If being a mom is the toughest job, being a single mom can be a roller-coaster ride. In a country like India, where financial literacy is lower among women, a single mother needs to fight a battle on the financial front.
While we can do little in alleviating the emotional stress that she might be going through after separation, here are some of the tips to help her draw a blueprint of her family’s financial future.
1. Analyse the current situation
You and your husband may have formulated financial goals together, but in his absence, you should go back to the drawing board to take a fresh look at your goals and rejig the investment to fit the curtailed income. It may require scaling back certain goals in sync with current (i.e., new) circumstances.
2. Create a spending plan
Planning and saving for the future while managing the current expenses may look like a gigantic task, especially when you don’t have the support of the other partner.
So, it is necessary to carefully chalk out the plan with the income which you have in your hand. It may require cutting down expenditure towards certain areas, like dining out, holidays, etc.
3. Choose investment products
The shift from dual income to single income would surely impact your savings potential. To fill the devoid created from this shift, invest your money in those products which can enable you to build wealth in the long run.
In case you have received a big chunk of money, either as alimony in divorce or death benefits, make sure to you deploy the money in those investment avenues which can generate returns and let you earn monthly income in the way of dividend as well.
Also, stay away from locking up your money in fixed assets like real estate. If required, consolidate all your investments into short-term funds till you devise a plan to deploy the money.
Locking up money in safe but low-yield investment products like fixed deposits will not generate enough returns to beat the inflation impact. If you are unsure, opt for balanced funds which invest money in a mix of stocks and fixed income securities. Once you become comfortable, start investing in equities via systematic investment plan (SIP) mode.
4. Buy proper insurance policies
While financial planning gives protection to your future, it is essential to purchase proper insurance policies to give security to your planning.
By buying a term insurance policy, you as a parent are ensuring that your kid’s future is secure even in your absence. In case of your unfortunate death, your term insurance plan will pay a fixed sum assured to your nominee and thus, ensures the financial security of your loved ones in your absence. Further, many term insurance policies come with an added benefit of critical illness and personal accident cover. Such plans offer coverage not only in case of death, but also if the policy holderis diagnosed with a critical ailment or meets with an accident.
Once you buy a term insurance plan, the next important policy that you should purchase is health insurance. In the current scenario, where the medical inflation has reached an alarming state, a single incidence of hospitalisation is enough to disturb your family’s monthly budget. The situation becomes more onerous for a family who is surviving on one income. Thus, it is necessary to purchase a family floater health insurance and covers your income against medical exigencies.
5. Invest towards your kid’s education
Though it is your dream to provide the best education to your children; this dream comes with a hefty price tag. As a single mom, you need to take steps to not only fund your child’s present education expenses, but to take care of higher education as well.
In this regard, it would be good to invest a certain portion of your money in monthly income plans to meet short-term needs and the remaining amount in child ULIPs which can generate enough returns to beat the future education cost.
These child ULIPs come with the potential to yield high returns over the long run and also offer a safety net to your child. It means, in the case of your death, the insurer will pay a fixed sum to take care of your child’s current needs and will waive off all the future premiums. In this case, the policy will continue to secure your child till the maturity of the plan.
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6. Plan for retirement
Since resources are scarce, it often happens that your child and household needs take precedence over everything and you pay little heed to your requirements. However, it is essential that you set aside a specific amount towards your retirement, which would come handy when there will be no income.
You can invest a certain sum of money in the public provident fund (PPF) which not only grows your money but also gives you a tax break on the income earned. There are various retirement plans which promise to secure your sunset years. Additionally, you can invest in equity markets through SIPs. It allows you to invest a small amount of money on a regular basis, which not only gives exposure to equity market but also mitigates risk.
After playing the role of both the parents, you owe yourself a comfortable retirement life!
7. Do Estate Planning
It is imperative that in the event of your death or incapacitation, your kids are well taken care of. Therefore, it is necessary to have a will, which should lay down the rules for distribution of assets between your kids. You can also appoint a guardian for your minor kids and mention the same in the will.
The emotional trauma of bereavement or separation can numb the senses; thus, it can prevent you from taking sound and logical decisions. The slightest show of sympathy can impact your decision-making process.So, be wary of greedy relatives who may try to misguide you.
Though time will heal the scars of a divorce or the death of your husband; it is essential to get a grip on your finances. Your today’s decisions would decide whether your kids would enjoy the life you had wished for them or not.