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How can a single parent achieve financial nirvana

Being a single parent is seldom easy as one single-handedly shuffles responsibilities at home and work. While the transition to living on a single income can be intimidating, having a grip on finances makes the journey a lot smoother. Follow these steps to take you closer to financial nirvana:

Being a single parent is seldom easy as one single-handedly shuffles responsibilities at home and work. While the transition to living on a single income can be intimidating, having a grip on finances makes the journey a lot smoother. Follow these steps to take you closer to financial nirvana:

#1. Fast-track twin goals

Children’s education and retirement are two important financial goals for a single parent. It is important that you start investing as early as possible to attain it. First of all, look at your cash flows and tie-it to these financial goals. It will help you figure out whether you are earning enough to achieve these goals and identify gaps, if any. Choose the right instruments for these goals depending on how much time you have left to the goal.

#2. Bridge gaps

If you need more money (than your current income) to achieve your financial goals, rework your budget. Initially knock off big expenses. Then, go down the order and achieve small victories. Avoid taking debt at all times and pay off existing loans – except home loans - as quickly as possible. 

Similarly, make ways to prop up your income levels. Look for a higher-paying job or  moonlighting. If you are changing from fast-track career lane to one that gives you a better work-life balance, consider investing in yourself. It will help in making a smoother shift to new job roles. Moreover, decipher the financial impact of the career move on your income levels and financial goals. 

Besides financial cushioning, you need to inculcate prudent financial habits among children. Make them part of the family budgeting and investing process and teach them to be self-sufficient. 

#3. Money lessons for children 

Besides financial cushioning, you need to inculcate prudent financial habits among children. Make them part of the family budgeting and investing process and teach them to be self-sufficient. 

Make them nominees in your investments, while making them aware of all your investments and will, if any. The best way to teach financial discipline to kids is by through one’s own action. So, practice what you preach.

#4. Automate investments

Invest primarily into equity mutual funds through SIPs to achieve your long-term goals – as it provides the best inflation-beating returns over the long-term. Ensure a part of the portfolio is also earmarked for debt funds to take care of short-term goals and contingencies. 

#5. Buckle up emergency fund

Having an emergency fund buffer is important, more so if you are a single parent. Any job loss, illness or accidents will require money to fall back upon. Ensure you have at least six months worth of household expenses parked in a liquid fund. 

#6. Buy adequate risk cover

Buying a term life insurance cover will ensure your child can continue with her studies and have a secured financial future even when you are not around. Ensure the sum assured of the policy is about 10-15 times your annual income. Similarly, buy a comprehensive health cover that covers your entire family against major illnesses. 

Takeaway

In short, a single parent should resort to a well thought-out strategy and discipline to provide financial support systems for one’s family. By focussing on twin goals of retirement and child education and investing in equities, long-term goals can be secured. Imparting financial lessons in turn can make children financially independent. 

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