Managing a household as a single parent is challenging, especially if you do not have the support of your extended family. Providing for your child’s future can be stressful under such conditions. We discuss the steps you should take as a single parent to secure your child’s future.

Play it safe Your highest priority life goal as a single parent is to provide for your child’s college education. Why? This is the first step towards making your child financially independent. You can then concentrate on building your retirement corpus.

Your child’s college education portfolio must have conservative investments for two reasons. One, unlike buying a house, college education cannot be postponedand takes high priority. Such a goal should necessarily hold low-risk investments. If you have a high proportion of equity in this portfolio, what if the stock market crashes just before your child enters college? And two, as a single parent, you may already be under high emotional stress. At such times, it is unwise to make risky investments or create a portfolio that requires taking active decisions.

Your aim should be to satisfice in relation to your investments. The term “satisficing” (combination of satisfy and suffice) was coined by Herbert Simon to suggest that individuals do not make choices that maximise their benefits.

Rather, they make choices that are “good enough”. Why? Aim at satisficing investments, at least till you become an emotionally strong single parent. You can create a satisficing education portfolio by investing in bank FDs.

Agreed, interest income from deposits does not keep pace with education inflation. But your objective is to satisfice, not optimise; an optimal portfolio will contain both equity and bonds that require you to take active decisions to reduce the risk of losing money on your equity investments.

But if you are emotionally stressed, you are unlikely to continually rebalance your portfolio. You may park your savings in a bank recurring depositthrough a monthly auto-debit from your salary account.

But before you set up your child’s education portfolio, you should create financial safeguards to protect your child’s welfare. So, buy yourself adequate life insurance protection with your child as a beneficiary. Get a term insurance policy, not a with-profit plan such as a money-back policy. The objective is to provide for the child’s future even after your lifetime, not to combine insurance and investment.

Be sure to also buy health care insurance for yourself and your child. Then, create an emergency fund to meet life contingencies that can occur due to job loss or medical emergency. Finally, be sure to appoint a legal guardian who will take care of your child in case you die before your child becomes an adult.

Beware leverage Do not borrow and invest, especially, to buy a house for self-occupation if you turned a single parent in the recent past. It can add to your stress levels. If you already own a house, use the home equity to borrow if there is a shortfall in the education fund. If you do not own a house yet, wait till your child enters college before you venture to buy one. Remember, as a singe parent, your primary objectives are to protect your child’s current standard of living and provide for the future.

The writer is the founder of Navera Consulting. Send your queries to portfolioideas@thehindu.co.in

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