Sole breadwinner: Here is how you should manage your money

Anil Rego
Right Horizons

Being a sole breadwinner is a responsibility which many of us face. It can at time be daunting, and the future may sometimes seem intimidating. We may be assailed with self-doubts and if we are doing enough to secure our family’s financial future. Here are a few pointers to make wise investments which will help you protect the financial future of your family:

Save diligently: No kidding this. You should save and save diligently because you are the only earning member. Immaterial of any kind of temptation, allocate a fixed portion of your salary towards savings, and do it every month. This forms the basis for you to plan and invest smartly.

Demystify the future: Yes, we all know that the future is usually unknown. However, we can always be prepared to tackle most of these unknowns. Sit down with your partner/ family and chalk down all the likely expenses that you may encounter in the next few years that you will be working and earning. Get as precise as possible on the amount of money that you will need and the time at which you will be needing it. Now add at least 25% to the amounts of money that you will require at the stipulated times. This will act as the buffer against any escalation in the needs or in times of emergency. Some of these expenses would be for your child/ children’s education and wedding. You have to also account for medical bills, your retirement corpus, and taking care of your parents. Make this list as exhaustive as possible. This will help in demystifying your future.

Investments: You must plan and diversify your investments in such a way that each of your investment serves a specific purpose and provides you with returns just a little ahead of the time of your financial needs.

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-Insurance: You will definitely need to have an array of insurance policies, each to fulfil a specific need. A term cover has to cover your liabilities, a pension plan should assure you of some monthly pension, and one or two money back policies should help you tide over the financial requirements which arise periodically. You can also invest in endowment policies or ULIPs for contingency options.

-Property: In case you do not live in an owned house, you may have to consider buying your own house. Even otherwise, buying an additional property (commercial or residential) as a source of extra monthly income is something you can explore.This would be a good option as usually property values increase over time and you can sell the property in the future or use the rental income to augment your retirement corpus or monthly pension. Taking a home loan to buy a house also enables tax benefits.

-Equity mutual funds or stocks: Equity mutual funds or investments in stocks are essential to increase your portfolio’s return on investments. Depending on your risk appetite, allocate a small portion of your investments for investing in stocks or mutual funds.

-Fixed deposits (FD) and government bonds: Being a sole earner, you need to ensure that your principal on investment never erodes. You would also like to eschew risks on returns. Periodically evaluating the interest rates and investing in FDs and government bonds will give you a decent return on investment, beat inflation, and compound your principal. However always keep looking at the interest rates and invest at a time when the rates are higher, or simply ladder your investments to reduce interest rate risks.

-Provident fund: EPF is a must have as it inculcates the habit of regular savings, give decent returns, provide tax benefits, and more importantly contribute as a corpus for your retirement. So, having a PF account is almost mandatory if you are a single breadwinner for your family. You can also withdraw money from your PF account for specified reasons. You can also opt for voluntary contributions to EPF or open an account in public provident fund, if need be.

-Health insurance: You need to definitely possess medical insurance coverage for yourself and your family. While this will not give you an immediate return on investment, it acts as a great buffer when you or your family member falls ill and needs medical attention. Medical costs are very high and so absence of health cover can cost a lot. Be smart and take adequate cover when you are healthy.

Are these investments enough?

We can safely say that if you save at least 40% of your salary and spread it across the investments that we have listed, you will be sufficiently covered to face the future. You must always keep track of the returns and swiftly change the investments if they do not perform on par with the benchmark. Of course, you can invest more. Always remember that your money should make you more money. This will ensure that your financial freedom is safe and well protected!