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Financial Planning Tips For Single Moms

Last updated on: August 30, 2023 11:55 IST
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Please ask your questions here and rediffGURU Anil Rego, founder and CEO, Right Horizons, will answer them.


Illustration: Dominic Xavier/

When you are a single mother, your financial situation can be more challenging.

You have to map out each of your child/children's needs like school, college, higher education, career, holidays, illnesses, etc.

It is always good to start off with a financial plan that aligns with your desired goals at different time intervals.

While at it, you must ensure that the needs of the kids as well as the mother are well-planned for so that one doesn't eat into the other.

The next step is to look critically at each of these needs and figure out an appropriate investment plan.

Some funds are needed in the short term, so one needs to invest in liquid options. Plan out based on how much liquidity (money) will be required as your child grows up.

Take higher level of risk for funds that will be required in the long term.

The third step is to have a fallback option so that the kids are taken care of in case something happens to the mother; as a single parent, this is vital.

Financial planning

Of first and foremost importance is the financial needs of the child.

A single mother needs to plan for primary education, college education, higher education as well as possibly the marriage of the child/children.

However, if you just plan for the child/children's needs and have a shortfall when it comes to your retirement needs, then that's a problem.

Investment tips

  • Opt for a combination of returns and liquidity.
    The liquid option could include any instrument like an FD or a debt mutual fund.
  • When you look at slightly longer term, and if tax saving is also a criteria, then instruments like provident funds are an option.
  • For equity investments, one can always look at mutual funds. They are the best if one follows a disciplined and systematic path to investment.
    This way, you are unlikely to lose money in the medium term as well.
    This option is likely to give you a higher return than the debt investment option.
  • I would also suggest investing in dynamic asset allocation funds as they manage risk well.
  • Start an SIP in a children's gift fund or a dynamic asset allocation fund like ICIC Pru Balanced Advantage Fund.

General tips:

  • Ideally, opt for a financial plan that looks at all your needs; at the very least, it should fulfil your child's education/marriage needs and your retirement.
  • Invest as much as you can on a monthly basis. Your retirement is not really far away and needs are likely to overlap with your retirement age.
  • Do take sufficient life cover since you have dependents.
  • SIPs are a good way to invest. You can invest in a combination of large and midcap funds.
  • As you near your retirement or your needs, you can de-risk your investments.
  • Take care of your tax planning and make investments that will optimise your tax and grow your wealth.

Life insurance

As a single mother, the most important risk to cover is your life.

If your child/children are fully dependent on you, it is very important to take appropriate life insurance. You should buy a term insurance cover that can match the capital you generate annually and will take care of your child's expenses for their lifetime (or till your child becomes independent) plus their education needs.

Buying a term cover will not overburden you on the premiums front. However, this kind of insurance is a pure risk cover and there is no maturity value at the end.

For your child's education, one category that can be considered is children gift funds which come with a lock-in facility. That will help to set aside money for the child's education and also works well in the unfortunate event of the life risk of the single mother.

Appointing a trustworthy guardian/trustee

What if life risk happens to the single mother?

You need to plan as to who will take care or get custody of your child/children in case something untoward happens.

In such an eventuality, who will take custody of the child, if the child is a minor? Who can take care of the child's education requirements; who will be the guardian or the nominee?

You will have to find someone trustworthy to take care of your child's overall well-being.

If you feel it cannot be one person, you could look at a family member and a close friend.

Talk to your family and/or a circle of close friends about such an eventuality and appoint a trustworthy nominee who can take care of all your child's needs in case of your death.

Make a will

This is vital.

Make a detailed will so that there is no confusion as to whom your assets and wealth will go to.

If your child/children are minor/s, appoint someone trustworthy to take care of the finances until they are of age.

You can ask Anil Rego your personal finance questions HERE.

Disclaimer: This advisory is meant for information purposes only. This advisory and the information in it does not constitute distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this QnA or an attempt to influence the opinion or behaviour of the investors/recipients.

Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.

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