, then PPF is redundant).

Q. Which is better: an FD or liquid mutual funds?

HM: If you're earning greater than Rs 5 lakh, it might be worthwhile to consider liquid/short-term debt mutual funds. If you're in the less than Rs 5 lakh tax bracket, FDs are a better option.

Q. Is a demat account mandatory to invest?

HM: Demat is not mandatory for mutual fund investments. All you need is a PAN, valid address proof, and bank account to get started with mutual fund investments. Demat account is mandatory for stocks and ETFs (exchange traded funds).

For more conversations, follow HerStory Women On A Mission page on Facebook.

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