One of the toughest jobs in a country like India is being a single parent. The trouble multiplies significantly if the parent is a mother. Most single moms are generally struggling to support their children and the same is primarily due to lack of planning, budgeting, and investing.
Thus, through this article, we, at Sqrrl, would highlight how critical it is for a single parent to understand his/her finances while sharing the top 10 things a single should do ideally to provide the best to your child. Read on!
1. Assess your existing finances
One of the most common problems that we have encountered off late in India is that married women are not aware of most of the financial decisions taken by their partner. Based on a short oral survey conducted by Sqrrl, it was found that Indian women typically tend to avoid indulging themselves in money matters.
We believe while there is a change witnessed in every domain around us, it is important that women come forward to take charge of her finances and her family’s finances. For single parents (particularly women) it becomes cumbersome to get hold of financial matters should a situation arise that their partner has left.
We believe the hesitation in women to take charge of financial matters is unwarranted given they are the masters of budgeting and planning. Thus, for single parents also, it is important you first assess your financial health in terms of parameters such as investments, liquidity, risk cover, income, and expenses. Based on the assessment any decision regarding investments in equities, equity-related products or any other instrument should be made.
We believe it is always a good idea to park the money in any liquid fund (refer to Sqrrl Away – the instant fund for investments in liquid funds) until you plan your finances. Once the plan is chartered out, an investor can always start systematic transfer plan into the relevant schemes or withdraw from a liquid fund for bulk investment in other investment avenues.
2. Balance your chequebook on a monthly basis
While this is one of the most ignored things for an individual, we believe, this actually helps you keep a track of cash flows. While the regular way of balancing chequebook using leaves in chequebook is undoubtedly a tedious task that demands tremendous patience, we believe this undoubtedly helps you get into the habit of balancing which eventually helps in you becoming more responsible for your day-to-day spending.
3. Clear dues on time
This system helps you remain systematic and disciplined when it comes to financial matter. While timely repayment helps you avoid any kind of late fees, it also helps you understand the surplus available on hand that can be used for other purposes. Erratic payment cycle could result in haphazard investment discipline that may impact your planning over the long term. It is always advisable to set up auto payment with a bank and/or credit card for basic services such as laundry, grocery, telephone, Internet, rent and the likes.
4. Buy a life insurance scheme
It is always good to ensure your life risk is covered so that your dependents (children in this case) are left with sizeable corpus so that basic daily requirements can be fulfilled should a situation arrive that you are not around.
Thus, opting for a term life insurance plan is a very good idea. However, the criticality here is to determine the term coverage that should be ideal for any individual. Typically your expenses for 30 years should be considered to be your sum assured. Buying term insurance plan is one of the best financial decisions an individual can take as it ensures the loved ones are taken care of in their absence.
We believe premium for such policies should be ideally a part of the necessary expense in your budget.
5. Prepare long-term budget
Understanding of budget could be difficult for single mother. However, it remains a critical component of your financial planning and well-being. Thus, it is important that you detail all the recurring and non-recurring expenses of any month and accordingly plan for funding these expenses from your income sources.
A budget should be ideally planned and prepared for minimum six months time frame so as to ensure even your emergency fund can manage these expenses. Read about the emergency fund and its utility in the subsequent section.
6. Establish an emergency fund
Saving regularly is a critical component for any single parent. It is also critical to establish an emergency fund. Life is dynamic and there is a high probability that any expense may arise without any prior warning. This kind of expense is generally fulfilled using the emergency fund. Typically, an emergency fund should be equivalent to six times of your monthly income.
These funds should be typically parked in instruments that are liquid enough and thus are readily available. For example: Using Sqrrl Away for emergency fund could be a good idea given its returns are higher than a savings account, it is safe and is as liquid as a savings account.
7. Plan for medical expenses
Medical expenses come unwarranted. Further, with kids, it becomes more critical when it comes to medical expenses.
Thus, it is important that you cover your medical expenses with insurance so as to save to rising medical expenses that may be incurred due to direct visit for a check-up. It is important to assess your requirement and accordingly, you can make an additional coverage should coverage provided by the employer is not sufficient.
Further, planning for regular monthly healthcare expenses is also considered to be a good idea so as to avoid any unexpected expenses.
8. Invest and not trade
We believe women can become really good investors given they generally come with patient mindset. Great investors of the world have suggested that investing is a boring thing to do and it demands a tremendous amount of patience.
Given your horizon will be on a longer side, it is wise to invest in equity mutual funds through systematic investment plan route. This enables you to park some money in instruments that have potential to multiply your returns.
9. Avoid real estate and gold
Real estate and gold have always been considered to be the safest instruments in India. However, if we glance through the returns offered by these instruments in comparison to the equity market, we find equity markets to have offered nearly 4-6 times returns in the five-year horizon.
Further, from a single parent perspective where there is only one source of income, it is advisable to avoid taking any leverage for buying the property as these assets are not very liquid. Investing over two-thirds of the portfolio in liquid instruments such as fixed deposits, stocks, bonds, mutual funds, recurring deposit etc. should be the main mantra.
10. Plan and prepare for retirement
It is normally seen that single women stress a lot about their inability to save as much as they would ideally want to. We believe, once your emergency fund is in place, other hefty expenses could be children’s education and/or retirement.
Thus, as a single parent (both mother and father), you should ideally start thinking towards securing your retirement and should opt for a long-term systematic investment plan for say over 2-3 decades depending on your current age. Once retirement planning is done, the remaining funds can be utilized towards children’s education.
While some might consider it to be a selfish move for prioritizing himself/herself, we believe, children’s education fund can also be managed with other avenues such as grants, scholarships, education loans and the likes but there will be no avenue available to borrow money for retirement.
Also, by the time you retire, age will no longer be on your side to support work any further. Try Sqrrl goals for retirement saving whereby the returns are high enough for money multiplication and as age increase the risk appetite is rebalanced.
To conclude, we believe, that financial planning plays a very critical role in ensuring the finances are in place for a single parent (particularly single mother). While this article will certainly help you plan your finances better you can always drop in a line to us and we will be glad to help you.