A single parent multitasks all the time. Sometimes she’s the chef, other times the taxi driver or housekeeper, and she’s always the breadwinner, family psychologist and teacher. Managing a family, a household and holding down a job keep her plenty challenged.
If you’re winging parenthood on your own, you know it’s difficult to carve out time to pay the bills, let alone do financial planning.
Here are some suggestions for streamlining your financial life and building up your net worth:
Establish a cash reserve. Everyone should have an emergency cash fund, but it’s especially crucial for a single parent. A good rule of thumb is an emergency fund equal to three months of expenses, but your savings needs to ultimately reflect your financial situation. The key to establishing a cash reserve is to be consistent.
Take Control of Your Finances. Healthy finances require that you pay attention to how you spend your money. Managing cash flow is difficult. It can seem time consuming and overwhelming, but it’s time well spent. If you ignore your expenditures, money simply disappears.
Set up a spending plan. Write down your short-term and long-term goals. Ask yourself how you can accomplish them. The first step is to evaluate your spending habits. Track your spending for three to four months, or look back over your checkbook and your income for the same period. Do you have any discretionary funds? Do you need to cut back your spending? Take the time to develop a spending plan.
At this juncture in life, the top financial goals should be to accumulate assets that will increase your net worth and your retirement savings. Pay yourself first through payroll savings plans and your 401(k).
Protect Your Family’s Future. Across the board, financial planners agree that single parents, in particular, need disability insurance and life insurance as a contingency plan to protect themselves and their children. Long-term disability insurance overs your most valuable asset — the ability to earn an income. Yet, it’s the most overlooked insurance. Check with your employer to see if you can pick up this coverage at work. Life insurance is particularly important for single parents, especially if you are the sole supporter of your children.
Estate and Contingency Plans Are Vital. Single parents should have a will to protect and provide for their children in case something happens. Your will names your childrens' guardians and controls your estate — that is, everything you own from your house, bank accounts, investments, insurance and personal property to your retirement plans. If you die without a will, the state becomes the executor. Single parents should also have a living will and a durable power of attorney. A living will expresses your wishes if you become terminally ill or incapacitated, and a durable power of attorney empowers someone you trust to carry them out.
Invest for College Early. The earlier you save for college, the more your money grows. State-sponsored Section 529 college savings plans grow tax-free. Most incomes can’t heavily contribute to both retirement planning and college savings, so invest small amounts to both — just get started. A common investing mistake is to invest too much money under the child’s name. Parents who open investment accounts for their child may find these earnings produce a larger tax bill than expected, due to the kiddie tax. Plus, parents who opt for custodial accounts need to remember that their child can access this money when they turn 18 years old. They may or may not choose to spend it on its intended purpose. Lastly, a large sum of money in the child’s name can hurt their chances for financial aid. This is one more reason to consider Section 529 plans because they’re assets of the owners, typically the parents, not the child.
Don’t invest too conservatively. Concentrate your investments in growth-oriented investments.
Take advantage of your company’s retirement program. The biggest mistake people make is they don’t participate in their company’s pension plan, and then lose out on the company’s matching contribution.
Contribute to an IRA. Pay yourself first! The most reliable investment strategy is an automatic debit from your paychecks into your investment accounts. A good rule of thumb is saving 10 percent of your income, which includes your employer’s contribution.
http://www.accidentaljedi.com/a-single-parents-guide-to-financial-security.html
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