After her marriage ended around 19 years ago, Sharon, now 50, found herself alone with a toddler and struggling to make sense of her situation. “When my daughter was born, I realized something was wrong with my marriage. When she was barely a year old, the marriage ended," said Sharon, who did not want to reveal her full name or profession.
Although her former husband continues to financially support their daughter, he stopped paying alimony after a few years of their divorce. Sharon managed to restart a career she had put on hold and managed to hold it together for her child’s sake even as she was struggling with the trauma of her situation.
Becoming a single mother can be a choice or a result of circumstances, but either way there are challenges. Many single mothers face judgment and hostility as they struggle to balance work, life and bringing up children. Having a grip on your finances can make the journey a little smoother. Here are a few things single mothers should keep in mind when planning their finances.
Handle the trauma
For mothers who don’t have a safety net like Sharon, being a single parent can be an uphill climb.
The initial phase was an emotional struggle for her and she often shopped just to feel better. Not only did this rack up a substantial amount of debt, it also meant she was not able to make any long-term investments at the time. But Sharon soon realized that she had to provision for her own future. “I didn’t have any inheritance, and though my daughter’s expenses and higher education will be paid for, I still have to secure my retirement," she said.
Deepali Sen, founder partner of Srujan Financial Advisers LLP, recommends budgeting your expenses. “Tie your goals to the sources of cash flow, whether it is your salary, alimony, or some other source of income. This will give you a clear picture of where you stand. Budgeting will help you understand how much you can safely spend," she said.
Invest in yourself
The next step is to invest in yourself to be able to run the household independently. “Think of yourself as an asset, because you are the one who will be generating cash flows," said Sen.
Pritha Mohinta, 37, a freelance training and development professional, has designed her career to suit her needs as a single mother. “I was a banker before I got married, and took a sabbatical to have my baby. Afterwards I didn’t want to go back to a 9-to-5 job, so I enrolled in a teacher training course. When Anishka, now seven, joined a Montessori school, I decided to join the same school as a teacher since it would give me an income as well as let me be around my daughter," she said.
After she decided to separate from her husband, she moved to her parents’ place in Kolkata. She started teaching again and did several certification courses to boost her employability. “I had my regular teaching job on weekdays and on the weekends, I would give training sessions, which paid better," she said. But working seven days a week while raising a young child started taking a toll, and she decided to quit her job and work as a freelancer.
Create a safety net
One of the most important things you need to plan for is a way to ensure your child’s well-being in case of your untimely death. This is especially important for single mothers like Mohinta who does not take any financial support from her husband. A term insurance is, therefore, absolutely essential. “Single moms are not only the sole bread winners, but also play the role of sole ‘emotional support’ as an adult to children. In such a case, if any untoward incident happens to the mother like death or accident or long-term illness, the sum assured received from the insurance policy can be a huge support to the children. And with finances intact, emotional trauma can be handled better," said Shilpi Johri, founder of Arthashastra Consulting.
Sen recommends getting a term plan that covers all current and future needs of the child. “It does not have to include frills like your child’s wedding expenses, but make sure the basics are covered," she said. If you have other dependants, like your parents, make sure your health policy covers them, or buy separate plans for them.
But a personal safety net is equally important. What worked in Mohinta’s favour was the support of her parents, which got her through the early days when she struggled to hold it together, resume her career and take care of her child. If you don’t have such a support system in place, you would need to budget for child care expenses as well.
Mind your goals
Once you have figured out your sources of income and created a safety net, it’s important to secure your future.
Sharon has come a long way from the initial trauma, and is saving and investing systematically through mutual funds and other instruments to build a substantial corpus for her retirement. She has also bought health insurance for both herself and her daughter to ensure that a medical emergency doesn’t eat into her savings.
There is no product designed specifically for the needs of single mothers. In fact, an effective financial plan for a single mother would look a lot like that of a single-income household. “Like everyone else, single mothers should also do detailed goal-based financial planning and invest accordingly. Asset allocation should be done as per their personal, health, financial and professional situation keeping in mind their emotional health as well," said Johri.
“Don’t be risk averse when it comes to long-term assets. Invest in equities, but try not to go overboard by choosing mid- and small-caps or direct stocks, hoping to win a jackpot. You can play it relatively safe by choosing large caps," said Sen.
Teach by example
As a single parent, it is wise to keep your child in the loop about financial matters once they are old enough to understand. “Single moms should inculcate appropriate money habits in the children. I would advise them to make their children part of budgeting exercise every month. Children will be more aware of the processes and will be more prepared for emergencies. Children should be made nominees in all the investments and if they are minor, a guardian should be appointed. Also, write a Will and make children aware of it," said Johri.
Sharon has let her daughter manage her own finances for the past couple of years, and her allowance is deposited into her own account. In a way, Sharon wants her daughter to be self-sufficient because she herself struggled to find her feet and take charge of her finances after her divorce. Next she plans to channel part of her daughter’s allowance into a systematic investment plan, even if it’s a small amount, so that she can make the most of compounding.
Single mothers often have to stand in for both parents for their children, while juggling numerous other responsibilities. While the challenges are many, having your finances in order and a support system in place can ease the situation and help you take control.