Being a single mother can be really hard. Everything needs to be taken care of so that your children can lead a comfortable life. It all gets just that much easier if your finances are sorted out. Here’s the example of Priya Raman who faced a similar situation.
Priya Raman lost her husband unexpectedly in a car accident a month ago. Along with dealing with the sudden loss, she realised that being a single mom to her two children, aged 8 and 5, was not going to be easy financially or emotionally.
Priya was just 38 years old and had no idea how to deal with the situation. She had not been involved in the financial matters as she’d left all major decisions to her husband.
Being a single mom as well as managing money all by herself was definitely not going to be easy.
Fortunately, Priya knew that her husband had engaged a financial planner, Sumit.
Here are the money management tips and action plan suggested by Priya’s financial advisor.
Assess the situation:
First, Sumit helped Priya understand where she stood in terms of bank balances, savings, loans and insurance. She had to claim the balances in her husband’s name and change the assets to her name, wherever applicable.
This meant approaching the various banks/institutions with all the required documentation. The first step would, therefore, be to get a hold of the current financial situation.
Constitute an emergency corpus:
Sumit explained that having an emergency fund equalling about 6 to 9 months’ worth of expenses was very important. This is because a sudden emergency or loss of job would render the family without income.
As Priya was the sole bread winner and her two children were dependent on her, she decided to invest in liquid funds and short term deposits.
Additional read: Liquid fund options beyond a savings account
Re-plan insurance needs:
Priya had to make sure her family was well protected if something untoward happened to her as well. She took a term life insurance cover equalling Rs. 1.5 crores and named her children as the beneficiaries. Also, the secondary health insurance policy taken by her husband had to be changed.
She took a health cover with a sum assured amount of Rs. 5 lakhs for herself and her children.
Additional read: 5 questions you need to ask on term plans
Loan management:
It is always better for a single mother to have low liabilities on the books. Priya’s husband had taken a home loan 4 years ago and an amount of Rs 45 lakhs was still outstanding on it. Priya had received an insurance settlement of Rs. 1 crore on the death of her husband.
Sumit advised Priya to use this amount to repay the home loan and become debt free. This could help in eliminating cash outflows on account of monthly EMIs.
Goal planning:
Planning for goals becomes critical for a single mom. Not only does she have to be the only one to make decisions, but all the goals will need to be managed with a single income. Priya needs to take a relook at the goals planned by her husband. These goals planned on the basis of a double income will need to be re-aligned with only one income in place.
This means lower contributions on a monthly basis and requiring a higher return from the investments. Priya had several meetings with Sumit to decide the corpus amount she needed for the critical goals of her children’s education and marriage, and also to plan how to fund for these goals.
She planned for her retirement corpus as well as it would be required at the end of 20 years. She had an excess of Rs. 55 lakhs from the insurance settlement she had received on her husband’s death.
Sumit suggested that this amount could be used to reduce the burden of funding the critical goals. After apportioning this amount and by breaking down the goals, Priya arrived at the amount she had to invest monthly to build the corpus.
Additional read: How to manage big future expenses successfully
Write a Will:
When Sumit suggested that Priya should write a Will, she thought that the idea was absurd. However, when she realised that her husband’s Will had made handling finances easier, she agreed. As Priya’s children were minors, she had to appoint a custodian to take care of the assets.
Estate Planning becomes very critical if you are a single mom. This is because there are greater chances of property dispute after your time, which can deprive your children of what they rightfully own.
Being a single mom is certainly difficult; but little financial discipline can help you ease your money management challenges by a great extent.