I met Bhairavi recently, when I was invited to attend a corporate event she had organised. We spoke for a few brief moments, exchanged cards, and promised to catch up for a longer chat sometime later. In the rush of things, it slipped my mind to get in touch with her and I was surprised when, a few months later, I received a call from her asking for financial advice. Bhairavi had recently signed her divorce papers and walked out of a decade-long marriage along with her five-year-old son. The transition was extremely tough for both the mother and son – the legal battle had drained them completely. As for Bhairavi, she had to think about finances independently for the first time. While she had managed the budgets for large events effortlessly for years, she was completely overwhelmed by the thought that she had to single-handedly secure her own future as well as her son’s. For single mothers like Bhairavi, financial planning is not just about accumulating or growing their wealth; it is about security, stability, and long-term independence. Like single women, single mothers too must plan for all of life’s situations on their own … but unlike single women, they also have the additional responsibility of providing a safety net for their children – ensuring that neither of them is ever financially vulnerable.Like single women, for single mothers an emergency fund is a necessity rather than an option. Without a second income to fall back on, any minor setback like a medical emergency or unplanned expense can deal a big blow. Opinions vary on the size of this fund, but in the interest of the child/ children’s continued education and welfare, I would strongly recommend a minimum of 12–14 months of living expenses spread between a savings account and a liquid fund. It sounds like a big amount and, in all honesty, accumulating 14 months of living expenses is no mean feat when you are also trying to run a house and invest for bigger goals. I would suggest that you start small, with a realistic goal of, say, Rs 5–10,000 and within a few weeks, try to increase this amount to at least one month’s worth of living expenses. Once you cross the first hurdle, aim to increase this to three to six months’ worth of living expenses. The idea behind attempting any big task is to break it down into a series of small, achievable tasks. This keeps you motivated and ensures that the momentum continues. Ensure that you build this into your monthly budget and prioritise its allocation. Gradually, keep redirecting any small savings from cancelling unused subscriptions, reducing takeout food frequency, or even cutting down on lavish holidays into the emergency fund. Continue this exercise until you have reached your target amount. There will be months when seasonal expenses like school fees or annual memberships pile up – do remember to budget for them. If you feel you must reduce the allocation to your emergency fund in these months, then remember to account for the shortfall in the budget of later months. Additionally, during the period when you are trying to build your emergency fund, try to make lump sum payments from any windfall you receive, like a bonus or tax refund. When saving for an emergency fund, do review the amount each year to account for increased expenses. This is done to ensure that you are not only accounting for inflation, but also keeping in step with your upgraded lifestyle. Do remember to celebrate your milestones too – every task or goal you accomplish is bringing you closer to financial freedom! This is even more worthy of celebration if you are someone who wasn’t financially literate before you began this journey out of compulsion. It is truly empowering to take charge of your finances and every step taken along the way deserves recognition. The positive reinforcement will keep you more than motivated to accomplish all your financial goals and ensure that you have peace of mind.Having to rely on a single income does pose a higher financial risk; if possible, try to look for ways to diversify your income streams. If you are someone who has received a lump sum in the divorce settlement, do consider investing that money in an equity fund and starting a Systematic Withdrawal Plan (SWP) if it is needed to cover your expenses. An SWP is a facility that has been created by the mutual fund industry, allowing you to withdraw a fixed amount from the investment you have made in a particular mutual fund scheme. This allows the investor to create a stream of regular income by withdrawing small amounts periodically while the remainder of the money continues to grow and compound. Depending on their requirement, the investor can choose the amount they want to withdraw and how frequently they want it done. Just like you select a date on which your SIP is invested every month, you can select a date for your SWP as well. So, if you have selected a monthly SWP, then on the chosen date, the required number of units will be redeemed and the proceeds will be credited to your account. This is a much more tax-efficient way of creating an income through mutual funds rather than opting for the dividend distribution option. According to tax rules, mutual fund redemptions up to Rs 1.25 lakh in a financial year are exempt from the Long Term Capital Gains (LTCG) tax. So, if you are withdrawing Rs 3 lakh in a financial year, then you will have to pay capital gains tax only on Rs 2 lakh. If the investment is held for longer than a year, then the LTCG tax will be levied at 12.5% on the taxable amount (in this example, Rs 2 lakh only). If held for less than a year, the Short Term Capital Gains (STCG) tax will be levied at 20% on the taxable amount. In contrast, every dividend which is declared will be subject to the Dividend Distribution Tax (DDT) at the rate of 10% + applicable surcharge and cess, which will be deducted by the mutual fund house before sending the remainder of the money into your account.Additionally, if you are looking for a regular income, you cannot rely on dividend income alone. Dividends are declared based on the performance of the mutual fund scheme and at the discretion of the fund house. The amount and frequency of dividends cannot be pre-decided. Investors should also remember that in the dividend distribution option, the Net Asset Value (NAV) of the mutual fund scheme will fall to the extent of the dividend declared, while it remains unaffected in the SWP option.Consider the following example to understand the power of SWP:As you can see, the original investment of Rs 50 lakh made in an equity mutual fund which is estimated to grow at 10% each year can comfortably provide you an additional income of Rs 25,000 over a 20-year period. At the end of these 20 years, you will not only have withdrawn more than the amount of your initial investment, but you will also have an investment corpus of Rs 1.75 cr still available. There are multiple SWP calculators available online. It is possible to customise your unique requirement to figure out how much you can withdraw and for what duration.Excerpted with permission from The Indian Woman’s Essential Guide to Investing and Building Wealth, Sumaira Abidi, Aleph Book Company.