The Economic Times daily newspaper is available online now.

    Financial tips for single mothers

    Synopsis

    The biggest challenge single mothers face is financial security. Here are some important steps they should take to ensure it.

    ET Bureau
    Being a mother is arguably the toughest job in the world. And it becomes even tougher if she doesn’t have the support of her husband. In India, single mothers fight pitched battles on numerous fronts. They are up against hostile regulations, unsympathetic relatives and an archaic system that is blind to the new realities of dysfunctional relationships. But their biggest challenge is ensuring their financial security. In a country where financial literacy is poor, women score low on the awareness scale.

    Meet Sapna Keswani, a Mumbai-based divorcee who is raising two daughters after separating from her husband five years ago. Though she had been working for almost two decades, Keswani was not financially prepared for the divorce. She had managed to save a meagre amount and her knowledge of financial matters was not very deep. Instead of letting matters be, Keswani adopted a more proactive approach and sought professional help from a financial planner. "My prime concern was that my daughters' education shouldn't be hampered," she says. Today, this mother of two can proudly ensure that her daughters' aspirations are realised.

    Other single moms should take inspiration from Keswani and take charge of their finances. Time will heal the emotional scars of a divorce or the death of a spouse, but you must immediately get a grip on your family finances. The money decisions you take now will determine whether your children enjoy the life you had wished for them. Here are some steps you can take to provide financial security to your family.
    PICS: ​NITIN SONAWANE

    Image article boday


    FARHEEN SIDDIQUI, HYDERABAD

    HER SITUATION: DIVORCED, WITH DAUGHTER AGED 10

    ​When she separated from her husband, Farheen was between jobs. She had to quickly get back on the saddle to support her infant daughter.

    WHAT SHE DID:

    1. Started SIPs in a few equity funds to build long-term wealth.

    2. ​Bought a child plan with guaranteed educational benefits; plans to increase term insurance cover from Rs 25 lakh to Rs 50 lakh.

    Assess your existing finances
    Most married women in India avoid making financial decisions. A 2013 survey by Ameriprise Financial reveals that many women stay out of money matters to avoid marital discord. Others hesitate because they are unwilling to take accountability of the decisions. "This hesitation is unwarranted given that tasks like budgeting and planning come naturally to most women," says Mimi Partha Sarthy, Managing Director, Sinhasi Consultants.

    The first thing that a newly-single mother should do is assess where she stands financially. She may have received a large sum, either as compensation after divorce or the death benefit of her husband's life insurance policy. This money should be utilised with utmost care and deployed in investments that can generate income. "Do not lock up the money in illiquid assets like real estate," says Vidya Bala, Head of Research, FundsIndia. com. Financial advisers suggest, as far as possible, consolidate all investments into a short-term instrument till you figure out how to deploy the money. "Avoid taking hasty decisions with this money," says Neeraj Chauhan, CEO, Financial Mall. "Park the money in a liquid fund, bide your time till you figure out your needs," he adds.

    Image article boday

    FARHEEN SIDDIQUI, HYDERABAD

    HER SITUATION: DIVORCED, WITH DAUGHTER AGED 10

    When she separated from her husband, Farheen was between jobs. She had to quickly get back on the saddle to support her infant daughter.

    WHAT SHE DID:
    1. Started SIPs in a few equity funds to build long-term wealth.

    2. Bought a child plan with guaranteed educational benefits; plans to increase term insurance cover from Rs 25 lakh to Rs 50 lakh.
     

    "If there are any existing liabilities left behind by the husband, the priority should be to repay those loans as quickly as possible," advises Pankaaj Maalde, Financial Planner, Apnapaisa. "One will not be able to afford EMIs on a curtailed income."

    Divorce or widowhood can be very challenging if the woman is not working. Hyderabad-based Farheen Siddiqui was between jobs when she split from her husband in 2005. It was critical for her to get back on the saddle as quickly as possible. "Financial security was my topmost concern and I had to get back to work at the earliest for the sake of my infant daughter," she recollects.

    There is another danger. The emotional trauma of separation or bereavement can numb the senses, preventing one from thinking logically. The slightest show of sympathy can influence you to make decisions you may regret later. You need to be wary of greedy relatives and unscrupulous associates who may try to take advantage of the situation.
    Re-plan and re-prioritise
    You and your husband may have set financial goals, but after he is gone, you will have to go back to the drawing board. Take a fresh look at your goals, revise the target amount and rejig the investments to fit your reduced income. "You may have to scale back certain goals to reflect the changed circumstances. A foreign education for your child, for instance, may have to make way for local studies," says Nisreen Mamaji, Founder, Moneyworks Financial Advisors.

    Image article boday


    SANDHYA MENON, MUMBAI

    HER SITUATION: DIVORCED, SUPPORTING A DAUGHTER AGED 22
    She separated from her husband two decades ago and raised her infant daughter with the support of her parents. A stable, lucrative job with the Indian Railways has been a big help.

    WHAT SHE DID:

    1. ​Bought three traditional life insurance policies.

    2. ​Though low on yields, the policies enforced a saving discipline.

    3. She is entitled to pension after retirement as per government rules.

    Besides reviewing individual investments, you will also have to review the overall asset allocation of your financial portfolio. Doubleincome families can afford to be aggressive in their investments but, as a sole breadwinner, you might want to tone it down. Of course, this does not mean that you shun risky but potentially rewarding asset classes like equities altogether. But, instead of direct stock investments, it is better to take exposure to equities through mutual funds. This is especially true for younger individuals who can build wealth through long-term equity funds.



    The sudden shift from a double income to a single salary will certainly impact your savings potential. "The limited savings potential requires that money be invested in smarter products that enable you to build wealth over time,” asserts Bala. Locking up money in lowyield but safe fixed deposits will not allow you to fulfil the goals you have in mind. If you are unsure, opt for balanced funds, which invest in a mix of stocks and fixed income securities. Once you get comfortable with the idea of investing in equities, start an SIP in a large-cap equity diversified fund. Consider this: an SIP of Rs 5,000 in a large-cap fund for the past 10 years would have grown to Rs 13.76 lakh today, a return of almost 15%.
    Doing the legal paperwork

    After a person dies, his wife does not automatically become the owner of his assets. Unless there is a will to this effect, the transfer of assets can get mired in legalities if there are other claimants. "You need to brace yourself for anything. At times, even children can take advantage of the vulnerable mother," cautions Chauhan.

    The legalities don't end with a will. If you have minor children, appoint a guardian for them, advises Maalde. This will ensure that in case you die, only the guardian of your child will be able to handle his financial affairs. Also, make a Will which clearly specifies how you wish your assets to be distributed after your death.
    Be wary of loans

    Given that the household income will suddenly be curtailed, one may get tempted to borrow to tide over the cash crunch. But financial advisers warn against such moves. Chauhan cautions, "It becomes very tough to pay back such a loan and you may possibly get into an endless cycle of revolving credit."

    If you are in dire need, seek friendly loans from relatives instead of approaching a financial institution. Before taking a loan, try cutting your monthly budget. "Be truthful about your financial situation with the children," suggests Mamaji, for enlisting the support of the children.
    Take life cover

    Since you are the sole breadwinner now, you need life insurance more than ever. Even if you got a large sum as insurance money or receive child support or alimony payments from the estranged spouse, the money may not be sufficient to meet the family's future needs. Apart from paying for basic needs, it must fund your children's education and higher studies. A pure term policy which provides high risk cover at a low cost should be a top priority. A Rs 50 lakh cover for a female aged 35 can be bought online for a yearly premium of Rs 6,000.

    "Ensure the cover is sufficient to take care of all existing liabilities apart from future needs such as education," says Bala. Additionally, buy a health cover to protect your cash from being eaten up by medical expenses.
    Do not ignore your retirement

    Obviously, when faced with such a dire situation, all your thoughts and actions are bound to revolve around your children. Their needs will take precedence over everything else. But do not completely ignore your own well-being. Make some room for your own needs as well. After running yourself ragged to fulfil your responsibilities towards your children, you deserve some level of comfort after retirement.

    Start diverting some money towards your own little nest egg. Even Rs 5,000 invested monthly in a balanced fund for 15 years can fetch a tidy sum of around Rs 20.9 lakh, assuming an yearly return of 10%. While your son or daughter would most likely be earning enough to look after your needs when the time comes, it wouldn't hurt to have a bundle of your own money to fall back on.










    (Your legal guide on estate planning, inheritance, will and more.)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    ...more

    (Your legal guide on estate planning, inheritance, will and more.)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    ...more
    The Economic Times

    Stories you might be interested in