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Latest articles on Life Insurance, Non-life Insurance, Mutual Funds, Bonds, Small Saving Schemes and Personal Finance to help you make well-informed money decisions.
"RICH bachelors should be heavily taxed. It is not fair that some men should be happier than others. "Irish writer Oscar Wilde delightfully captured the common perception of the society towards singles. Bachelors or unmarried people are often considered to have little or no responsibility and enjoying life to its fullest. Singlehood, however, does not free you from financial planning. On the contrary, singlehood demands a serious approach towards managing one's finances. Here, we are limiting the discussion to the singles in their thirties who have no plans of tying the knot.
Addressing financial planning for singles becomes pertinent now as the number of singles in the society is rising. Financial planners are witnessing a jump in their single-status clients. Such clients of financial planners to whom we spoke to include mainly people with good educational background working in the service sector in middle and high income categories.
Singles quite often tend to ignore the importance of a well-planned personal financial strategy. Mumbai based financial advisor Amar Pandit tells stories of repentant singles who failed to plan finances early in their careers. "A lot of singles tend to focus more on immediate gratification than on savings. Even if they invest money, this is more arbitrary than a structured attempt, which often results into a sorry state of finances when they need the money most," he says.
Financial planning for singles differs from that of the married people on several counts. Singles are not exposed to the kind of responsibilities that a married person would have towards spouse and kids. This means the average basic expenses of a single person tend to be much lesser than the one who is married.
While a married person has to allocate a major portion of his savings to take care of children's higher education and wedding plans, singles can excuse themselves from such expenses. But it is also true that a single person can be dependent only on his own earnings ability unlike the married person with a working spouse. This may come as a bitter truth in adversities and accidents, which may cripple a person. Moreover, in old age, he is most likely to be on his own, which necessitates a serious consideration of a retirement corpus. Singles need to look at these and other similar factors while planning their financial strategy.
CONTINGENCY FUNDTo begin with, financial planners insist that singles should stash away enough money to take care of at least six months of mandatory expenses. Such expenses include telecom and electricity bills, home rent or maintenance charge of owned property, monthly installments towards repayment of loans, daily food and travel expenses and other sundry costs. Contingency fund keeps life on course if the person loses his source of income temporarily.
DEBT REDUCTIONSince singles do not enjoy the luxury of having another source of income in the form of a working spouse, they have to reduce the extent of personal debt, if any, systematically. Over the long term, this helps in building a solid retirement corpus.
HEALTH INSURANCEHealth insurance is one of the most important aspects of a single life. While many companies provide health covers to employees these days, financial planners insist that singles should also invest in other health policies apart from group insurance schemes. "It's a good strategy given that you may lose your job," exclaims financial planner Gaurav Mashruwala. Singles are also advised to take policy riders that cover physical disability and critical illness even though it may increase the premium cost. Mr Pandit thinks that singles should take a health cover of Rs 3-5 lakh.
LIFE INSURANCEThis is necessary in case of singles with dependents such as parents and siblings. The amount of insurance cover depends upon the future needs of dependents. Mr Mashruwala advises to take up a term insurance plan without any returns. This keeps the overall premium cost low while providing the financial shelter to dependents. Another advantage of term policy is that the insured single can cancel it in future once he no more has dependents.
PORTFOLIO CREATIONA capacity to make risky bets is a major benefit of a single life, which stems from the fact that singles have lesser or no family responsibilities compared to the married people. Singles can take advantage of this to plan for retirement.
Retirement planning for employed singles begins with the employee provident fund (EPF) scheme. Every month, employee and employer contribute 12% each of the basic salary to EPF. The scheme currently attracts a return of 8.5% compounded annually. While the share of the employer in EPF remains constant, employees have the liberty to increase their contribution to as much as 100% of basic salary. Employees can change proportion of their share periodically depending on company policies and prevailing returns offered by competing products such as bank deposits.
Though EPF is a great investment and can grow into a large corpus by the time you retire, this may not be enough in case you lose your job or decide to chart your own path. Hence you need to broaden your investment basket. Employees can avail public provident fund (PPF) scheme where they can park as much as Rs 70,000 per annum at 8% annual return rate. Returns generated from both EPF and PPF are fully exempt from income tax. Singles can also utilise their high-risk appetite to build a long-term equity portfolio. "Singles can invest in equity, debt and gold once they create the contingency fund," says Mr Pandit. He thinks that though investment in property is a good long-term strategy, it comes at a high initial capital expenditure.
WRITING A WILLThis perhaps is the saddest part of unmarried life. Singles may create a pool of wealth but they do not have a natural heir unlike a married person whose wealth after his death is automatically transferred to the spouse or kids. Singles need to write a will to transfer their wealth to a nominee. To sum it up, financial planning needs to be a way of life even for singles. A bachelor's life is a fine breakfast, a flat lunch, and a miserable dinner, goes the famous saying. But by meticulous financial planning, even singles can experience a rich and fulfilling twilight life and sing into the night.
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