By K. Bridget Schneider, CFP®, CRPC®
Being the sole income and provider for your family can be stressful. And a single-parent household may have a trickier time managing finances than a two-income family. The fall-back of a second income is likely non-existent. Despite this challenge, financial planning isn‘t impossible for a single parent to do. Let’s consider these five key rules of financial planning as they relate to single parents.
The Emergency Fund
The first tip is to create a safety net. Having a readily available emergency fund helps when problems arise without warning such as car trouble, health issues, or accidents. Having cash on hand to handle those surprises eliminates stress and further financial struggle. So single parents should set aside what they need for three to six months of expenses in a separate account. This rainy-day fund should be hands-off until needed, and then be replenished when possible.
The Expense Plan
Developing and following an expense plan is helpful to keep you within your budget when money may be tight. Knowing the big picture will make it easier to stay on top of all your expenses in an organized fashion and may help you avoid impulse spending. But don’t be too rigid with your plan, it never hurts to build in a little discretionary spending for things like a spa treatment, or a nice meal with the kids. This can also help teach your children about money and how to manage it. We have provided a free Budget Worksheet that can help you get started with your plan.
Medical events can be a drain on the emergency fund, so it is important to have health insurance coverage. Some single parents may be able to obtain coverage for the family through their employer. However, other options exist if an employer does not offer health insurance. Many insurance plans include regular check-ups for everyone insured on the policy which may head off major issues through early treatment. You should also check into establishing an HSA.
Besides health insurance, you should also have a life insurance plan. This can help secure your family’s financial future in case you are not there to provide for them. Research available policies to balance out the amount of coverage they provide versus the premium amount you will be required to pay.
You may not want to think about life after you are gone, but parents need to consider their estate plan. This includes drawing up a will, selecting an executor, and appointing a guardian for your children. In case of an early death or permanent incapacitation, you need to know that your children will be taken care of. And that a clear plan has been created to leave money to them at an appropriate age and time.
Many single parents get caught up in making sure their kids’ immediate needs are always handled first, leaving preparation for their retirement behind and often starting too late, if at all. However, with some careful planning and saving, you can take care of your child’s needs and your own. You may want to enlist the help of a CFP® Professional to develop a plan that allows you to raise your family and still be prepared for retirement when you decide to stop working.
Putting It All Together
While everyone agrees that life as a single parent can be difficult in one way or another, it doesn’t have to be impossible. Many of these tips boil down to planning ahead and allocating limited assets in a strategic manner. You can do a lot of this work with the aid of a financial planner who can review your assets, assess your immediate and long-term goals, and collaborate with you about how to attain them.
If you are looking for a place to start or have questions that need answering, then be sure to visit our website today, call us at 217-605-8130, or click here to schedule a free, no-obligation consultation. As your friendly financial guide and ally, we can help you develop a financial plan, review your investment strategy, or structure a retirement plan that makes sense for your unique situation.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for specific individualized tax or legal advice.