Planning is vital for the financial health of all families. In families having a single working member, there is absolutely no scope for making mistakes in financial management, the margin for error being nil. They have to earn enough for the present so that their kids get all the toys, books and treats they wouldn't want them to miss out on.

TRACK YOUR CASH

The best way to sort out one's financial life is to first budget expenses. The crux of budgeting is to know your monthly spending needs and habits. Track your cash flow to see what comes in and what goes out. The first part is easy, all you need to do to quantify the net income is track your net pay on your monthly salary slips, add the variable pay component and your occasional income. It's the second half, tracking spending, that can get you down. To track your expenses, you may wish to divide expenses under major heads like school fees, groceries and transport. The toughest task would be to account for miscellaneous expenditure. This is the major problem area which would require your utmost attention as it's the unplanned and easily forgotten expenses that run the best laid financial plans aground.

The starting point will be to first collect all your bills - credit card statements, cheque book statements and receipts for anything you buy with cash, whether petrol, LPG, groceries or takeaway Chinese. If you have not been keeping good records, you may have to track every rupee you have spent for a month before you can draw up an accurate budget.

Basic budgeting - Once you have the numbers in place, divide your various expenses into two broad categories - Fixed Costs or Non-discretionary Expenditure and Variable Spendings. Fixed costs include such as mortgage payments, car loans, insurance premium, school fees and house rent, among others. These are the expenses you would incur month after month on a regular basis. Second head is variable spending, such as leisure, travel, entertainment and clothes that financial planners term discretionary expenditure. These are the expenses you can control at will. To this combined figure, add 10 per cent from your income as allocation towards short- and long-term savings. If the total expenditure is more than your pay cheque, your expenses are clearly out of control and you need to cut back. If you have money left over after accounting for all of the above, plan on increasing your savings right away.

MAKE THE BUDGET WORK

Most budgets are doomed from day one either because they are too complicated or the numbers simply don't add up and that happens because most people do not plan and control their expenses.

If expenses, including mortgage payments and car loan, insurance premia and living expenses, exceed your income flow, with a deficit budget, no financial planning is possible to meet your long-term goals. You need to first adopt an envelope budgeting approach to rein in expenses.

Envelope budgeting - Easy access to consumer credit and multiple means of payment, ranging from credit cards, online bill payments, cheques and automatic deductions from salary and bank accounts, have all contributed to a cashless system that loosens the control on the total spending. Traditionally, everything was paid for in cash and you could track your money.

Convert your monthly net income into cash. Get two sets of envelopes, one for monthly needs like food, medicine, utilities, and rent, and other for periodic payments like insurance, property tax or gifts. Put the exact amount allocated for monthly spends into each envelope. When you need groceries, for example, take the laballed envelope along, so that you know how much is spent and how much is left over for the rest of the month. There is no question then of overshooting the budget. For periodic payments, divide the annual spend by 12 and put away the required amount every month. This way you also minimize sudden cash burdens such as a tax payment falling due at the end of the year. Do this for as long as it takes to inculcate budgetary discipline in yourself.

EMBRACE RISK

Once your budget has created a pool of savings, view it as an investible surplus that you now need to begin working on, in order to create wealth for long-term needs and to take on risk judiciously.

Take your investible surplus and divide it into two parts. In the first year, set aside 80 percent into such products as income and bond funds and 20 percent into equity funds. Of the bond and income fund portion, put in 50 percent each in RBI bonds or post office schemes and the other half in short-term income funds or short-term bank deposits. This can act as a contingency fund if there is an immediate need for cash. After a year, as you gouge your need for liquid funds, you can move the money into income funds. Simultaneously, use a systematic income plan (SIP) for equity fund investments, using this as a balancing reservoir for your long-term finances. SIPs also ensure that your investments average the markets and cut down risk, given that single mothers are more vulnerable than other categories of investors.

RISK INCREASE

Financial planners recommend a gradual increase in risk exposure. Allocate 65 percent of your investible surplus to debt and and 35 percent to equity in the second year, and from the third year of a financial plan, even it out to 50 percent each in debt and equity. Remember, however, to factor in tax commitments while investing. For instance, those in the lower tax brackets can look at high-yielding instruments such as RBI bonds, PPF or post office schemes to reduce taxes while assuring savings.

Review your investment surplus periodically to ensure that you are not missing chances to accumulate more.

INSURE THE FUTURE

It is all very well to advocate taking on risk to make your money work for you. But risk management must be allied with adequate insurance cover as the core of any investment strategy. As a bread-winner, it is vital to protect your family's future. Equally vital is disability/ accident cover. Any hindrance to the earning capacity will impact the family acutely. You may take this as a rider to your life insurance policy.

Next is health cover. If you are self-employed and have no health cover from your employers, a medical or health insurance for each family member is an absolute necessity. If there is a shortage of cash in the near term, use a credit card to pay the premiums but definitely get insurance, both life and medical. A simple term plan or term plans where the premiums are returned are also good instruments. Ideally, the insured amount, along with existing savings, must take care of children's need and goals.

RETIREMENT PLANNING

Financial planning can sometimes begin and end with meeting a child's college or marriage expenses. How about your own retirement? Surely you are entitled to a comfortable retired life without financial worry? Here are four tips to take care of overall financial planning:

• Budget for immediate expenses with a contingency fund that covers living expenses for four months.

• Insure life and medical expenses.

• Leverage debt to build long-term assets like a home.

• Invest your child's education and your own retirement needs.

An undue focus on children in financial planning is a mistake to be avoided. It's important to plan for your future as judiciously as you do for your children's. Maximize PPF investments for your retirement needs to have a monthly income of Rs 30,000 for your retirement. Invest in a systematic investment plan in a diversified equity fund, allocating the maximum possible after contingency and non-discretionary spends on your personal budget.