Celebrating Motherhood & Taking Care Of Your Financial Future

Parenting is a wonderful journey. Being a father or a mother is a matter of pride, happiness and fulfilment. Your presence around your child makes it even more special during the journey of upbringing. The entire process is joyous and thrilling. You must have observed a sapling growing into a plant, and if you are there to nourish it, the charm is manifold. Upbringing of a child is not that fast and is divided into phases. It needs utmost care in the initial stage and a lot of conditioning and grooming in later phases.

Parents always want their kids to learn many things as they grow. Schooling and other activities shape them up into a better human being. Apparently parents’ attention and guidance is needed and so is financial support. It is painful to think about a single parent taking care of his/her child/children. There are children who do not have either of their parents and in such cases the insecurity and struggle of the other parent is understandable. Losing a mother puts the father in a difficult situation as the care and warmth given by the mother is unmatched. Similarly, when the father is not around, a single mom might face financial challenges if she is not employed/earning and is not otherwise financially independent.

Time has changed. More and more women are getting financially independent and getting to learn money management. Yet in India the ratio of earning women is as low as 18% against Asia’s average at 27%, as per the World Inequality Report 2022 released in December 2021. There is also a huge gender pay gap existent in our country. Pandemic and lockdown has further widened the disparity. 7% men have lost their job but as high as 47% of women have lost their occupations( Azim Premji’s State of Working India Report 2021).

If a mother who is financially dependent on her husband, loses her spouse either due to separation or death, might have to look for a job or start her own business.The situation gets only worse when there is no family support. Poor sections of the economy lack education and skills to get a sustainable job. Women have to accept labour oriented jobs and they end up earning wages that even fall short to keep them alive. The unimaginable torture that they go through is barely even noticed.

But where the mother is already working, the job is half done. An earning mother knows something about finance management, investments, savings etc. Those who haven’t worked before are supposed to learn new skills or take up some courses in order to make a fresh start. Many of them are capable of doing some work, all they need is to brush up their skills.

The 8th of March every year is celebrated as International Women’s day. You must have read in newspapers and social media about the progress of women in various fields, handling multifarious tasks. We, on this occasion, are specifically focusing on how a single mother can manage her finances better. The aim is to support women and enlighten them with hope and courage by spreading a little bit of financial awareness. They already are pillars of strength, and here are a few ideas that could make their efforts more channelised towards strategic implementation. There is an appeal to all reading this, being a man or a woman-to guide those women who are not very well financially educated and share the suggestions made here, on this platform.

A single mother should ensure that her earnings are divided into:

-Spending

-Creation of emergency funds and,

-Investments

There are other aspects discussed hereunder.

Step 1: Insure yourself- Both short term and long term financial goals are present behind any sort of financial planning. Mothers always try to secure their children’s future. While doing so, they should protect their lives first by buying an insurance cover. You cannot save others from uncertainties, if your own life is at risk. Here is our take on how to do it.

• There is a term called Human Life Value. A woman should find out her economic value to her family by taking into account the number of years of service left. Decide the amount of life cover on the basis of that. Once your pay increases, you can adjust the amount by increasing it to match with your income.

The sum assured should be equal to 15-20 times of the annual income, so that in your absence or inability to earn, it will be sufficient to replace your income.

• Term plans are a good option as they protect against disabilities, diseases and death. A comprehensive cover of Rs 10 lakh in metro cities and Rs. 5 lakh in non-metros is considered to be necessary for a single mother for herself and her children. Term plans with regular income or pension would be a great option. Over and above death benefits, such plans offer regular monthly income to the policyholder/the nominee.
• Otherwise there are health insurance plans that either reimburse in case of hospitalisation or provide a lump sum payment if you are diagnosed with a critical illness. You can use riders to enhance the cover to include accidents and other disabilities. A hospital cover worth Rs. 3 to 5 lakhs is advisable. Critical illness plans should be able to provide you coverage ranging from Rs.10-15 lakhs. Critical illness cover should provide for all stages of the illness. The policy that you buy MUST include your child/children as the nominee. For minor children, a guardian should be nominated.

Step 2: Provision for emergency funds-Setting aside emergency funds is a life saving tool.

• You should keep aside a sum equivalent to six months’ basic living expenses as an emergency fund. This fund should be liquid so that it will be available as and when required. Do not invest them in any plan that doesn’t allow easy withdrawals. As your children are a priority, their basic expenses too have to be considered. Housing, food and schooling are indispensable parts of it. A job loss kind situation is envisaged while computing the provision for expenses.
• Keep them in a savings account so that the money is safe and easily dispensable. You may also choose Liquid mutual funds or Ultra short term funds to park your emergency funds as they offer liquidity and tax efficiency both.
• You should always consider the regular monthly expenses that you need to pay. If any additional expenses are likely to occur, make a provision for them by including them in the emergency funds.

Step 3: Invest wisely-You need to save for future financial goals.

• There are short term and long term goals. Try to allocate funds in a way so that you get the required amount of money at the right time. Children’s education, buying a house, planning for a vacation etc. can be divided into short term and long term plans. Similarly, children’s marriage and retirement are part of the financial planning. Children have their future goals. They want to get admission to colleges according to their preferences. This calls for long term planning. There are other activities like joining a sports club, a music class, a dance studio etc that might interest them. You have to meet all such requirements out of short term funds from time to time.
• Your income, risk bearing capacity, age etc are the primary determinants to help you decide. You can invest in debt instruments or other fixed income generating safer options or in equities as per your risk preferences. Systematic Investment Plans taken in the name of the child is a good choice.
• Make sure you have some plans for your retirement age. Insurance and a reliable source of income generation both are equally needed to take care of yourself later in life. You can invest your money in mutual funds and create a corpus. Pension schemes are another option.

Step 4: Debt Management-Debt management is crucial to avoid a financial crisis.

• A loan should be taken only when the circumstances make it inevitable. You should not face any financial stress later while paying them off. And if you have any pending loan, it should be prioritised in a way that shelves you from the liability strategically.
• Pay off the loan carrying a high rate of interest compared to others such as personal loans. Your monthly instalment should never cross one third of your salary.
• A luxurious lifestyle may lead to unnecessary spending and more reliance on use of sources like credit cards and other forms of personal loans.
• You can opt for purchasing a life insurance policy which covers home loans, personal loans etc. Alternatively you can use some of your investments which are capable of generating a sizable payout to pay off your loans. The repayment can be made at once or in a piecemeal. Interest burden is immense and by paying off a loan you can use the money for something else.

Step 5: Tax Planning-Any person can make use of the relaxations provided under the Income Tax Act to maximise their benefits.

• Claim the benefits available under section 80C and 10(10D) of the Income Tax Act, by purchasing an insurance policy.
• ELSS, PPF, NPS etc also fall within the purview of section 80C. You can gear up the wealth generation process by investing in ELSS through SIP.
• Tax benefits should not be the sole criteria behind getting any investment product. Investing in a certain way will save you more tax and for that you may need professional advice. You should study the various options and take help of an expert to maximise your benefits both in terms of investment and tax planning.

Step 6: Always take stock of your finances-Make a list of your assets and liabilities, be them property, debts, savings, bank accounts, equity etc. Irrespective of whether both the parents were working, a list of your finances will tell you how much you are left with to meet your financial goals. If the funds are sufficient to run your house and fulfil your goals then you can be worry free. But if not, you need to find a job immediately. Family could be of help in the initial period, but ultimately to earn, save and invest for yourself and your children is your responsibility. Losing a partner results in a drop in income. Accordingly all your expenses and lifestyle altogether shall have to undergo a change.

Step 7: Know your rights-In a case where both the spouses decide to get separated, you should take help of professionals like a lawyer and chartered accountants. Now onwards you are going to take charge of your financial aspect, you should know your rights. You have both legal and financial rights under succession laws and husband’s employment benefits. Religious laws in marriage apply in a different manner. Beware that you are not being cheated out of your right in property and other assets. Alimony is a matter that your advisor will make you aware of. In case of your husband’s death, you should know about the insurance claims, share in property and employment benefits due upon his death.

Step 8 : Importance of making a will or setting up a trust-If your child is a minor, it is advisable to appoint a guardian. In case of your absence, the guardian of your choice will look after your child. Failure to do so will result in the court appointing a legal guardian which might not be the one you like to take care of your child. You know the best person who can be appointed in the capacity of a guardian.

Another important step is to make a will. You should specify how you want to distribute your wealth among your children. Making a will is not a cumbersome process and there are professionals who can help you in this direction. Forming a trust is another option and there is no such thing that only those who possess assets of higher value and wealth of a substantial amount, can choose to create a trust. Any ordinary man or woman can create trust. The permission of a Principal Civil Court of original jurisdiction is required.

There are a few other important points as under,

• You might like to own a home, start your own business or travel. It is better to keep in mind all those things whether big or small as part of your budget.
• Try to go to places which offer fun things to do at a low cost or free of cost. Kids need activities and outings. Taking them to museums, hiking, library or exploring beaches with them are some of the ideas that might be of help. Cook and eat at home and take kids out for lunch or dinner only occasionally.
• Shop online for groceries. That will surely help you save money. Now this tip is not just for moms on budget but for all of us! Visiting a shopping centre or mall often ends up in paying up for more due to impulse purchases. Attractive displays and offers lead to unnecessary shopping. While shopping online, you can set a limit on the bill and check the items twice before finalising the order.
• Reset your priorities and do not buy clothes before the deadline is met. You can use a cloth buying ban. Non essential things can be put last on your list.
• Automate your finances as you are busy taking care of the house as well as work. Nobody can afford to pay bills late. Late fees will add to your outstanding bills. If bills are automated, you also do not draw money to pay them and they are directly debited from your account.
• Think about other possible ways to increase your income. An increase in your income will leave you with more money at your disposal. You will feel relaxed and can stop checking or running behind each paycheck.

Benefits offered to Single mothers

The Indian Government ‘s home loans for single mothers are provided through nationalised banks like SBI. SBI’s Her Ghar Loan is one such example. These loans have the lowest interest rates and processing charges. Single mothers must not think that they cannot afford the cost of buying a new house. There are a number of financial institutions offering home loan programs for single mothers.

Government Initiatives to help a single mom for her girl child

With an aim to plan for a single mother’s girl child’s future, the government has launched several schemes.

Beti Bachao Beti Padhao

India has a patriarchal society. This is true in case of both rural as well as urban areas. The scheme mainly focuses on preventing female infaticide and offers an opportunity to get them educated. The scheme was launched in states with gender disparity but eventually it covered the entire country. Beti Bachao Beti Padhao aims to prevent gender based abortions, reduce female child mortality rates, encourage girl child education, provides for safety to girl children, supports gender equality and insurers property inheritance rights for girls.

1. Sukanya Samriddhi Yojana-It is a small deposit scheme launched under the above scheme. It allows a tax deduction under section 80C of the Income Tax Act upto a maximum of Rs.1.5 lakh. Any girl child who is a citizen and resident of India and is below the age of 10 can avail of SSY. The account can be opened in any Indian Bank by depositing a minimum of Rs.250 per annum. The tenure of the account is upto 21 years from the year in which the account is opened or at the time of the beneficiary’s marriage, whichever is earlier. Deposit can be made for 15 years.
2. CBSE Udaan Scheme-The Central Board of Secondary Education launched this scheme to encourage girls in technical higher education. To avail of this offer there are eligibility criteria such as, the student must be an Indian citizen and the family’s annual income should be under Rs. 6 lakh p.a. The selection shall be made based on merits and the student should have studied physics, chemistry mathematics in grades 11 and 12. The benefits that girl students can avail of are: Free course or online support material including videos, recordings etc for grades 11 and 12, monitoring of student’s progress and intervention for relevant help, monitoring and peer-learning opportunities and helpline to clear doubts.
3. State-specific schemes-Different states have their own schemes offering benefits for the girl child. Maharashtra’s Majhi Kanya Bhagyashree Scheme, Mukhyamantri Rajshri Yojana in Rajasthan, Bihar’s Mukhyamantri Kanya Suraksha Yojana and Uttarakhand’s Nanda Devi Kanya Yojana are examples of such schemes.

Mothers need to present the birth certificate of her girl child in order to avail any of the above schemes.

The struggle faced by single mothers in India is immense as not much is done by the government in this direction. A 2019 report by UN Women says that 4.5% of all the households in India are run by single mothers amounting to 130 lakh women. More than 450 lakh women are living as single parents. It is always not easy to be a single mother. But it is very important for her to know that she needs to break the paradox and unlearn that she is different or it is her fault when her marital relationship ends. Broken marriages tend to make women undergo more pain.

There are single parents’ clubs where many single parents get together to discuss their problems as well as joys.Self-care becomes crucial because they hardly get any time to spend on themselves. The right kind of influential support is also needed for raising the children and making their lives comfortable by understanding their experiences as they are raised without the other parent.

An accepting and encouraging atmosphere is required for mothers who raise their kids single handedly. Hope we have been able to guide the single moms to manage their finances better with the help of all the above suggestions.

Photo from https://unsplash.com/@marcelo14silva

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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