THE one advice many financial experts will give to single working mothers is for them to take control of their finances.
This is because money is the main concern for every single mother.
It is all about how to make more money, save more, pay off debts, how to educate their children and also making sure that there will be sufficient savings for retirement.
How she manages her finances will have an impact on her children and her own livelihood.
“If you do not manage your finances well, the financial burden could potentially be passed on to your children,’’ said Kimberly Law, a licensed financial planner.
She also believed in the “me first’’ mindset.
“Take care of yourself before you can take care of others.
“There is a reason why flight attendants will advice parents during the safety briefing to put on the oxygen mask on themselves first before helping their kids or senior citizens sitting next to them.
“This mindset is not about being selfish. It is simply to avoid being in a situation where you need monetary help from outside.
“Surely, you do not want to become a financial burden to your children, parents or the people around you,’’ said Law, who is also a senior associate with IPPFA Sdn Bhd.
The first thing a single mom will need to do is to set up her financial goals and stick closely to it.
This means knowing how to properly divide her earnings into spending, emergency funds and investments.
“If you think you do not have enough money, then start looking at ways to earn more, undertake cost cuttings and further reduce your spending,” added Law.
She pointed out that accumulating wealth should be a priority, not only to cover current expenses but also for planning ahead so that there will be sufficient funds for the children’s education and also personal retirement.
To do all that, Law said single moms will need to look at their cash management, budgets and monthly expenses. Hence, they need to maintain a healthy cashflow.
“If you are in a tight financial situation, you will need to be more frugal. Reduce all unnecessary costs. Cut down on expenses such as memberships and subscriptions that does not add value to you and your children,’’ explained Law.
Also, avoid opting for any installment schemes as it will only increase your monthly commitments.
“This is risky if you are suddenly out of a job or have to take time off to take care of your children. Hence, the installment scheme will become a liability.
“Since you are supporting others apart from yourself, you must make sure that you are prepared for any emergency situation that requires money.
“So you must build an emergency fund that can last for a few months,’’ she added.
Another important point is to avoid taking up additional loans unless it can help to increase your income.
If you have debts, please try to pay them off, especially those with higher interest rates. In addition, make sure that you clear your credit card bill every month.
“Avoid paying the minimum because you can end up paying more. Your main goal should be to reduce all the unnecessary costs,’’ she added.
Law also believed that having some form of insurance policies will be beneficial but “you need to choose which one suits you best.”
Medical insurance is important because the chances of falling sick and to be hospitalised are high and unpredictable, she pointed out.
Law noted that if one wants to keep her house for her children, one will need to insure her life.
“If one passes away or becomes critically ill or disabled, and is unable to work, the insurance money can help to cover any outstanding mortgages so that your children can continue staying in that house,’’ Law said.
Building an investment portfolio to accumulate wealth is vital. But be mindful of using the right investment tools as the wrong one can put a dent on your overall finances.
In addition, retirement planning should not be ignored and “one should start building a retirement fund as early as possible.”
Law said the Employees Provident Fund (EPF) is one of the good avenues to build up a retirement fund.
However, relying on the EPF’s retirement savings alone may not be enough.
“Therefore, you need to look at other instruments that can help generate additional income for you.
“Eventually when you stop working, your investment portfolio will be the source to pay for your living expenses,’’ added Law.
For children education fund, one should start to safe early in case they do not get a scholarship.
“You need to calculate roughly how much is needed and a plan to generate enough funds for education.
“If you’re paying taxes, look out for reliefs and rebates. There are provisions for relief of RM2,000 if the child is below 18 years old, or RM8,000, if above 18.
“There is also a higher relief for those with special children.”
Law also highlighted on estate planning.
“At whatever stage of your life, estate planning is a given.
“Get your will done to ensure that the distribution of your estate can be carried out accordingly.
“If you just got divorced, remember to write a new will,’’ said Law.
If your children are above 18 years old, the EPF or insurance nomination should be easy.
“However, if your children are minors – below 18 years old – then you will need a trusted guardian or may have to set up a trust to ensure your children can get your money immediately.
“Otherwise, your insurance or EPF savings will be transferred to a public trustee until your children reach 18 years old,’’ she said.
She noted that it is best to do a thorough research, given the costs and regulations involved in setting up a trust and a will.
Always remember to educate your children on financial planning at a young age and on the importance of money management and savings, Law concluded.