Happily unmarried? Here's a financial plan for you

As a part of the financial planning series, today, we bring you financial planning for single women. Earlier, we talked about planning for TwentySomethings , a Nuclear family , Dinks and more in the last two months. If you are a Single Miss, don’t miss reading this.

[caption id=“attachment_464734” align=“alignleft” width=“380”]  Daniel Etter. The New York Times.[/caption]

Your Life: You are in your mid 30s, a few years here and there. You neither have dependent parents, nor a husband or children as your responsibility. You’ve chosen to be single, for reasons you know better than us. A few years back, being an unmarried single woman was unthinkable. The world saw you as a “bechari”, someone who couldn’t bag a man, but now everyone knows better. You are young, healthy, making a good amount of money and working somewhere in the higher or middle management level. You live in the city and live well. You are not only well read, but also well travelled, and the world is your oyster. But there are certain things to look into, so that you maintain the good life, even as you age gracefully.

Medical Insurance: While in most cases creating an emergency fund is the first step, in your case, it’s not. Vivek Rege, Mumbai based Certified Financial Planner, says: “Getting a health insurance is of paramount importance. Before doing anything else, it’s important that you ensure you have managed risk.” The amount that you would need would depend on your lifestyle, but do keep in mind that you have at least Rs 3-5 lakh as medical insurance and also have a good enough critical illness cover. An unacknowledged fear most single women face is what will happen to them in case of a disability.

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Pankaj Mathpal, another Mumbai-based CFP, says, “Buy a personal accident insurance policy. These not only offer you benefits of hospitalisation, but cover loss of wages due to temporary disability, on the lines of 1 percent of sum assured per week.” A Rs 10 lakh personal accident policy is good enough, the premiums are also reasonable in the range of Rs 1,000-1,500. As age increases, you could add additional covers or top ups.

Emergency Funds: You need to keep aside at least six months’ expenses. Rege says, “You need to choose an instrument that would offer a good amount of flexibility. Instruments which allow you to withdraw cash immediately (ATMs) would work well for you. For instance, Cash Management Funds, which allow you to invest and withdraw by just sending an SMS, would work well.” The money can be collected at the nearest ATM. This enables you to pull out money at any given point of time. But, if you are not comfortable, at least have six months’ expenses in a savings account should be enough.

Investments:

Home: Mathpal says, “Buying a home of your own is a good idea; you surely want the assurance of a permanent roof over your head. While buying a home, don’t go for something beyond your reach or EMIs that are difficult to service.” Later on, if you want you can buy a second home; it could help you obtain passive rental income. But do not take on a major liability.

Other investments: These investments should be according to your financial goals and individual risk profile. Rege says, “For those who prefer lesser risk, Monthly Income Plans and short-term debt funds should do. Hybrid products with gold-equity-debt attached to them should work. For those who don’t mind slightly riskier assets, balanced funds should be fine.” But, unless you are financial savvy, don’t get into too complex financial instruments or stock picking.

Mathpal recommends a healthy mix of debt, equity and gold instruments, as per your asset allocations, financial goals and risk profile.

Life insurance: Unless you have a dependent, you don’t need a life insurance policy at all.

Retirement Planning: Kiran Telang, Mumbai-based CFP, says: “After health insurance, retirement planning is the most important part of financial planning for single women. Public Provident Fund is a very good tool. If you max out Rs 1 lakh every year for 20 years at an average of 8 percent tax-free rate of interest, you would be able to accumulate a good kitty. Stay away for pre-bundled products like ULIPs, as far as possible.” Also ensure that you continue with your employees’ PF even if you switch jobs. Adding on investments in the New Pension Scheme is not a bad idea either.

We have heard many single women banking on their home as a retirement tool. They can use reverse mortgages as a retirement tool. But we suggest they should still have a retirement corpus, as reverse mortgage isn’t a substitute for retirement planning. Banking on a reverse mortgage after 20 -30 years down the line does not make sense. Who knows about the regulatory changes and reverse mortgage status after 20 -30 years.

Nominations and Wills: This part should not be ignored. Ensure that you have nominations and a will in place.

Status Change: Psychologists have said that by the time most single women hit their mid-40s, the thought of marriage does cross their mind. Now you are single, but there is a good possibility that you might just meet someone interesting and consider hitching up. Telang says, “In such a case, you will have to revisit your financial plan”

Till then though, this plan should work.