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> Planning for special situation
>More than money
>Stay-at-home careers
>What if you have special needs children
>What if you have irregular income
>What if your family shifts to one income
>Must-dos for single parents
>Guardians: rights and duties

Death or divorce could see a family shattered, and a child left with one parent. Bringing up children alone can drain you physically, emotionally and financially. It’s the last that is truly worrying, as it’s the one thing time cannot heal; you have to take active steps to shore up your finances if you’re left alone with the children. “The absence of a backup— the other parent—makes the financial condition of single parents very fragile,” says Deven Shah, business head, Money Mentor.

Swati Sen in Mumbai knows all about the precarious finances of a single parent. For 15 years, she has been solely responsible for her two daughters. At the time of separation from her husband, Sen’s monthly income was Rs 7,500. “I carefully planned every purchase for the household, from a pressure cooker to a television,” she says. What should people like Sen do to ensure that they make ends meet and also provide some comfort for their children while saving up for a rainy day?

The first thing to do is to list out your expenses—discretionary and non-discretionary. Once this is done, you can decide whether you can manage by cutting down expenses, or you’ll have to take steps to increase your income. Or, as Bhavna Parihar found out, do both.

Taxing separation If you are headed for splitsville, take note of these tax implications of your financial decisions Alimony Giver: Not deductible from income for tax calculations Receiver: Taxable as income Child support Giver: Not deductible from income for tax calculations Receiver: Not taxable Transfer of property Receiver: Cash more than Rs 50,000: Taxable as income Other physical or financial assets: Treated as gift. Hence no tax If it is an amicable divorce, it is best that all financial settlements are made in lump sum. Lump-sum payment is treated as capital received and will not be taxable

"The insurance need of single parents is usually higher than that of the breadwinner of a family where both parents are alive" — Jaideep Lunial, Certified financial planner

Then Parihar lost her husband because of a cardiac arrest, the family lost its only earning member. “I have three daughters and at the time the youngest was barely six months old,” she says.

Parihar moved in with her parents, saving on rent. She gets her husband’s pension (he served as a Lieutenant Colonel in the Indian Army) of Rs 19,000 a month. But that left little to save. So Parihar took up a job as a school teacher. Her monthly salary is a modest Rs 6,500, but it ensures that she has some money left to save.

The biggest asset for single parents is often their earning potential. Improvement in career tops the agenda of single father Sourav Chatterjee, a 38-year-old artist with an e-card company in Kolkata. “I wish to increase my income significantly. Therefore, I spend most of my post-work hours honing my skills as a painter,” he says. This means that he has little time to spend with his three-year-old daughter, who is taken care of by her aunt. “But it is the concern for her future that motivates me to enhance my career,” says Chatterjee.

However hard you try, there will be times when your expenses shoot up and your income falls short. The temptation to take a loan to finance the deficit is great. In fact, most of the single parents we spoke to are repaying personal loans. Sen says that no sooner has she repaid one than she has to take another. Planners say that this is a trap single parents should be particularly wary of as there’s nobody to bail them out of a deepening debt. That’s why they advise single parents to stay away from loans for depreciating assets like cars or washing machines.

It is a common perception that single parents should stay away from risky investments such as equities. Shah debunks this idea and actually encourages them to invest in equities, especially through mutual funds, for their long-term goals. In fact, as the burden of all investments is always on one income, high-return asset classes like equities should be integral, he says.

One asset that’s essential is real estate, as rents could eat into even the most robust income. Shah rates a house to be as important a goal as the children’s education. But with other expenses jostling for attention, a home moves down the priority list of a single parent. Some wait till they’ve saved a sufficient amount before buying a house, while others prefer to wait till other goals are met. But this is simply putting off something that’s better started as early as possible.

The insurance needs of a single parent are higher than that of a family with one breadwinner. Experts suggest that single parents should take a high cover, possibly in the form of a term plan.

A rough-and-ready method of figuring out how much insurance a single parent needs is to add up the family’s expenses for another 30 years, value of all loans and a buffer equivalent to equity investments. Apart from life cover, it’s also important that a single parent takes health and accident insurance, as hospital bills could prove crippling. If you are divorced and some of the child-related expenses are met by your ex-spouse, it is a good idea to ask him/her to take adequate life insurance.

Another worry for most single parents is their retirement. As with a house, the need to build a nest egg is not felt till quite late in life.

Ranchi-based Poonam (Nigam) Sahay teaches in a government college, and is therefore eligible for a pension. But the amount is likely to fall short of her needs. “I want to build a nest egg on a shoestring budget,” she says. At 48, Sahay has lost precious years for building her retirement corpus, but it isn’t too late. She could invest Rs 4,000 every month in equity diversified mutual funds. In 14 years, assuming that the money earns 15% annualised returns, she should have a corpus of Rs 22 lakh. After scrambling to fulfill your responsibilities, you deserve to live comfortably. As Sahay says, “I owe myself a good retirement.” 

Swati Sen, 48, Mumbai (with daughter) Special situation: Single mother Dependents: Younger daughter (studying mass communication); Elder daughter is working Monthly cash flow: Miscellaneous expenses: Rs 5,000 Surplus: Rs 8,000 Investments Recurring deposit of Rs 2,000 a month (started five years ago) Endowment policy of Rs 4 lakh Money-back policy of Rs 2 lakh Goals Time horizon Future cost (Rs) Elder daughter’s marriage 1 year 2.05 lakh Younger daughter’s marriage 5 years 3.82 lakh Retirement 17 years* 74 lakh To achieve goals • Use part of endowment policy that matures next year to finance elder daughter’s marriage and invest the balance in large-cap funds • Invest Rs 5,000 in a balanced fund for four years to meet the expenses of younger daughter’s marriage • Existing investments will grow to Rs 37 lakh—half of retirement corpus. Invest Rs 5,000 (after four years) in debt and equity funds. and Rs 3,000 in equity diversified funds for the shortfall • Divert Rs 2,000 from recurring deposit and money received from money-back policy to mutual funds • Consider buying a house and convert rent to EMI for house loan *Retirement age assumed to be 65. Inflation assumed to be 5%. Expected annualised returns from balanced fund: 12%. Expected annualised returns from equity diversified fund: 14%

Bhavna Singh Parihar, 34, Bhopal (with three daughters) Special situation: Single mother Dependents: Three daughters Monthly cash flow: Current take home salary: Rs 6,500 Pension of husband: Rs 19,000 EMI (home loan): Rs 8,500* Routine expenses: Rs 16,000 SIP: Rs 1,000 (started two years ago) Some of this amount is paid every quarter Investments: House: Rs 13.75 lakh Plot of land: Rs 9 lakh SIP of Rs 1,000 in an equity diversified fund Goals • Education of all three daughters • Marriage of all three daughters • Retirement Recommendations • Buy a term insurance policy of Rs 30 lakh for 20 years • Buy health insurance policy of Rs 2 lakh (family floater) • After EMIs stop, invest surplus in a combination of debt and equity-oriented mutual funds * Recommendations alone are not sufficient to meet goals