Let’s take you through the best ways for single moms to cope with their situation financially, and save and invest for themselves and their children.
Irrespective of how you came to be a single mother, whether by choice or circumstance, there’s one thing you can be certain of – you’re going to face challenges, especially when it comes to your finances.
But if you put some thought into your investments, trust us, you’ll do just fine. We’ll take you through the best ways for single moms to cope with their situation financially, and save and invest for themselves and their children.
Assess your financial situation
The first thing you need to do as a single mother is to take your total income and see how your expenses stack up against it. You’re going to have your regular household expenses such as groceries, toiletries, etc. There’s going to be rent or Home Loan EMIs if you’ve invested in a house or apartment; you’re also going to have school fees, toys, clothes and other expenses that come with having a child.
If you need to, talk to someone you trust, like a sibling or good friend, if you require help getting an objective outlook on your finances. You can also consider speaking to a financial planner.
Additional Reading: Financial Planning For Women
Maintenance and alimony
If you’re a divorced single mother receiving maintenance/alimony, you may get this either as a lump-sum amount or a monthly maintenance depending on the outcome of your divorce proceedings. Of course, this varies from case to case and has certain legal complexities attached to it such as whether you were married under the Special Marriage Act or the Hindu Marriage Act.
If you get a lump sum, the sooner you invest it, the better. It’s a good idea to split the money into interest-bearing deposits like Fixed Deposits, which are low-risk investments, and regular-income Mutual Funds. This way, your portfolio will be slightly more balanced, you’ll get a regular income and still have access to your money. You can think about investing in other assets, such as real estate, once you have a better idea of how your finances will pan out and when you’re under less emotional stress.
Additional Reading: A Financial Guide For Women Dealing With Divorce
Get Life Insurance
Since you have a child or children that are depending on you, their financial wellbeing should be taken care of should you not be around. Life Insurance, in this case, will make a lot of sense. A Term Life policy will guarantee your nominees a sum of money in case of your death. As this type of policy is generally not very expensive, it won’t eat into your savings either. For example, a 30-year, basic cover plan that will give you a lump-sum payment of Rs. 80 lakhs can cost as little as Rs. 789 a month (that’s Rs. 26 a day).
Click here to check what you’re eligible for.
Also, keep in mind that there are different types of Life Insurance and the type that you end up getting should align with your financial goals.
Additional Reading: Types Of Term Life Insurance
Do you have Health Insurance already?
It’s never a good idea to take your health for granted, so it’s wise to take Health Insurance seriously. If for any reason, God forbid, you end up in the hospital, it’s going to be a big comfort to you knowing that the hospital bills are being taken care of. How much Health Insurance should you have? Experts say that an individual should have at minimum a Rs. 5 lakh cover, but it’s actually advisable to have as high a cover as you can afford. Keep in mind the cost of medical procedures and medical inflation when you decide on the amount of cover.
Ever heard of ‘Child Plans’?
Another type of insurance you should consider is a Child Plan. This is a combination of insurance and investment where you pay a premium for a fixed term and at the end of this term, your child will get a guaranteed sum of money. This money is generally used to pay for the child’s higher education or marriage. Child Plans, like any other Life Insurance policy, also keep your child protected in case you are not around. For many plans, the minimum sum assured is 10 times the premium amount.
Additional Reading: An Introduction to Child Plans
Not only will insurance secure your dependents financially, it will also help you save on your taxes. So, it’s win-win all the way.
Investing for your child
For a single parent who wants to be able to afford to pay for their child’s higher education, a holiday abroad, their child’s wedding celebration or anything else, Equity Mutual Funds are an investment to think about. Mutual Funds are a long-term investment and have been known to give higher returns than other investments in the long run. If you hold your equity Mutual Funds for just one year, you can enjoy long-term capital gains and the dividends in the hands of the investor are tax-free. Keep in mind though that this type of investment is subject to market risks and returns are not guaranteed.
Additional Reading: Introduction To Equity Mutual Funds
Being a single mother is certainly not an easy task. But once you’ve got your finances under control, you’ll ace everything else. Don’t let anyone tell you otherwise.
Ready to make an investment in your and your child’s future?