Single parents have it harder. There is only one person to do everything. Earn the money, raise the children, be involved in school and the community, do the grocery shopping, sign up for camps… the list goes on and on. Some divorced parents fall into this category as well, and sometimes they have it even worse because they still are coping with divorce and another parent who likely is not aligned with their financial goals.
I like my single clients to look on the bright side. Since they are flying solo, they get to call all the shots. They are 100% in charge of the decisions they make and the path they follow.
Outsourcing or finding support can help alleviate the stress of feeling alone in all of the decision making. In addition, there are certain basics all single parents need to have locked in.
- Have a Budget. There is no escaping the need to have a budget, and it is doubly important for a single parent. It doesn’t mean you can’t have any fun, but it means you are the adult and need to know where your money is going. Tip: Use Mint.com, turn off all Notifications under Settings (they are annoying), and set realistic budgets on the budgets tab. The most useful part of Mint.com is the “TRENDS” tab. It will show you daily where your money is going. You need to have a target spending goal and strive to stay under it.
- Simplify and Consolidate. Optimize your financial resources and keep your accounts tidy. Here are the accounts you need for day-to-day: checking/savings, and High Yield Savings earning 1.8%+ for your Emergency Fund (plus additional accounts for other short-term goals like travel, house down payment). For retirement, consolidate, rollover and make sure all accounts are correctly invested for your retirement goal. If there is extra money, you can have a brokerage account and savings account for education (529 Plan, UTMA).
- Insure for protection. Disability is the most important coverage. If you have it through work, make sure to sign up for the maximum amount and pay after-tax for the benefit if possible. You also want life insurance. While disability is much more likely than death, you need both. To estimate how much, most parents need to cover living expenses until their child is in college plus the costs of college. This tends to be around $1million total. It’s better to have independent coverage just in case you leave your employer, but if you have health issues or can’t afford independent term coverage, make sure you have it through work.
- Button up your Estate Plan. The most important item is to nominate guardians for your children. If you own real estate and want someone look over your estate until your children are responsible adults, then you also need a living trust. The living trust is the legal document that tells the court who will help manage your estate and when your children can receive the money. The living trust is the beneficiary of your accounts and insurance benefits, not your kids.
Getting these basics done can help create a greater sense of clarity and control. From this comes relief. Relief that you are doing everything you need to be doing financially.