Navigating finances as a single mom with a high debt liability

When Manju Singh, a 37-year-old mother of two children aged 8 and 5 decided to separate from her husband, her biggest fear was managing finances and continuing to provide for herself and her two children while continuing to pay her EMIs. “In the months following up to the separation, I had sought a loan for refurbishing my parents’ house. While my parents are not completely dependent on me financially, this was my responsibility. At that time, I had no inkling that within a matter of months my marriage would break down completely,” says Singh.While Singh’s husband continues to provide financial assistance for the children and Singh counts herself as fortunate to have always had her own source of income, being a single parent, whether by choice or by a twist of fate is challenging. The emotional upheaval, the judgement and the hostility that stems from twisted perceptions of single mothers weigh down countless women. Amidst these, navigating their roles as caregivers with little support can be daunting, more so if money has been a pain point for post-separation.Singh says, “I am in a much better position now mentally but at that time I remember how the financial worries, especially because I had taken loans fuelled my anxiety. I used to berate myself for not having foreseen the separation and postponed taking the loan for the renovation of the house at a later time. Finances are the trickiest part of a separation and it is so much harder for women who do not have the privilege of falling back on a financial safety net.”As a single mother, navigating finances with the burden of loans and high credit card bills can be an uphill climb. Singh recalls, “I remember during the early days of my separation I used to have overpowering urges to seek solace and drown my sorrows through retail therapy. However, the realization also came soon enough that I had to fend for my children above and beyond what their father was providing for and also secure my future while paying off my loans. That had a sobering impact on me. I realised every penny saved could help me become debt-free sooner and that help me alleviate my financial situation.”Singh says a strict budgeting strategy and routinely taking stock of her cash flows and her expenses and goals helped ensure that she had a smooth running on the financial front as a single mother. “I made it a habit to map my progress towards my goals with my salary, alimony while taking into account my loan repayments. Loan repayments cannot happen in a haphazard way and they need to be prioritized according to their interest rates was an important takeaway during that phase. Once my dent liability could be brought down to less alarming levels, I started investing systematically into mutual funds for my long term goals and also secured adequate health insurance coverage for myself and my children. I learnt along the way that there are no financial products for single mothers as such – financial planning for single mothers is akin to that of single income households.”

Aditya Birla Sun Life Mutual Fund has started a special initiative called For Her that focuses on financial inclusion of women and intends to provide them avenues for financial security.

Preeti Zende, founder of Apna Dhan Financial Services says, “Many times, it is found that investors give priority to wealth creation over debt management. But if you don’t keep your debt under control, it can create a huge impact on your long-term wealth creation policy. Debt management focuses on repaying the highest interest loan on priority. Things can be more difficult for those who are single moms with a heavy debt liability. If you have different types of loans such as credit card loan, personal loan, car loan and home loan then you have to give more focus to closing the most expensive loan first. Credit cards and personal loans are the most expensive ones.”Zende also iterated ticking off repayment obligations as soon as possible to avoid unnecessary leakages in future towards accumulating interest payments. “You can simply repay that loan monthly with your savings to get rid of it. If repayment is not allowed immediately due to a certain lock-in then you can use a simple RD for accumulating a corpus to repay the loan as a lump sum. You can also use an arbitrage fund to accumulate the amount. This option is more tax-friendly. If you only have a home loan then you can manage this along with your normal investments. You can invest in the Nifty Index fund, Flexicap fund for your long-term goals and hybrid equity fund for your mid-term goals, and liquid and arbitrage for your short-term goals.”Singh narrates that for single mothers it is also important to be extra careful when choosing investment instruments with varying risk quotients. “Early on, I had gotten carried away and made the mistake of jumping into mid and small caps and direct stocks. It became evident soon enough that that is not a suitable route for me and while equities for long term goals is an absolute must, no investment should be made with the hope of winning a jackpot. As a single mother, it is important to bear in mind that a drastic slide in your financial health will cost you and your dependents and in all likelihood you may have to emerge out of that abyss without the help of an extra pair of earning hands.”Key takeaways- As crude as it may sound you need to have a plan ready for your child’s well-being in the event of your untimely death. A solid term insurance policy is absolutely essential should any untoward incident happen to you.- Once your children attain a suitable age, it is judicious to make children privy to financial matters and equip them with basic financial literacy. This way they can be better prepared for emergencies and also have sound financial habits as adults.- It is found that investors give priority to wealth creation over debt management. But if you don’t keep your debt under control, it can create a huge impact on your long-term wealth creation policy.- You can simply repay your loan monthly with your savings to get rid of it. If repayment is not allowed immediately due to a certain lock-in then you can use a simple RD for accumulating a corpus to repay the loan as a lump sum. You can also use an arbitrage fund to accumulate the amount. This option is more tax-friendly.- While equities for long term goals is an absolute must, no investment should be made with the hope of winning a jackpot.This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.