Must-dos for single parents

While single parents almost never fall short of love and good wishes for their children, often they don’t plan their finances properly to ensure that their dreams become a reality.

Deven Shah | Print Edition: August 7, 2008

Deven Shah, Business head, Money Mentor

When I am a big girl, can I be a fashion designer?” asks the child. “Sure, why not,” replies the supportive mother. As a single parent, she wants to ensure that the absence of her husband does not hinder the growth of her child.

While parents almost never fall short of love and good wishes for their children, they do not always know how to plan their finances to ensure that their dreams become a reality. For every individual, financial planning is as essential as providing food, clothing and shelter, and a single parent is no exception. While most of the basic principles of financial planning remain the same for all, there are some issues that demand special attention for a single person shouldering the responsibility of the entire family.

Emergency fund: It is advisable to have about four-six months of expenses for emergencies. While everyone needs cash reserve, it is vital for single parents as they don’t have a spouse’s income to fall back on. This sum is best parked in liquid funds, which yield higher returns than the interest in a savings bank account.

Children’s future plan: One needs to plan carefully for key goals in their children’s lives, especially education and marriage. If the single parent’s savings are not enough to build an adequate corpus, then the financial plan must anticipate the loan that will have to be taken (inflation-adjusted amount).

Insurance: It is critical to have life insurance with a risk cover that will not only provide for living expenses of the children but also take into account the funding of their key goals like education and marriage. A pure term policy which gives high risk cover at a low premium is usually the most suitable option. Avoid children’s plans that insure the life of a child, unless your livelihood is dependent on the child’s income. Also, remember to take sufficient medical and disability insurance to minimise the loss of income in case of an accident or an illness.

Equities: More often than not, single parents are advised to stay away from equities because of the perceived risks. However, investing only in fixedreturn instruments is worse, as the returns are often negligible after adjusting for inflation. For goals that have a time horizon of more than five years, a certain portion of investments should be put in equities.

Estate plan: At a very basic level, it is critical to have a valid will in place that clearly states who is to inherit your personal assets. It is also very important to specify who will act as guardians for your children.

Retirement plan: Single parents tend to focus on providing for their children at the cost of ignoring their own growth and development. A financial planner can help single parents ensure that a fine balance is maintained between a quality life for their children as well as their own development. Building a corpus for a comfortable retired life is a critical goal that single parents should not ignore.
Managing personal finances as a single parent is not easy, but with prudent planning you can avoid mistakes that lead to unexpected shocks. Planning can help you make the most of whatever you have.


Shah also gave financial advice to Swati Sen and Bhavna Singh Parihar, featured in "What if you are a single parent"

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