That said, men may feel equally inept at financial planning, and as a single parent, it might be advisable to start by taking the help of a financial planner. “If you are not good at finances and have come into money, it is important not to hand over the management to a relative or friend,” says Mrin Agarwal, Director, Finsafe India. Here are the things single parents can keep in mind while handling their finances.
1. Take stock of finances
“Start by taking stock of your financial situation and future requirements,” says Maalde. “It does not matter whether you are a single or double parent household. What matters is the assets you have, the goals you need to achieve, and how you invest for these,” he adds.
The manner in which a couple or a single parent approaches financial planning is the same, the only difference being in the scale depending on whether both spouses were working or just one. If you lose a working partner, you may have to slash your budget, goal values and child’s expectations. “You should talk to the child about financial constraint and lowering expectations, whether it is about shifting from a fancy school, letting go of foreign education and big vacations, or earning scholarships for higher education,” says Agarwal.
List assets & liabilities: As a first step, list all your assets, be it property or movable assets like equity or debt savings. Sit with a financial adviser and check how far these can go to meet all your goals, and the shortfall you need to bridge. In case of spouse’s death, do not forget any unpaid debts and repay these at the earliest.
Source of income: If you have a house and your assets are enough to meet the goals, you don’t need to worry, but if not, find a job immediately. Without a steady source of income, you will be unable to invest for yourself and your child. You may take financial help from your family as a start, but in the long run, be self-reliant.
Rejig budget: The next step is to rejig your budget if needed. A drop in income will necessitate reprioritising your expenses to match your income. The amount you need to save and invest will dictate how much you can spend.
Investment: This is the next step to ensure your goals are met. If you lack investing knowledge, consult an adviser to put in money in different asset classes. “For longterm goals, go for equity funds, and for short-term goals, put your money in debt,” says Agarwal. If you do not have any other assets or financial back-up, make sure to invest in debt-oriented hybrid funds where the exposure to risk is lower.
It is likely that you received a large corpus as alimony during a divorce or life insurance proceeds on the death of your spouse. Put this amount, and any other redemptions received from investments in which you were a nominee, in a short-term debt fund till you can invest. Do not entrust relatives or well-wishers to invest this amount for you.
2. Be aware of your rights
Since you are handling all the financial aspects alone, it is crucial that you either take the help of professionals such as a lawyer, chartered accountant and financial adviser to manage your wealth, or keep yourself well-informed to make the right financial decisions.
In case of separation: Make sure you are aware of all your legal and financial rights, whether it is about succession laws or spouse’s employment benefits. “It is important, especially for women, to know about their legal rights and their religion’s laws in marriage,” says Maalde. This will ensure that they are not cheated out of their right in property and other assets. You should also consult an adviser to know how much money to claim as alimony, and remember that alimony is separate from child support.
In case of death: It is crucial to be aware of the formalities you need to conduct to claim the amount on the death of your spouse, be it insurance claims, employment benefits, or share in property. Consult a lawyer to get your rightful claim.
3. Secure your future
“It is more important to secure your own future before you provide for the child,” says Agarwal. So make financial arrangements for the child if something were to happen to you and be financially equipped to take care of medical or any other emergencies.
Health insurance: If you had a family floater plan and your spouse has passed away, you can continue with it, but if the divorced spouse refuses to pay the premium, you will need to buy a new plan. Buy a Rs 3-5 lakh family floater plan for yourself and your child.
Emergency fund: Before starting with financial planning, put away a sum that is worth 3-6 months’ household expenses in a liquid fund. This amount should not be touched at any cost.
Retirement: Do not ignore your own retirement or depend on your child to take care of you in old age. Start putting away a small amount the moment you start working and do so as a priority over any other goal.
4. Child’s future
Buy life insurance: Since you are now the only breadwinner, buy a life cover to secure your child. Include all liabilities and the money required for the child’s education and marriage while deciding the cover size.
How to secure your child’s financial future
Make a will, set up trust: If your child is a minor, make a will appointing a guardian in case something happens to you. In case of mutual consent divorce, set up a trust for the kid to ensure his long-term financial security.
