With a little planning, single mothers can get a grip on their finances. Here’s how.

Are you a single mom

As a single mother, you are already juggling too many things single-handedly. Among the many things that demand your attention, financial/investment planning is key. In many ways, this could be one of the most important aspects. Planning your finances is critical to ensure that you achieve many of your dreams such as your child’s higher education or peaceful retired life. Read on for some pointers that can help you get there.

1. Budget your expenses

It is important to spend only on your needs and not on your wants. This can be practised diligently only if you have a budget in place. As a rule of the thumb, learn to set aside at least 25%-30% of your earnings towards investment. Budget every aspect of your monthly expenses and monitor them consistently to check and plug any leakages. It is also important to budget for the occasional indulgence. This way, you will stay within the permitted limit but will also be able to spend some amount of your earnings on things that bring joy and uplift your spirits.

2. Hedge your health and life risk

If your company provides health and life cover, you may have to revisit this aspect as you approach retirement. The employer may not cover your health and life risk post-retirement, in which case you will need to take the necessary steps. Buy a competitive health insurance plan that covers you and your dependents (including children). After evaluating your human life value, ascertain the most competitive term cover and avail of the same for the longest tenure. Human life value should include those financial goals that need to be met even in your absence, such as a child’s higher education. 

Related: 8 Investment options for women for a happy retired life

3. Do not take on too much debt

A debt trap is the worst kind of financial situation for any individual, and more so for a single mother. Avoid any kind of debt that may seem unnecessary. If you already have a home loan, ensure that it is paid off before your retirement. If you are handling multiple debts at the moment, try to pay off the one with the highest interest rate. You may also want to rein back any large-scale credit purchases. Try to accumulate the funds through prudent investment and then make the purchase with the corpus.  

4. Avail of all applicable tax benefits

Amidst the stress of work, we often tend to miss some simple things that can help us save a substantial amount. For one thing, you could ensure that you avail of all tax benefits that you are eligible for. Ideally, discuss the matter with your in-house HR executive or tax consultant, who can guide you. Prudently investing in tax saving options can help you achieve your financial goals much faster and in a stress-free manner. 

5. Create an emergency fund

It is important to maintain at least three months of household expenses in your bank account and an additional 3-6 months’ worth in easy-to-liquidate instruments such as debt mutual funds. Short-term debt mutual funds may yield better returns compared to traditional bank deposits and offer better liquidity. They are also relatively tax-efficient. These funds can be used to meet any kind of emergency that may arise. Remember, any funds depleted from these avenues have to be refilled at the earliest opportunity. 

Related: How and why should a woman secure her post-retirement life?

6. Start investing early and stay committed

The onus of fulfilling your dreams and that of your children is upon you, and the only way to achieve this is through methodical investment. Ascertain your financial goals and the timeline; this gives an idea of the funds you require at various milestones. Now work backwards and identify the amount that needs to be invested regularly to build the corpus.

Start investing early, particularly for your long-term financial goals. It may often seem that you have ample time to plan for your retirement, but the cardinal rule is that the longer you stay invested, the better your corpus will be. The magic of compounding unfolds towards the last few years. Be systematic and stay invested in a disciplined manner. Use a prudent mix of assets to build the required corpus. Reduce your equity exposure as you approach retirement. National Pension Scheme, Public Provident Fund (PPF), Mutual Funds, Senior Citizen Savings Scheme (SCSS) are some investment options for retirement that you can consider while planning for your retirement.

Related: How women can overcome these unique retirement planning challenges

Keeping track of your finances and monitoring your investments regularly will help you achieve all your financial goals – including a peaceful retirement!