Work toward these financial markers to build a strong foundation for you and your family.
In a two-parent household, raising children can be quite the task. Raising children as a single parent brings additional challenges, stressors, and responsibilities - many of which are financial.
Though financially stressful, it’s important to remember that it’s possible to raise a child on your own and have a stable financial life. It merely requires discipline and planning. So, if you’re a single parent and feeling a bit overwhelmed, use these steps as a guide to help you achieve financial security.
- Prepare Your Estate Planning Documents
It’s hard to think about, but nobody knows for sure what the future holds or how much time we have left. So, unless you feel confident in leaving your personal and financial decisions to those you leave behind or to state officials, it’s essential to make time to sit down with an attorney to discuss your wishes should anything unexpected happen. People tend to procrastinate when it comes to getting their estate paperwork in place, but it’s important to be proactive so you can be sure that your wishes will be followed when you’re gone, especially about who will raise your children in your absence.
Since children under the age of 18 cannot take control of inheritance money or make any legal decisions, listing them as beneficiaries won’t be enough. You’ll want to have guardianship papers in place that determine who will take over responsibility for your kids should you be incapacitated or pass away, especially if you’re raising your children alone.
2. Purchase Life Insurance
When it comes to life insurance, the general guideline is that, if someone is dependent on your income, then you should probably have life insurance. So, if you’re raising children by yourself, you’ll want the security of a life insurance policy to ensure your family’s needs will be covered. Sitting down with a financial advisor will be useful in determining how much insurance you’ll need in your unique situation. Some factors you should be considering are how much you expect it to cost to raise your children and pay for their college and any assets you want to protect or debt you wish to pay off. You’ll also want to speak to an attorney about how you can properly name a beneficiary for your life insurance policy.
There is an abundance of options out there for you to choose from when it comes to life insurance, so be sure to do your research and talk to those who are experts in the area and who you can trust. Though it may seem superfluous or extreme, life insurance policies can be an affordable and efficient way to protect your family.
3. Fund an Emergency Savings Account
While no one wants to live life considering every worst-case scenario, single parents must be prepared. Doing so can give you peace of mind, knowing that your children will be protected no matter what may happen. One of the best ways to be sure that your family will be provided is to have a fully-funded cash reserve on hand for emergencies – such as a worldwide pandemic, for instance. For a one-income household with children, you should aim for having at least six months’ worth of monthly bills and expenses saved.
This can seem like a lot of money, but you don’t have to save it all at once. Start small, with just a small percentage of your paycheck going away into savings each month. Slowly, you’ll see that safety net grows over time, giving you and your family added protection from unexpected expenses.
4. Contribute to a Retirement Account
As a parent, it’s natural to want to put your children’s needs and wants before your own. However, you can’t forget about taking care of yourself either, especially if it’s just you. After you’ve put the proper risk management documents and saving practices into place, it’s time to focus on saving for your retirement. Your early working years are critical to your retirement savings goals, and the longer you wait, the more money you will need to save to have a secure retirement.
With the right planning, you can incorporate your retirement plan into your other wealth management plans. If you have access to a retirement plan at work, such as a 401(k), strive to save around 15% of your total income. Or, if money is tight, see if your employer offers to match your contributions and put in just enough to qualify for a full match. As you grow in your position and begin feeling more financially stable, you can increase your contributions.
If you don’t have a 401(k) available to you at work, look into opening an IRA. Both the Roth IRA and the traditional IRA can be great retirement savings tools. To decide which one is the best for you, you can listen to my recent interview on the Marriage, Kids and Money podcast here.
5. Open a 529 Account
The last step you can take to help put you and your children on solid financial footing is to begin saving for college, should your child decide they want to continue their education. A 529 account is a tax-favored education savings account that allows individuals to save for any qualified education costs that might come up in the future. The great thing about these accounts is that contributions are made on an after-tax basis, the money grows in the account tax-free, and any distributions you take out will also be tax-free when you pay for qualified educational expenses. You can choose various investments to grow the account.
Furthermore, anyone can contribute to these accounts. So, any grandparents or other family members that want to help you save for your child’s college expenses can help. Even if you don’t have enough extra cash to contribute to this account regularly, you can begin putting any money your child gets for their birthday, holidays, or other gift money into the account as they grow. Even if you don’t end up saving enough to cover the entire cost of college, every dollar helps make footing that expensive bill easier.
Parenting comes with many stressors, and being a single parent can make the task seem all the more daunting. It can be easy to get discouraged or overwhelmed by the amount of responsibility placed on your shoulders, especially financially. However, there are steps that you can take today to begin building a strong financial foundation that will protect you and your family long into the future.