Prudent Financial Advice
for Single Mothers

Being a single mother is never easy, as you have to fight on multiple fronts. More often than not, you have to deal with situations and attitudes from relatives and closed ones that are not conducive. However, financial security is your biggest challenge.

Having said that, if you are a single mother, not only you need to be prudent with money but also ensure you leverage existing resources to their full potential. So, how can you do so? Let’s find out.

Budget Your Monthly Expenses

This is the first step you need to take to ensure you utilise the money well, received as compensation from divorce or death benefit from your husband’s life insurance policy. A budget serves as a blueprint of how much to spend, where to spend and most importantly how much you must save.

Since the money is limited, you need to be prudent with budgeting and ensure it's diverted more towards your family's needs, including your child. If you are working and earning, a good way to go about things is to channelise the large sum of money received into instruments that can generate income. Don't park money in non-liquid assets such as real estate as you can't convert it into cash when required.

Save For Your Child’s Education

The biggest worry for parents is their child's education, and for single mothers, the task is further daunting. You must strive to save for your child’s education and need to start early on as education inflation has pushed up costs by a significant margin. An early start will give more time for your money to grow.

To accumulate the desired corpus, you can start systematic investment plans (SIPs) in equity mutual funds. SIPs help you start small and aid in wealth creation in a disciplined and sustained manner. Once your finances stabilise, you can top it up to accumulate a bigger corpus.

Even a modest SIP of 5,000 in an equity fund offering annualised returns of 12% for a period of 15 years can help you accumulate close to 25 lakhs. You can also contemplate investing in a child plan that will help you secure your child’s future and build a decent corpus for his/her education.

Emergency Fund to Manage Crisis

A job loss or a break in income due to an accident can’t be ruled out, and hence, it’s essential to have a ready-made emergency fund to sail through the crisis. Building an emergency fund is relatively easy. You need to invest in instruments that you can quickly liquidate.

You can park money in bank fixed deposits or liquid funds to build a contingency fund. Today, several banks offer a higher rate of interest to women on deposits. On the other hand, liquidity funds invest in money market securities maturing within 3 months, which safeguards the capital from getting eroded due to interest rate fluctuation.

Don’t Just Save, Start Investing

While savings is important, investing is equally essential. It is vital to grow your money for various short and long-term goals. You can invest in a mix of fixed-return and market-linked products such as fixed deposits, public provident fund (PPF), mutual funds and stocks, among others.

Arm yourself with financial knowledge to start investing in these instruments. You can also seek help from a certified financial professional who will help you draw a plan and distribute your investments in different asset classes as per your goals and risk appetite. Investing will make your money work for you and ensure you remain financially sound.

Health and Life Insurance is a Must

Since you are the only breadwinner of your family, health insurance and life insurance assume importance of gigantic proportions. You can least afford a medical contingency wiping out your funds, and therefore, you must immediately opt for a family floater plan covering yourself and your child. Opt for a high sum insured as medical inflation has pushed up healthcare costs significantly of late.

Similarly, you must avail life insurance in the form of a term plan that will provide you and your child with a financial cushion in case of an untoward incident. Ensure that the coverage is large enough to take care of all your liabilities, including your child’s education. Compare different plans and choose the one that best suits your requirements.

Don’t Neglect Your Golden Days

As a single mother, your thoughts will revolve around your child, and his/her needs will be above everything else. However, you shouldn’t ignore your well-being in the process and neglect retirement planning. After fulfilling your responsibilities towards your child, you deserve a break and a comfortable life.

Therefore, it’s vital to divert some funds towards your retirement and build a kitty large enough to help you live life on your terms in your golden years. You can start with the National Pension System (NPS) to build a retirement corpus that can help you live a stress-free retired life.

Under NPS, you can choose to invest in different funds as per your choice and, upon turning 60, draw 60% of the corpus as a lump sum while using the remaining 40% to buy an annuity plan providing you with regular income in the form of pension.

Source: Nuvamawealth.com