Are You the Sole Breadwinner of the Family? Here’s What You Must Do…

October 14, 2021 Mutual Fund

Being the breadwinner of your family is a responsibility that can be immensely daunting when you face uncertainties. Life is unpredictable and it can throw curveballs at you when you least expect it, that’s why we constantly strive to secure a financially stable future for our loved ones. Amid the global crisis, everyone grappled with several challenges, and many lost their family members in the COVID-19 pandemic. But it is most disheartening for those that have lost their sole breadwinner.

As the sole earning member, you have to become your family’s financial guardian and prepare for any eventuality. You must leave no stone unturned to ensure that your family is financially secured for the future. Thus, plan your finances accordingly to safeguard your family’s future and weather any unforeseeable storm.

Rakesh, my friend, lost his father to coronavirus in 2020. This situation was emotionally, mentally, and financially challenging for him, his father was the backbone of their family. Rakesh started his first job recently, and after his father’s demise, he shoulders the financial responsibility as the sole breadwinner now.

I received a call from him six months after of his father’s demise and he said, “Mitali, you know the situation, after my father, I am the only earning member in my family now. I wanted your suggestion on how to manage my finances and save for the future so that my family can be secured. I want to fulfil their financial needs even in my absence.”

To which I replied, “Rakesh, I am sorry for your loss and my heartfelt condolences to your family. I know you are strong and you will surely be able to take care of your family. I understand your concerns about financial management and safeguarding your family’s finances. Don’t worry, we will figure out a financial plan so that it covers all your financial needs and stabilises your family financially now and in the future.”

You see, efficient financial planning is vital when you are the sole breadwinner of your family. You need to take certain steps, save and invest your hard-earned money to achieve your goals and financially secure the family.

Here are 7 steps you can take as the sole breadwinner that will help you become the financial guardian your family needs to secure their future.

1. Define your financial goals

The first step of your financial planning should be to set S.M.A.R.T. financial goals and carry out a goal setting exercise. It is best to discuss what the financial requirements are with your family members. You will be able to list out your financial goals easily if you have a better understanding of your cash flows.

This is where Budgeting will illuminate your current financial situation and help you evaluate your income v/s expenses. As the sole earning member of your family, you will get an idea of how much you need to set aside for saving and investment purposes and where you can cut down on expenses. If you are tech-savvy, you can plan your budget with the help of a budgeting app and/or an online calculator.

2. Save and Invest wisely

Now with budgeting you have understood how much you need to set aside from your income. You should start saving diligently because you are the only earning member and saving a certain amount is essential for financial planning to secure your family’s financial future. This is going to take discipline and patience, so immaterial of any kind of temptation, allocate a fixed portion of your salary towards savings, and do it diligently every month.

Saving every month will instil a good financial habit in you and you could use that amount to make monthly SIP investments in mutual funds. This forms the basis for you to plan and invest smartly. Learn to practice delayed gratification and prioritise your long-term financial goals instead of focusing on short term requirements.

3. Build an emergency fund

Amid the pandemic, with no financial reserves, many were unprepared to deal with rising medical expenses, unstable income due to loss of job or pay cut. Lack of financial planning found many individuals struggle through a financial crunch.

Building an emergency fund is imperative to handle the exigencies and calamities in life, so that you meet all your expenses and survive during difficult times. You must set money aside in a savings account for an emergency fund. Ideally, this contingency fund should be sufficient to cover expenses for 18-24 months, with monthly expenses including EMIs.

Being the sole breadwinner of your family, this fund will assist you and your family to sail through any unforeseeable event without having to borrow loans and increase your debt burden.

4. Purchase an Insurance cover

With rising medical expenses, health insurance is an option that will assist you and your insured family members financially in a medical emergency. It is an important financial avenue to invest in because a good insurance cover can safeguard your income, assets, and most importantly your family from life’s unexpected risks. It can provide your family with the necessary medical treatment without burning a hole in your pocket.

Life Insurance can help fulfil the family’s financial requirements in your absence. The insurance protects by paying a sum assured to the immediate family members or nominees of the insured individual. Just as it is crucial to maintain an emergency fund, you should also have an insurance cover for life and health.

You need to review the terms and conditions of your health and life insurance policies to have a better understanding of what you are paying for and the smooth processing of claims. Consult your insurance agent for adequate insurance cover as per your needs to indemnify the risks to life and health. Other insurance covers that could be useful are home/asset insurance, business insurance, etc.

5. Investment portfolio

As your income is the only source of sustenance for your family, it is difficult to fulfil every financial requirement with mere savings. Thus, you need to invest the money in various investment avenues that can fulfil your short-term and long-term financial goals.

Maintain an investment portfolio with proper asset allocation and diversification into rewarding investment avenues that can generate optimal risk-adjusted returns. Your investment portfolio should be constructed based on your suitability such as risk tolerance and investment horizon.

Avoid having an aggressive portfolio even if you have a long-term investment horizon because you are the sole breadwinner of your family and higher risk may disrupt your financial plan and well-being.

You must also review your portfolio periodically to eliminate any unworthy investment schemes that weaken your portfolio’s performance. Your hard-earned money will grow with the power of compounding when you invest it wisely and regularly in worthy investment avenues.

6. Debt management

Having debt is not bad, and in fact it could work in your favour. However, you need to repay it on time to avoid the burden of a debt trap. It is completely fine to borrow/avail of a loan to fulfil certain requirements such as buying a house, car, etc. There are several types of loans available and now it has become convenient through multiple instant loan apps. However, tread cautiously because these lenders charge a high interest rate.

Besides that, it is crucial to learn how to manage your debt appropriately. You need to analyse your income and maintain a debt-to-income ratio of below 40%. This will ensure that you can repay your debt on time and not be saddled with a debt burden. You can avoid the debt trap by utilising your credit cards sensibly, with one or two credit cards as your last resort in case of emergency.

7. Inform a trusted member about your finances

You will have to manage your finances wisely and avoid any investment mistakes that could affect your financial well-being. However, who will manage your finance in your absence?

If you are the sole earner in your family, you need to inform a trusted member of your family about all your finances. Therefore, in case of emergency or in your absence, that family member can make informed financial decisions to secure family’s financial future. The trusted family member can take appropriate steps and decisions in order to ensure your family’s needs are taken care of in the unfortunate event of your demise.

Take a look at the list of things you should inform your trusted family member about your finances:

• The investment avenues you have invested in, such as mutual funds. You could also make them the nominee who will be liable for those investments in case of your unfortunate death.
• Your active bank accounts and income related information. If you have a business, then business related financial information; and if you are an employee, then employer related information for EPF and gratuity or any other financial formalities that might need to be completed.
• The details related to the insurance cover you purchased, you should share the details of your term insurance like the location of the policy document, the sum assured and add-ons, as well as policy numbers to initiate the claim with the insurance company.

Sharing critical financial information with immediate family members, especially with the spouse or a trusted relative will assist you in maintaining your family’s financial well-being.

As the sole breadwinner of your family, you will also be required to make financial decisions for your family. If you are financially literate, you could be able to make informed financial decisions for your family by being their financial guardian.

[Read: Why Every Family Needs a Financial Guardian]

Becoming a financial guardian will empower you with financial knowledge and enable you to understand the steps mentioned above. It will arm you with the necessary skills to be a wise financial planner. To safeguard your family’s financial future, you need to enhance your financial knowledge so you can make informed financial decisions that supports your family’s financial well-being.

This article first appeared on PersonalFN here