Viva Kermani, in her mid-40s, is a Bangalore-based climate crusader. She is passionate about her work, loves to travel and aspires to study a lot more. Owing to her single status and her focus, she possibly has the time and determination to do all this and more.
Though she doesn’t have to strike that balance between family and professional life, living single is not exactly a cakewalk. In fact, to fulfil most of her passions and ambitions in life, she needs to plan her finances, and well enough to be able to protect her independence.
The goals, aspirations and needs of a single woman like Kermani are likely to be very different from that of a family. For a single woman it is crucial to have a plan for retirement and medical emergencies. Financial independence acquires a completely new meaning in this context. Says Kermani: “If you are single, then it’s very important to ensure that your money works for you in times of need. So it is important to plan accordingly. Besides, I also want to study more.” Moreover, expenses are mostly self-driven, but at the same time, there is no support whatsoever.
Naturally, their finances have to be planned a bit differently. We spoke to a few planners to get an idea of what they need to do broadly to keep their financial lives in order.
Health insurance: This is crucial since you are single. Having an adequate health insurance that will cover at least 90% of your expenses in case of any emergency will ensure that your medical bills don’t burn a big hole in your pocket.
“While choosing a health insurance, it is advisable to opt for a policy (even if your company provides this, an independent cover is a must), accidental disability and a critical illness cover,” says Dipika Kalra, associate financial planner, International Money Matters Pvt. Ltd, a financial planning-cum-investment advisory firm,who also manages Kermani’s portfolio at the firm.
A critical illness cover will give you a lump sum amount in case of any disease (that is included in the cover), subject to the conditions of the policy; it acts as a supplement for your income loss.
Life insurance: Most single people don’t need a life insurance unless they have somebody dependent on them for sustenance or have a huge debt. Says Amar Pandit, a Mumbai-based financial planner, “A single woman should opt for a life insurance only if she has some liabilities. This would mean dependent parents or an unpaid home loan or car loan.”
However, if your assets are sufficient to pay off the loan in case of any casualty, then the life insurance would be unnecessary. “Insurance agents would walk in and offer plans with huge survivor benefits, but that’s not what I needed. I needed money while I was alive. I have realized most financial products, especially insurance, are family centric. There is nothing for single people,” says Kermani.
Most planners suggest a person, single or otherwise, to have contingency fund of about three to six months. This may differ from person to person, depending upon the lifestyle, nature of income and ownership of asset classes.
“A single women is no different. A contingency fund of about three months should be good. But in case she is a professional with an independent practice or for any reason has a fluctuating income, then I would advise a fund equivalent to about a year’s living expenses,” says Pandit.
The contingency corpus is best stashed away in a savings bank account linked to a fixed deposit that can be operated through an automated teller machine, in short-term deposits or short-term liquid funds. “If you leave money in your savings account, then there is the temptation of spending it. Besides, a short-term liquid mutual fund will give you slightly better returns than the balance maintained in a savings account. While a bank balance will earn you an interest of 3.5%, a liquid mutual fund will give you around 4-4.5% per annum,” says Kalra.
Investing in real estate
Having a shelter is necessary, so it’s important that the roof belongs to you.
If you are your parent’s only child, they’d most probably bequeath you their home. Unless you want an independent pad right away, you can postpone this decision.
However, if you have siblings and there’s a chance that he or she may stake a claim to your family home, you would need to find yourself a home you can truly call your own.
Says Kermani, “There is nothing like the safety and security of your own house. That is one of the first things you should invest in because even getting a house and then getting your loans sanctioned is tedious.”
Owning a house is better than taking one on rent. In a city such as Mumbai where the maximum tenor of the lease is 11 months, you could be burdened with relocating every year. This gets more difficult as your age advances. Kermani adds: “Getting a house on lease is difficult also because of the kind of attitude many people have towards a single woman. Many will refuse to lease you the house just because you are single.”
Reverse mortgage: Having a house of your own also opens up the option of reverse mortgage when you grow old. Post-retirement, you could consider a reverse mortgage, if you don’t want to pass on your property to anybody or need additional income.
However, not all planners advise it as the value of your home gets eroded. “You will get back loans only for about 60% of the value of your property. Besides, the service is still new in India and your choice is restricted,” says Kalra.
Since, in the long run, equity gives the best returns on capital, your retirement kitty is best stashed away in equity funds. Start off with good exposure to equities. “As you near your retirement, say five years before it, realign your portfolio and reduce your exposure to equity to about 25-30%,” says Surya Bhatia, Certified financial planner and principal consultant, Asset Managers, a financial planning firm. Invest regularly in the Public Provident Fund (PPF). Says Bhatia, “The PPF is one of the best avenues in the debt category. It has a long lock-in period, it is safe, it gives you tax benefit and also gives a good return. So it’s best to completely exhaust your PPF limit (Rs70,000 per annum) and make voluntary contributions to your company’s provident fund every year.” A pension policy would also bode well, as it will assure you regular income.
When you are single, there is no room for mistakes if you want to remain financially independent. So make sure you plan well.