Financial planning tips for single parentsMonday 19 October 2020 | Reading Time: 5 minutes
Handling finances as a single parent can be a challenge. It’s easy to feel overwhelmed when you’re on your own. Here are seven financial tips to help you get a handle on your money and help you build financial security.
Create a new budget
A budget is an essential tool to help you stay on top of paying your expenses and debt and saving for your goals. Knowing where your money is going and when it’s being spent starts with math. Figure out your monthly income and your expenses on paper, a spreadsheet, or in a financial app. You can determine this by taking a look at your pay stubs and bank statements to see what has been deposited into your accounts. If you have any additional income from a part-time job, child support, or some other source, make sure to include that money as well. When you know your income, write down a list of your expenses based on your monthly bills.
To create your budget, subtract your total expenses from your total income each month. If you have some money left over you could put that in savings or use it for something else. If the balance is in the red, you’ll need to cut back on your spending or generate additional income.
Limit your credit card debt
As a single parent, it’s a good idea to break the habit of relying on credit cards. Interest rates and fees can add significant debt to your finances, especially if you get behind on payments. If you need money, consider taking a loan from a relative. Your employer may also offer employee loans that get paid back through paycheck withdrawals at no interest. Check with your human resources department to find out if that’s an option for you. If you must use a credit card, make sure you get a card with the best possible interest rate. Visit Bankrate.com to compare card rates, fees, and terms. There are also organizations such as the National Foundation for Credit Counseling, which offer help from certified counselors for free or at a low-cost.
Set up a safety net
It’s smart to create a financial safety net that includes three to six months of expenses to help see you through a crisis. Unexpected events can have a huge impact on your financial future if you aren’t prepared.
Create an estate plan
To make sure your wishes are carried out after you’re gone, you need to create an estate plan. First, you’ll need a will that specifies who will take care of your children if you die and how your assets will be passed down. If you already have a will make sure it’s updated. If you don’t have a will, you should create one with help from an attorney who can ensure you have the right guardians for your children designated, beneficiaries chosen and you’ve picked an executor you trust, who will oversee the implementation of the will.
Along with a will, you should also draft a power of attorney document, which gives someone the legal right to make decisions on your behalf if you are unable to do so. For more on estate planning check out our blog on estate planning checklists.
Consider life insurance
Buying life insurance is a smart way to help protect your family, especially if you’re a single parent. If it’s your first time shopping for life insurance, you should figure out how much life insurance you need for your family. Be sure to factor in the cost of caring for dependents, such as your children, as well as their cost of living after you’ve gone. Total your monthly bills and fixed expenses, and make a list of what you provide for your family. This should include necessities like food and medical costs, but also money for vacations and other quality of life needs. There are several kinds of life insurance to consider, from term, to guaranteed, to indexed universal life. To find out more about your life insurance options, check out our blog, Finding the right life insurance match for you.
Think about getting disability insurance
As a single parent, you don’t have a partner’s second income to shoulder expenses if you’re suddenly unable to work. Check with your employer to see if they offer disability insurance. If they do, you could receive a reduced income when you put in a claim. If your company doesn’t offer disability benefits, a life insurance agent can help you set up the insurance.
Know what tax benefits you qualify for
Single parents are eligible for specific tax benefits, exemptions, and credits, so be sure to do your research on what you might qualify for. Visit the IRS website to learn more about different tax credits you may apply for based on your situation.
Contact a financial professional
You don’t have to figure out your finances all by yourself. If you need guidance, consider working with a financial advisor, who can help you determine your life insurance needs, and assist with planning, savings, retirement, and paying down your debts. To find the right agent for you, submit your information through our find an agent page.