Single parents have a lot to handle--not only do they act as the sole provider
of care and emotional support, but they may also be the only financial
provider for their children.
Here are some of the first things for single parents to consider when coming
up with a prudent money plan.
1. Estate planning is your first priority.
It's essential to make to make arrangements for your children if you
die or become incapacitated. You will need three major documents:
will that specifies who will take care of your children if you die and how
you will pass your assets down to them. One of the most important functions
of a will is to name a guardian for your children. When selecting an executor,
you should choose someone whom you trust, but that person should also
be well-organized and have some knowledge of financial matters.
power of attorney, which gives someone the legal right to make decisions on your behalf
if you are unable to do so.
health care proxy, which gives someone the right to coordinate with doctors about your care
if you are incapacitated
2. Have a cash flow plan.
You may have irregular streams of income. If you are divorced or widowed,
you may have received a lump-sum insurance payment or Social Security
benefits for children, and you may be receiving alimony payments and/or
child support. These payments may stop or be reduced over time.
It's important to plan ahead by projecting your future income over
several time periods. If any of the amounts will change, you have two
choices: Either make up the loss of income from other sources or adjust
your lifestyle. The important thing is to have a plan.
You may also want to set up a trust to provide for your children. A trust
is a legal structure in which your assets can be held for the children
and is overseen by a trustee. You should consider similar attributes when
naming a trustee as you do when choosing an executor.
3. Create a safety net.
One of the most important steps in financial planning is to have an adequate
emergency fund that acts as a financial safety net. As a general rule,
you should have at least six months' worth of non-discretionary expenses
in an account that is separate from the one from which you use to handle
daily expenses. That could be a savings account or a low-risk investment account.
4. Plan ahead for health costs.
It's common to lose health insurance after the death of or divorce
from a spouse, and medical costs can be crippling. Approximately 1.7 million
Americans live in households that will declare bankruptcy due to their
inability to pay their medical bills, according to a recent NerdWallet
study, so factor any foreseeable health costs into your emergency fund.
You can comparison-shop for policies at your state's marketplace or at
5. Purchase life insurance.
Life insurance can also be extremely important for single parents. However,
what you purchase will depend on your family and finances. To determine
your life insurance needs, calculate what you want the proceeds to do.
For example, in addition to covering living expenses, do you want the
proceeds to pay off a mortgage or pay for college? A term policy is most
economical because it's pure insurance.
6. Explore disability coverage.
Disability insurance can be especially crucial for single parents who don't
have a second income from a spouse to help cover the gap. Check with your
employer to see whether it offers the benefit. Generally, you will get
a reduced income amount when you claim disability--anywhere from 50% to
70% of your salary.
7. Prioritize your retirement savings over education.
If you need to make a choice between saving for retirement or paying college
tuition, in most situations, you should choose saving for retirement.
A student can go to college with a grant, scholarship or loan--but your
earning capacity will diminish over time.
As a single parent, you know how difficult it can be to stay on top of
everything. That's especially true of money matters. While getting
your finances in order may involve an initial investment of time, addressing
these issues will ultimately create financial peace of mind and a stronger
financial future for you and your children. Remember, financial situations
vary, so it's important to speak with a professional for advice based
on your own circumstances.