FINANCIAL PLANNING IF YOU ARE A SINGLE PARENT
· If you are a single parent, you realize that the burden to secure your child’s financial future is very high, especially as you don’t have your spouse’s income to fall back on.
1. Emergency fund
· Your first priority must be to build a contingency fund to meet any exigency.
· You must keep 6 months’ expenses in liquid funds, which yield higher returns than the interest in a savings bank account.
2. Investment plans
· After creating an emergency fund, begin investing in assets depending upon the time period and your risk profile.
· Start planning early so that you can take advantage of the power of compounding.
· Also, if you have a long-term investing horizon, you can put your money in equity-oriented instruments and earn better returns than what you would gain from debt instruments, where the returns may be lower after you adjust for inflation.
· For goals that have a time horizon of more than 5 years, 50-60% of investments should be put in equities or equity mutual funds through systematic investments.
· You need not stick to fixed instruments just because you are a single parent.
· Your assets need to grow faster, so you need to take extra risk, provided the goal is long-term.
· If you are keen to buy a house, ensure that you can pay the EMI comfortably after you have taken into account all the expenses and investments.
· Avoid taking loans for depreciating assets, such as a car loan, or ones that have a high interest rate, such as personal loans, because if you fall into a debt trap, there won’t be anybody to bail you out.
3. Insurance plans
· As a single parent, it is also crucial for you to take a large term cover as well as a personal health cover for illnesses and accidents.
· A large term cover with the longest duration will take care of your child's higher education as well as marriage expenses if anything were to happen to you.
· Similarly, the medical and disability cover should be large enough to minimize the loss of your income in case of an accident or illness.
· The employer's group insurance cover is handy only if you do not switch or leave jobs.
· Therefore, a personal health cover needs to be taken by you.
4. Retirement plan
· You should also not overlook building a retirement corpus for yourself.
· Maintain a fine balance between your child’s goals and own future, and calculate your retirement needs accordingly, in order to maintain the same lifestyle.
· With the rise in life expectancy, you cannot depend only on your provident fund corpus to sustain you when you retire.
· You should, therefore, invest in pension plans, mutual funds or Ulips regularly to bolster your corpus so that it can support you longer after retirement.
5. Estate plan
· Lastly, your responsibility as a single parent does not end till you ensure that if you are no more, your assets are rightfully passed on to your child, especially in case of a minor.
· So, it is essential that you make a Will outlining how your assets are to be used, and appoint a guardian who will ensure the child’s welfare till attaining majority.