Financial Planning Tips for Single Parents or Anyone

Financial Planning Tips for Single Parents or Anyone

Preface: This article is meant to encourage individuals to take a hard look at their personal finances. These tips are things I would like to implement in my own personal finances. With a consumer-driven society, we’re purchasing more than we need…and many times, in-debting ourselves just to have the latest trends. More often than not, if you’re a single parent, a second income or safety net is often nonexistent. With that being said, if done properly, we all can learn to make due with what we have.  Here are some tips that may be useful to you:

1. Have an emergency cushion

Build a solid emergency fund. This should be a top priority for everyone. This emergency fund is for just that…life emergencies.  Note: the definition of an “emergency” will be different for different people however; here are some examples: You lose your source of income.  You have emergency car repairs.  Your child needs surgery.  A proper emergency cushion should be at least 6 months’ worth of expenses.
Calculate 1 month of expenses. This include the mortgage, investments, savings, entertainment, medical, dental, insurance, utilities, car payments, food and gas. Don’t forget your child’s expenses: sports or activity fees, school supplies, clothing, lunches, childcare costs, etc.  Once you’ve determined your monthly expenses, multiply that by 6. This is the emergency “cushion” you would need. While going through your monthly expenditures, it is a good time to determine necessities verses the extras.  Then make adjustments. You need to be as frugal as you can to get your emergency cushion established.  Put this emergency cushion away and pretend it never existed.

2. Get out of looming debt

There are many different approaches to getting out of debt and it can be very overwhelming sifting through the different strategies. Consumers with multiple sources of debt – credit cards, mortgage, student loans, etc. – often try and address each one every month. Experts advise: Go back to your budget, trim spending to bare bones on everything but essentials, and create a $100 (or preferably $1,000) surplus that goes directly to the credit card or loan with the highest interest rate. Once that’s paid off, go after the next debt with the next highest interest rate. Keep at it until all debt is eliminated. More importantly, stay out of debt. Remember, with discipline, you can do it.

3. Save a percentage of your income

This is separate from your emergency cushion.  Income will go up and down during your lifetime so, set a certain percentage to put into your savings.  Do this for every pay period and you will always be contributing to your savings. While the experts recommend saving at least 6% of your income, sometimes that isn’t always possible. Don’t be hard on yourself if you’re only able to put away $30 a month. Just forming the actual habit of saving over a duration will allow you to have money when needed.

4. Specific savings goals – be realistic about what you can and can’t afford.

Different goals call for different timelines. For example, planning a special vacation, purchasing a home, paying for college all have different timelines. Sort through your goals and give yourself timelines. Be realistic about them. Allocate your money accordingly amongst your goals and review annually to be sure you’re still on the path.

5. Insurance for health, home, car and life

According to some financial planners, insurance can be more important than saving for college or retirement.  Insurance is needed for everything that can affect you financially; ie. your health, home, car and life.  How would your family be affected if you were to take your income out of the equation? Life insurance is one way to build an estate when you don’t have one. Also, consider obtaining disability insurance because, you can never predict if you will be out of work due to injury or illness.

6. A retirement plan

Most financial advisors would agree that the more someone makes, the more he or she will need in retirement. In short, the more you have, the more you need to save because you’re used to spending more. The opposite is also true. Most people with modest salaries can make due with 50% replacement of income in addition to their Social Security and their savings. However, those who earn $100,000 would likely need to save more if they want to keep their lifestyle.

If you have access to a workplace retirement plan, absolutely contribute and get the Employer match.  If you can put more into your retirement, do so. If you don’t have a workplace plan, set up an individual retirement account and make the deposits automatic, the way it is in a 401(k) plan or 403(b). Meet with a financial advisor to help you decide between a traditional or Roth IRA, as well as, make plan decisions.

We hope this article is a first step in helping you with your financial planning. Best of luck on your life journey!