Single parenting takes Twice the Effort
10 Aug, 2017
For most of us, life is a race against time. But for a single parent, isn’t simply a race against time but is also a juggling act, where one error or an instance of neglect can have dire consequences.
Take for instance the case of Anurag Sahay, a corporate executive in his late thirties who is raising his 12 year old twin sons by himself. Since his wife, Priya’s untimely death four years ago, Anurag has had to work very hard to manage his kids’ schedules, his own work commitments and try to maintain a social life. While his kids are rightfully his first priority, his own health and finances have taken a hit due to the limited time he has been able to dedicate to them. But these are the very issues that need the most importance, especially in a situation as delicate as Anurag’s.
When I met up with Anurag to help him sort out his finances, we began with trying to understand his goals.
- He wanted to provide Rs. 2.5 lakh per month for each of his son’s education until they turned 18.
- He also wanted to ensure that each of them had Rs. 50 lakhs each for further studies and Rs. 10 lakhs each for their weddings.
- He wished to add Rs. 2.5 lakhs per month to a retirement corpus until he retired at the age of 55.
- Due to his illiteracy in the area of estate planning, he was keen to understand the subject and take all important measures to safeguard the interests of his children.
The next step was understanding the family’s cash flow and net worth.
- Anurag earned Rs. 25 lakhs per annum as salary. His cash outflow was Rs. 23 Lakh, of which Rs. 5.50 Lakh were paid as taxes, Rs 6.50 lakh for lifestyle expenses, Rs. 6.5 Lakh for home and car payments, Rs. 2 Lakh for insurance premiums and Rs. 2.5 Lakh for vacation and entertainment. That left an annual surplus of Rs. 2 Lakh.
- Anurag’s net worth as on August 1, 2017, was Rs. 1.15 crore—Rs. 1.50 Lakh in savings and deposits and Rs. 3 Lakh in the Public Provident Fund and EPF. His life insurance cover was Rs. 20 Lakh from unit-linked insurance plans. He had Rs. 3 Lakh in Stocks and Rs. 5 Lakh in Mutual Funds. His lifestyle assets (home and car) were worth Rs. 1.25 crore. His liabilities were Rs. 42.50 Lakh.
Our review of Anurag’s goals, cash flow and net worth revealed that most of his savings were in ULIP’s, EPF and PPF contributions and some stocks. Accounting for his income, and adding in his wife’s income when she was alive, the Sahays also owned a few assets. Most of their income at that time went towards a hefty down payment and paying off large loan installments.
Although the Sahays were no longer a double-income family, loan payments were still manageable. The insurance premiums took up around 10% of Anurag’s net income. However, despite high premiums, he was insured for a mere Rs. 10 Lakh. There was a Rs. 5 Lakh cover for his daughters, but Anurag’s liabilities remained uncovered. As a single parent, it was crucial to be well insured against death, critical illness and disability. Additionally, Anurag also had very low contingency funds, his debt exposure was limited to EPF and PPF and he was in the process of acquiring another loan to invest in real estate.
Considering the above, we came up with a financial strategy to combat any issues and maximize profits.
- The top priority was making sure that there was adequate medical cover for the family.
- Increasing life for Anurag was an important aspect as well.
- Two old policies were sold off, which helped beef up the contingency fund.
- A chunk of the deposits were parked in deposits and fixed maturity plans.
- Anurag decided to scrap the idea of buying into real estate and instead used the liquid assets to pay off his car loan.
- He began investing in PPF, making voluntary donations to EPF and agreed to invest in gilt funds.
- The next step involved undertaking a thorough estate planning exercise. This included making a will, identifying a guardian and setting up a trust for his children.
- Anurag resolved to save at least 30% of his monthly salary for his children and to diversify his portfolio.
With our plan to meet every six months to review the financial progress being made by the family, the Sahays were set become more financially solvent. Anurag, on a personal front, decided to seek good domestic help to help take care of his children so he could focus more on his own health and well-being.
The stress of making sure that your finances are in place so that all your child’s needs are met is something that every parent faces, regardless of whether a second partner is present or not. While this article is catered to help single parents understand how they can make the best of their finances but there a few tips that everyone can adopt from the article. A gist of the bases to cover are:
- Registering a will and select a legal guardian for your children.
- Ensure that you have sufficient life insurance to cover all liabilities, and the secure financial goals like education, marriage and day-to-day living expenses for your child.
- Collate information about insurance and where all relevant documents have been stored. Ensure that your partner or child’s guardian are aware of these.
- Set up a contingency fund and plan an alternate stream of income to combat a situation where an unfortunate event might end your primary income.
- Ensure that your child is financially literate. No matter what the age, managing money can be taught.
- If your workplace permits it, take advantage of a flexible schedule.
- Make time for your own health, social and money issues.