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| Edited By: Shreyash Devalkar |Source: DNA |Updated: Mar 21, 2018, 05:28 AM IST
Single parents face unique challenges which can be fairly daunting to manage. A single parent needs to multitask all the time and create a balanced strategy that meets both the emotional and financial needs of themselves and their kin. Although the financial planning goals of a single parent are not much different from a two parent unit, meeting these goals is challenging and is exacerbated by the fact that often there is only a single source of income. Single women parents often have additional difficulties, as mothers tend to go in and out of employment in order to take care of their families, which slows down their career momentum and leaves them with lower income prospects. Here are some of the important things that a single parent should consider while coming up with a prudent financial plan which will protect them and their family.
Planning and saving for the future while at the same time funding current expenses can be a very tiresome experience for many, especially for single parents who do not have the benefit of a partner's support and advice. One needs to clearly chalk out the expenses and balance that with the income at hand. You can also invest in a monthly investment plan (MIP) which gives the investor the option of a monthly income by way of dividend from their investments.
By purchasing a life insurance cover, you as a parent are ensuring that your child's future is secure. It is an extremely important tool for a single parent and largely depends upon the family's financing needs. To determine the amount of cover to purchase one needs to first calculate what the proceeds need to fund. For example, living expenses of the child, education, etc. Once that is decided, the single parent can determine the amount of premium he/she can pay.
As a single parent supporting a family on a single income, it is near impossible to save enough for medical emergencies. Medical needs can catch anyone by surprise and can sometimes be a huge drain on the family cash flow. Thus, it is imperative that single parents buy medical insurance which will take care of medical exigencies and help avoid a negative impact on family cash flows.
Education of children is a very important goal that needs to be taken care of. While primary education is still relatively affordable, secondary and higher education nowadays comes with a high price tag. Single parents need to not only fund current education but invest their money in such a manner that it grows to an amount that can help fund future education as well. In this regard it would be advisable to invest part of the money in long-term bonds and invest the remaining portion in an equity mutual fund. This will give the single parent the dual benefit of having a relatively safe investment with a fixed return as well as an investment which has the potential to yield higher returns over the long term. The investor can also consider investing a part of the sum in a debt mutual fund.
As a single parent, one forgets that they are responsible not only for their family's well-being, but also for their own future stability and happiness. Since resources are scarce or limited, it often happens that the parent tries to fulfil the child's immediate and future needs and pays little heed to their own needs. It is essential that as a single parent one sets aside a specific amount to build their own nest egg which would help them meet their own requirements once the flow of income from employment dries up. A certain sum of money can be invested in the public provident fund (PPF) which has the additional benefit of giving a tax break on income earned. Additionally, one can also take an exposure to equity markets through a systematic investment plan (SIP). A small amount of money can be invested through an SIP on a regular basis which allows the investor to have exposure to the equity markets but helps him/her mitigate a certain amount of risk.
It is important that in the event of death or incapacitation, your children are well taken care of. It is for that reason that a Will must be written, which lays down the rules for apportionment of assets between your children or appoints a suitable guardian for your minor children.
The writer is fund manager, BNP Paribas MF
