Single parents tend to face multiple challenges in their daily lives as they are the sole provider of care and emotional support to their children, and they may also be the only financial provider.
This blog is designed to help make those challenges more manageable by providing guiding information and advice about financial planning.
Have a cash flow plan
Single parents may be subjected to irregular streams of income. Consider planning ahead of time by projecting your future income over several time frames. If any expected income changes, you have two choices: either make up the loss of income from other sources or adjust your lifestyle.
Create a safety net
It is important to have an adequate emergency fund that acts as a financial safety net. As a general rule, you should have a savings account or a low-risk investment account which would be able to cover at least six months’ worth of non-discretionary expenses which you could use to handle daily expenses.
Set up a trust which is a legal structure in which your assets can be held for the children and is overseen by a trustee. The trustee should also be considered carefully just like when you are choosing a guardian, who can possibly, be the same person.
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?
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.
Prioritize your retirement savings over education
If you are pushed to make a choice between saving for retirement and paying college tuition, in most situations, you should choose saving for retirement. Your child can go to college with a grant, scholarship or loan, but your earning capacity will diminish over time.
Make estate planning your priority
It’s essential to make arrangements for your children for when you are no longer around. Your will tells everyone what should happen to your money, possessions and property after you die (all these things together are called your ‘estate’). If you don’t leave a will, the law decides how your estate is passed on – and this may not be in line with your wishes.
You will need three major documents:
- Will: A will postulates the guardian who will take care of your children if you die and how you will pass your assets down to them. When finalizing the guardian, choose someone whom is well-organized and familiar with handling finances and above all, someone whom you trust
- Power of attorney: A power of attorney gives someone the legal right to make decisions on your behalf if you are unable to do so
- Additional power of attorney: An additional power of attorney usually refers to healthcare, giving someone the right to coordinate with doctors about your care if you are incapacitated.
As a single parent, being prepared for the worst-case scenario seems unthinkable, but getting your finances in order would only involve an initial investment of time; and by addressing these issues, you are bound to find yourself at financial peace of mind with a stronger financial future for you and your children. Financial situations vary, so it’s important to speak with qualified professional for advice based on your own circumstances.