Managing your finances as a single

Firstly, the basic principles of financial planning remain the same whether you’re single or married, man or woman, like Save for Emergencies, Pay Off Debt, Goal based investing, Plan for Retirement, Have a Budget, Diversify Your Investments, etc. However, there are some aspects that need to be given some thought before going ahead.

Obviously as a single there is only one income coming in, so it is important the money is invested in such a manner that you receive optimum returns.

One of the most important aspects of our life is health care, the usual medical insurance is a must, however as we grow older the insurance premiums increase and the coverage is limited. To supplement that, it would be prudent to start a SIP just for your medical expenses. The good part about SIP is that unlike insurance, this will compound with time. The other advantage is that if you don’t need it for medical, you can always use it for other purposes.

Coming to Life insurance policy, if you have a loan or if you have dependents then having a life insurance policy is crucial, but if you don’t have either, then it doesn’t make sense. Further if you are putting money in the endowment plans and such other long -term plans, then be assured that you are receiving sub optimal returns on your investments.

Indians love real estate as an investment option, and half our net worth is in real estate. The problem with asset class is its illiquidity vs a financial asset. People are unable to sell off their property whenever they want to. Rental yields are low, so if you have invested in real estate to get some monthly income then it will not give you efficient returns. The effort of finding a tenant, registering it and receiving the rent will take up a lot of your time. Lastly, I feel we get very emotional about the real estate and hesitate to sell it, thereby making irrational decisions.

Liquidity is of utmost importance as you grow old. Having investments in assets that are illiquid and cumbersome to manage is not only impractical but also gives sub optimal returns.

Another important aspect to consider is your transition plan, have a will with clear instruction to the executor on how you would like your assets to be distributed in the future. Discuss this with your family in advance so that they are aware of what needs to be done.

Lastly, engage a financial advisor who can help you with your financial decisions, recommend appropriate investment products, someone who can guide you and motivate you to invest. Very often we have our own personal biases that cloud our judgement, so a professional advisor with a different and neutral perspective will help you navigate your financial journey.