Being single - by choice or after having to go through a spouse's death or a divorce - means that you have to grapple with a host of problems alone. Intelligently planned finances are an important step in fortifying your defence against risks. Here are strategies to tackle three typical financial issues faced by singles.
Problem 1: Vulnerability to risks. With low or no financial cushion from a spouse or family, singles with or without dependents, are more vulnerable to risks to their life, health, income and property.
Go for low-premium, high-cover policies. This goes for all insurable risks: life, health, auto and property. High cover will ensure a wide safety net and lowest possible premiums would mean controlled premium obligations, which in turn means more funds available to invest for the future too.
For life cover, go for a term plan, while for health covers, employer group policies or floater policies covering individuals and their dependents are a good option. Also, remember to insure the contents of your home, even if you stay in a rented house.
Create a contingency fund. It can take care of uninsurable risks such as a job loss. Setting aside one month's mandatory expenses for emergencies. Increase it to three and then to six months' mandatory expenses over time as per your requirements.
Single mother Leena P.S., 33, needs Rs 100,000 per annum for her daughter's education and Rs 348,000 per annum for house rent. She has to ensure that such expenses are met under all circumstances.
Problem 2: Low-risk, low-return investments. Without support, a single person's ability to take investment risk is curtailed. This prevents him or her from getting high returns that higher risk options, such as equity, provide in the long term. High returns mean larger corpus, which is essential for financial security, especially during retirement.
Keep a healthy debt-equity balance. For investments that qualify for Section 80C deductions - Public Provident Fund, National Savings Certificate, Equity Linked Savings Schemes and pension plans by mutual funds - invest in the 60:40 ratio in favour of debt (PPF and NSC).
This is the route that Leena's planner has advised her to follow. Maintain the same ratio in other investments. For a similar effect, invest in a balanced fund. With rising incomes you can consider greater equity exposure via exchange traded funds, which should augment long-term savings.
Problem 3: Safety net for dependents. Dependents of singles can be financially vulnerable even if the person has accumulated assets over time. This can happen if an estate plan - covering all the assets and earmarking them to various heirs - is absent. This may lead to dependents having to face costly legal hurdles for transfer of assets.
Make an estate plan. The base of a legally tenable estate plan is a Will. It can supersede any other arrangement made earlier including nominations. Financial planner Amar Pandit says, "Singles, with or without dependents, should make a Will sometime between the age of 30 and 35 years."
Being single isn't easy, but by following these three strategies, you can stay single and be financially safe.