Financial Planning for Single Parents require more attention than just numbers. There is a lot of emotional stress as there is no second member to take care of children’s and parent has to fund for retirement them-self. Balancing a working life with household care becomes a daunting task. Also, any shortage of finances imposes problems as you do not have a spouse income to rely upon. The difficulties are more when the life of a single parent arises from situation like divorce. So it becomes important to plan ahead so that you are prepared for the future contingencies.
Here are few tips on what should single parents consider while planning their financés and other aspects of life-
- Re-Work on Goals– For working couples, separation from divorce brings a sea change in the financial objectives. Every aspiration or goal of life will have to be managed by own resources now. The going gets tough when you have to take care of children’s too. Hence, the first step for a single parent should be to rework on your goals since you will be the person who will be meeting the needs. Children’s education & Marriage, your retirement and any other goal will have to be recalculated to identify the gaps within your income resources now.
- Set Priorities– Since a single parent has to meet both family and retirement goals’, prioritizing them is very important. Children’s requirement should be the top most priority followed by your retirement and others. It helps in avoiding stretching of your resources which are limited to meet these goals.
- Higher Emergency Fund– Ideally 4-6 months is advisable for keeping an funds for emergencies. But being a single parent this may not be sufficient considering you won’t have any recourse if there is a shortage. Also, situations like job loss or medical emergencies can be prolonged then what you have thought. It’s good to keep a higher contingency fund of 9-12 months so that you can plan out accordingly when required.
- Buy Insurance– Buying adequate insurance is much more important to a single parent. Since they are the only source of meeting their children’s needs, the provision has to be made for meeting them in case of any eventuality. Term insurance is the right product for family protection keeping your outgo minimum. There is also risk for falling sick, injury and discontinuation of work. These can be covered through adequate health and disability insurance. If parents has availed some mortgages like housing or car then it should be factored in while identifying the insurance requirement. Avoiding any kind of combo insurance products, which fails to meet either objective, will help in future well-being.
- Start Investing Early– Your resources are limited and so you have to achieve your goals within these. Procrastination can force you to stretch these which at times is difficult. The wiser approach is to start early in life. Not only equity but even debt products like EPF, PPF can compound your money more if the investment time horizon is longer. Also, the children’s needs such as education are fixed and cannot be delayed. With higher inflation, starting early helps in avoiding situation of borrowing for their requirement. The same applies to retirement where even the loan option is unavailable.
- Invest Cautiously– Your investment for your goals will be the key for achievement. It will be difficult if you make mistakes or choose the wrong approach. Even if you are conservative, you still need asset mix to ensure the gap between your requirements and resources is not too large. Follow asset allocation and take the help of right professionals if you do not understand your investments.
- Make Your Job Secure– Layoffs are unavoidable in adverse economic scenarios but you can avoid due to underperformance or professional issues. Your job security will be essential in planning out for your life goals. Ensure you create a discipline in your working life and your performance. Evaluate yourself periodically and improve upon skills which you may need to progress.
- Periodic Review– It’s very essential to ensure you are on course. Whatever plan you draw need to be reviewed periodically. Prepare a schedule for this review and monitoring and adopt rebalancing wherever required. This will also help in accommodating the changing needs which will evolve with your lifecycle.
- Control Spending– Since you are a single parent and needs will be higher it is necessary your expenses remains in manageable limits. Keep awareness on where your money is going so that you can take correct measures where required.
- Estate Planning– How the asset will go to the children’s, how will their education and other needs will be met when you are not around, are concerns which you have to address. Preparing a Will helps in ensuring the assets you have created like house, life insurance proceeds etc. are transferred to the benefit of your children’s. To reduce the process of transfer you can make nominations in your financial assets according to your will. A trust option can be explored if need arises.
- Discuss With Children’s– As the children grow up they will realize that you are the only source of their needs. In such scenarios you need to ensure your children’s are well aware of financial situations of a single parent so that their needs and wants remains within your manageable limits. Discuss with your children’s about your family as they grow up. It can also make them more responsible and can provide you helping hands early in life.