TomorrowMakers

This Mother’s Day, a single mother gives the gift of sound financial advice to all women in her position.

Open Letter to single mothers

Dear single mother,

You and I didn’t choose to do this alone. But here we are, putting a courageous face to all our problems and nurturing our children to become strong individuals.

I was a homemaker for 11 years when my husband’s death shook us all. With whole household’s responsibility on my shoulders, I had no time to mourn. I was expected to raise my daughter, who was nine at the time, on the amount we received when we claimed from the insurance company. I was left with nothing but a small apartment and a lovely daughter.

There was no question of sitting and sulking. For my daughter’s sake, I pulled myself together and started building a financially secure future for ourselves – one step at a time.

But I didn’t stop at that. I decided to share my experience – the financial decisions I took and the lessons learned – with you.

Taking stock

How was I to survive on my own? I was the only child of a retired pensioner. I could not expect my father to meet my expenses; he could barely meet his own. After a while, I realised I had no option but to take the bull by the horns and take stock of where I stood. This was where I was:

  • I had no substantial savings in the bank;
  • I had no job, hence no income;
  • I did have a flat, but I had no money to pay for electricity, phone, gas, building maintenance charges etc;
  • I had the claim amount, but my growing daughter’s expenses would outstrip it in a few years;
  • I faced a long life of debt, which could only spiral if not tackled soon.

Suddenly, the concept of ‘financial independence’ sounded shallow; as a single mother, I had no option but to be financially independent. It was not a choice anymore; it was the only way forward.

One step at a time

I found a job as a kindergarten teacher and gave private tuitions in the evenings. Along the way, I completed a B.Ed diploma course. This meant I could apply at a senior school and earn a higher salary. But more importantly, I decided to take control of my finances, and took the following steps:

1) I listed all expenses and tabulated them under fixed costs and variable costs:

 

Fixed costs: Electricity, gas, apartment maintenance fee, child’s school, groceries, clothing etc;
Variable costs: Entertaining (including eating out), daily food, clothing, socialising, transport etc.
2) I then began monitoring my daily expenses to see how I could curtail the ‘variables’ (buy less fancy clothes, for instance); the idea was to work towards a ‘surplus budget’ (that is, save some money). Remember: your expenses must never exceed your monthly income.

3) I also made an annual budget, as there are certain expenses that won’t occur every month but could hit once a year. For me, the main ones were property tax, subscriptions for neighbourhood events, and insurance premiums (I wanted to continue my LIC policy). I don’t have a car, but for some of you that could be an expense too. I started putting aside a small amount for investments every month; all these were ‘fixed’ expenses.

4) I began reading personal finance columns, both in the print media and online. In the process, I learned about financial planning offered by banks and others.

Investment options

I wanted a financial safety net for me and my child. So I began investing small amounts every month, and listed them under ‘fixed costs’. This is how I went about it:

Sukanya Samriddhi Yojana: This was one of the first investment moves I made, as it’s designed exclusively for the girl child. It comes with the following features:

  • An annual interest rate of 9.2%; one of the highest in its category in India;
  • An account under this scheme can be opened for a girl child aged below 10 at any post office or an authorised bank, which can be transferred to any post office/bank in India;
  • You can open the account with Rs 1000; thereafter deposits can be in multiples of Rs 100; I put in Rs 500 every month ever since I opened the account four years ago when my daughter was nine;
  • The minimum annual deposit must total Rs 1000, while the upper limit is Rs 1.5 lakh;
  • The account holder is expected to keep the account active for 14 years; which means I must keep depositing till my daughter is 23, and ready to start a new chapter in life as her college education would be over by then.

The Sukanya Samriddhi account attains maturity 21 years after the date of issue (my daughter would be 30 then and we can use it for her wedding). However, I also had an option to withdraw the whole amount when she turns 18. I think I shall withdraw the permissible amount when the time comes as my daughter’s college years would begin around then.

Child plans: Of late I have begun looking at child plans with additional educational benefits to invest in when I get my new job. Those among you who have sons and cannot avail of the Sukanya Samriddhi Yojana can actively look at this option for your boys.

Public Provident Fund (PPF) scheme: I must not forget to plan for my old age, and I found this to be a simple and safe way to save for retirement considering my current circumstances and income. PPF is a 15-year government-sponsored deposit scheme offering 7.8% interest. It can be opened with any authorised bank or post office, the objective being to provide a long-term retirement planning option for people who may not be covered by their employers (or for those who are self-employed).

As the maximum limit that can be saved annually is Rs 1.5 lakh, and the maximum number of deposits in a single year is 12, I deposit Rs 1000 every month in my PPF account. I will be eligible for a loan facility between the fourth and sixth years (out of the credit amount between the third and fifth financial years); I may have to think about it as it coincides with my daughter’s entry into college.

One good thing about the PPF account is that premature closure is allowed in case of serious illnesses, child’s education etc, though only for deposits that have completed five years from the date of opening. This, however, comes with a penalty of 1% reduction in the interest payable on the whole deposit.

Can I continue it after 15 years? Yes, on completion of the term, I can either close or continue the account – with or without additional subscription for another five years.

Systematic Investment Plan: Three years ago, when I was 32, I began investing in a Systematic Investment Plan, commonly known as SIP. This is a scheme that lets you invest a fixed amount regularly at a specific frequency, say every month or quarter. I invest Rs 1000 every month.

In a way, SIP is like the recurring deposit (RD) scheme offered by banks. But it’s different in the sense that it’s a mechanism to make investments in a financial vehicle such as fixed deposit, debt fund, stocks, mutual fund, real estate, or exchange-traded funds (in gold, oil, or commodities). It suits people like me who are comfortable with long-term gains and those who want to ‘invest something’ after their monthly expenses – rent, grocery, car EMI etc. – are met.

I calculated that at my current level of investment (Rs 1000 a month), at 8% interest rate and adjusted for inflation, I stand to earn Rs 5 lakh over 30 years – by the time I turn 62. This may not seem like much, but it means I won’t be penniless in my old age. I can look at investing the amount in a retirement fund. Also, this is a very basic calculation; with professional guidance and investment in large caps, the yield should be much more. Besides, my salary will rise over the years and then I can raise my investment amount accordingly.

Balanced fund: If you can afford to invest Rs 5000 every month regularly do so diligently for 15 years in a balanced fund, which combines a stock component, a bond component, and often even a money market component into a single portfolio. Assuming an annual return of 10%, this can yield almost Rs 21 lakh at the end of the target period. I suggest you approach a qualified financial advisor for guidance.


Financial planning isn’t about making one set of investment decisions and assuming you’ve done enough; situations can change and your planning must be flexible enough to withstand negative changes without ruining your and your child’s hopes. Seek expert help if you are unsure.

Remember, we are all our children have and if we don’t make tough decisions today, our children will suffer tomorrow.


Yours,

Another single mother.

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or insurance or tax advice. You should separately obtain independent advice when making decisions in these areas.
 

Dear single mother,

You and I didn’t choose to do this alone. But here we are, putting a courageous face to all our problems and nurturing our children to become strong individuals.

I was a homemaker for 11 years when my husband’s death shook us all. With whole household’s responsibility on my shoulders, I had no time to mourn. I was expected to raise my daughter, who was nine at the time, on the amount we received when we claimed from the insurance company. I was left with nothing but a small apartment and a lovely daughter.

There was no question of sitting and sulking. For my daughter’s sake, I pulled myself together and started building a financially secure future for ourselves – one step at a time.

But I didn’t stop at that. I decided to share my experience – the financial decisions I took and the lessons learned – with you.

Taking stock

How was I to survive on my own? I was the only child of a retired pensioner. I could not expect my father to meet my expenses; he could barely meet his own. After a while, I realised I had no option but to take the bull by the horns and take stock of where I stood. This was where I was:

  • I had no substantial savings in the bank;
  • I had no job, hence no income;
  • I did have a flat, but I had no money to pay for electricity, phone, gas, building maintenance charges etc;
  • I had the claim amount, but my growing daughter’s expenses would outstrip it in a few years;
  • I faced a long life of debt, which could only spiral if not tackled soon.

Suddenly, the concept of ‘financial independence’ sounded shallow; as a single mother, I had no option but to be financially independent. It was not a choice anymore; it was the only way forward.

One step at a time

I found a job as a kindergarten teacher and gave private tuitions in the evenings. Along the way, I completed a B.Ed diploma course. This meant I could apply at a senior school and earn a higher salary. But more importantly, I decided to take control of my finances, and took the following steps:

1) I listed all expenses and tabulated them under fixed costs and variable costs:

 

Fixed costs: Electricity, gas, apartment maintenance fee, child’s school, groceries, clothing etc;
Variable costs: Entertaining (including eating out), daily food, clothing, socialising, transport etc.
2) I then began monitoring my daily expenses to see how I could curtail the ‘variables’ (buy less fancy clothes, for instance); the idea was to work towards a ‘surplus budget’ (that is, save some money). Remember: your expenses must never exceed your monthly income.

3) I also made an annual budget, as there are certain expenses that won’t occur every month but could hit once a year. For me, the main ones were property tax, subscriptions for neighbourhood events, and insurance premiums (I wanted to continue my LIC policy). I don’t have a car, but for some of you that could be an expense too. I started putting aside a small amount for investments every month; all these were ‘fixed’ expenses.

4) I began reading personal finance columns, both in the print media and online. In the process, I learned about financial planning offered by banks and others.

Investment options

I wanted a financial safety net for me and my child. So I began investing small amounts every month, and listed them under ‘fixed costs’. This is how I went about it:

Sukanya Samriddhi Yojana: This was one of the first investment moves I made, as it’s designed exclusively for the girl child. It comes with the following features:

  • An annual interest rate of 9.2%; one of the highest in its category in India;
  • An account under this scheme can be opened for a girl child aged below 10 at any post office or an authorised bank, which can be transferred to any post office/bank in India;
  • You can open the account with Rs 1000; thereafter deposits can be in multiples of Rs 100; I put in Rs 500 every month ever since I opened the account four years ago when my daughter was nine;
  • The minimum annual deposit must total Rs 1000, while the upper limit is Rs 1.5 lakh;
  • The account holder is expected to keep the account active for 14 years; which means I must keep depositing till my daughter is 23, and ready to start a new chapter in life as her college education would be over by then.

The Sukanya Samriddhi account attains maturity 21 years after the date of issue (my daughter would be 30 then and we can use it for her wedding). However, I also had an option to withdraw the whole amount when she turns 18. I think I shall withdraw the permissible amount when the time comes as my daughter’s college years would begin around then.

Child plans: Of late I have begun looking at child plans with additional educational benefits to invest in when I get my new job. Those among you who have sons and cannot avail of the Sukanya Samriddhi Yojana can actively look at this option for your boys.

Public Provident Fund (PPF) scheme: I must not forget to plan for my old age, and I found this to be a simple and safe way to save for retirement considering my current circumstances and income. PPF is a 15-year government-sponsored deposit scheme offering 7.8% interest. It can be opened with any authorised bank or post office, the objective being to provide a long-term retirement planning option for people who may not be covered by their employers (or for those who are self-employed).

As the maximum limit that can be saved annually is Rs 1.5 lakh, and the maximum number of deposits in a single year is 12, I deposit Rs 1000 every month in my PPF account. I will be eligible for a loan facility between the fourth and sixth years (out of the credit amount between the third and fifth financial years); I may have to think about it as it coincides with my daughter’s entry into college.

One good thing about the PPF account is that premature closure is allowed in case of serious illnesses, child’s education etc, though only for deposits that have completed five years from the date of opening. This, however, comes with a penalty of 1% reduction in the interest payable on the whole deposit.

Can I continue it after 15 years? Yes, on completion of the term, I can either close or continue the account – with or without additional subscription for another five years.

Systematic Investment Plan: Three years ago, when I was 32, I began investing in a Systematic Investment Plan, commonly known as SIP. This is a scheme that lets you invest a fixed amount regularly at a specific frequency, say every month or quarter. I invest Rs 1000 every month.

In a way, SIP is like the recurring deposit (RD) scheme offered by banks. But it’s different in the sense that it’s a mechanism to make investments in a financial vehicle such as fixed deposit, debt fund, stocks, mutual fund, real estate, or exchange-traded funds (in gold, oil, or commodities). It suits people like me who are comfortable with long-term gains and those who want to ‘invest something’ after their monthly expenses – rent, grocery, car EMI etc. – are met.

I calculated that at my current level of investment (Rs 1000 a month), at 8% interest rate and adjusted for inflation, I stand to earn Rs 5 lakh over 30 years – by the time I turn 62. This may not seem like much, but it means I won’t be penniless in my old age. I can look at investing the amount in a retirement fund. Also, this is a very basic calculation; with professional guidance and investment in large caps, the yield should be much more. Besides, my salary will rise over the years and then I can raise my investment amount accordingly.

Balanced fund: If you can afford to invest Rs 5000 every month regularly do so diligently for 15 years in a balanced fund, which combines a stock component, a bond component, and often even a money market component into a single portfolio. Assuming an annual return of 10%, this can yield almost Rs 21 lakh at the end of the target period. I suggest you approach a qualified financial advisor for guidance.


Financial planning isn’t about making one set of investment decisions and assuming you’ve done enough; situations can change and your planning must be flexible enough to withstand negative changes without ruining your and your child’s hopes. Seek expert help if you are unsure.

Remember, we are all our children have and if we don’t make tough decisions today, our children will suffer tomorrow.


Yours,

Another single mother.

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or insurance or tax advice. You should separately obtain independent advice when making decisions in these areas.