Being a single parent can be overwhelming, considering how you may be required to fulfil the roles and responsibilities of both parents, emotionally and financially. And while you are multi-tasking between work and personal life, you may have to ensure your finances are in place. Some of the essential tasks would be to plan and take care of the grocery, utility bills, rent, shopping, and expenses related to your child.
As a single parent, you may have to streamline your finances and focus on securing your child’s future. To ensure you succeed at it, the following tips may help.
How Can Single Parents Manage their Finances?
Here are some of the ways through which single parents can manage their finances:
1. Create a budget
Nowadays, with the advent of digital payments, it may be easy to lose track of your expenses. It may be beneficial for single parents to create a budget. You may begin by generating an estimate of all your expenses in a month and listing them down. From your monthly income, you may allocate funds to your savings and expenses at the beginning of every month. Try to stick to the budget as much as possible.
For example, you may use a 50:30:20 ratio2, to begin with. You may allocate 50% of your monthly earnings to livelihood expenses, 30% towards splurging on things you or your child wants and 20% towards savings and investments. Since there may be some expenses specifically associated with your child, having a specific allocation towards them may help
2. Stay low on debt
Debt planning can be a key component of financial planning. There may be nothing wrong with taking loans as long as you can pay them on time and with ease. You may try borrowing only when you are certain you can pay it on time. Being burdened by debt you are unable to pay, may affect your child’s quality of life. You may aim at maintaining a low debt-to-income ratio, preferably below 35%1.
3. Consider buying life insurance
As a single parent, it may be even more important to have a financial backup for your child in case you lose your life someday. Life insurance may help you achieve this. When you buy life insurance, your nominee is entitled to receive death benefits in your absence. The death benefit amount may act as an income replacement to take care of your child’s financial needs. You can use a life insurance calculator online to find the amount of coverage you need.
4. Have an emergency fund
Emergencies can be unpredictable and may exhaust your entire savings. Having an emergency fund may be useful in scenarios where immediate cash flow is required. If you do not have one, you may start allocating a portion of your monthly earnings to it. An emergency fund may be large enough to cover your and your child’s expenses for one to two years. You may ensure that you consider all your child’s expenses, be it their school, health, food, or everyday necessities.
5. Start investing systematically
Being a single parent, it may be difficult to save or invest huge amounts in one go. Instead, you may start with saving small amounts consistently. You may invest in an investment plan allowing you to save with discipline, such as a Unit Linked Insurance Plan (ULIP). You can pay monthly/quarterly/half yearly or annual premiums for a ULIP, that get allocated to market linked funds of your choice. You may also use premium direction or fund-switching options to change your investment strategies. With the help of compounding, ULIP may allow you to create market-linked wealth for the long haul.
6. Plan your taxes
Tax planning is one of the key components you may need to address while managing your finances. One of the financial tips may be to invest in tax-saving instruments. The funds that you save on taxes may instead be further invested in your child’s future. Instead of planning at the last minute before the end of the financial year, you may begin planning early on to make informed decisions. If you struggle in filing your taxes, you may consult a financial advisor or use an income tax calculator available online.
7. Have a secure fund for your child
As a single parent, initially, you may have wondered how single parents survive financially. The simple way most of them might be managing things is by simply planning. For example, you may begin by creating a secure fund only for your child. You may consider buying a child insurance plan since it may be specifically tailored towards building a corpus for your child. You may save systematically for your child, and when the plan matures, you can use the maturity amount to fulfil their goals. These plans also offer a life cover, so if anything was to happen to you, there could be a financial backup for your child to rely on.
While being a single parent might be challenging, having a financial roadmap may prepare you beforehand for upcoming challenges and uncertainties in life. The financial tips mentioned above may help ensure you and your child live the quality life of your choice.