Single? You may need more planning

At 26, Bengaluru-based Dhanasekaran is pretty prudent with his finances. He has clearly stated financial goals— construction of a house, his own marriage expenses, purchase of a car, children’s education and their marriage and his retirement. He has two financial dependents in his parents and should get his financial house in order immediately for his dreams to come true. He is a classic example of how many youngsters assume that singles do not need to worry as much about their finances as married people do.

Those who are single don’t have the economies of scale to their advantage in sharing expenses, they don’t have a back-up salary in case of job loss or illness, and they have to plan for their future finances on their own. As the sole breadwinner, Dhanasekaran should create an emergency fund gradually to take care of a few months’ household expenses, including debt servicing. This will build the habit to save for emergencies and he should gradually increase this corpus, as he grows and adds other financial commitments. While he does lack significant life insurance, he can consider increasing the cover when he gets married, as it will mean additional financial responsibilities to cover for.

Strategies for singles

A good way to take control of finances is to address liabilities that one has as early as possible, even if it means reprioritising the payout. So, instead of focusing on financial goals for kids when you are not even married, Dhanasekaran should look at other goals that can help him professionally and financially. As he has four years to go before he plans to get married, he should use the time in hand to enrol into a course or any other skill development, which will help increase his earning capacity.

Financial stability will go a long way in meeting his other goals, without being burdened by servicing loans, which are easy to get but difficult to manage. Our financial plan has reduced the sum he has allocated to some of these goals, which he can revisit once he is better off with money than he is now. Dhanasekaran should not put off creating a corpus for his dependent parents to manage their healthcare. Considering the stage of life they are in, it also makes immense sense to get a basic health insurance cover for them.

Since he is still young, Dhanasekaran should use this opportunity to understand how to go about managing his finances for the future. As a first step, he should think of maximising his tax savings by deploying funds smartly in tax-saving options that have an equity edge. His investment in Axis Long Term Equity, an ELSS, is in the right direction. He should continue to do so beyond his mandatory PF contributions. The power of compounding and the longer his investments in equity remain, will help him meet his goals far more effectively.

Many think that financial planning isn’t important for singles because they only have to worry about themselves, but the fact is their financial concerns are very different and that leaves them selfdependent for every action with no immediate support to rely on.

olmdesk@outlookindia.com