Budgeting As A Single Parent

Raising children is one of the hardest jobs on the planet, and more than 13 million American parents do it solo, according to 2006 census data. Raising a child to adulthood costs $226,920 on average, according to figures released by the Department of Agriculture in 2010. So what can you expect and plan for if you and your significant other part ways and you are tasked with raising your child alone? For many, some of the biggest adjustments include going back to work, securing an effective childcare plan and being the sole breadwinner of the household. However, there are some other challenges as well.

Budgeting - As a single parent, one of the first items on your checklist should be budgeting. You'll need to sit down and make a monthly budget that consists of fixed costs, variable costs and one-time annual costs, and then compare this budget to your projected income. Fixed costs could include monthly bills for TV, cable, Internet, utilities and insurance. Variable costs may include expenditures such as groceries and money spent dining out and traveling. One-time annual costs include real estate taxes, registration renewals, holiday presents and other items that tend to pop up once a year. Fixed costs are set and usually unavoidable. However, some annual and variable costs can be trimmed down if the budget calls for it.

Newly single parents should also factor in expenses such as childcare, transportation for their children, costs of maintaining a home, rent/mortgage and education. Child support payments and alimony might be additional income sources that help to cover some of these unexpected new expenses.

Special Tax Items - There are several tax credits and deductions that are available for lower-income parents with children. Tax credits are typically more valuable than a deduction, because a credit will offset your tax bill dollar-for-dollar, whereas a deduction will help reduce your taxable income. Here are some of the tax advantages available to single parents:

• The Child Tax Credit was extended throughout tax years 2011 and 2012, which allows all tax filers to claim a maximum $1,000 credit per child (single parent with MAGI under $75,000).
• Child Support payments are not taxable income to the recipient and are not deductible for the payer.
• Alimony counts as taxable income for the recipient and as a tax deduction for the payer.
• One parent can claim the child as a dependent and receive the additional exemption on his or her tax return.
• The Child and Dependent Care Tax credit offers up to $1,050 back. Families that earn less than $15,000 can claim a credit for 35% of qualifying expenses up to $3,000 for one child and up to $6,000 for two or more children. If your earned income is more than $43,000, you are still are allowed 20% of eligible costs.
• Lower income earners, those under $36,920 for 2012 with one qualifying child, can qualify for the Earned Income Credit (EIC). It offers higher education related tax credits and deductions for tuition and fees.

Update and Review Your Financials - Life-changing events such as divorce, childbirth, marriage and loss of a loved one all call for a review of your financials. You should start with your estate documents by ensuring that you have updated your will to reflect your exact wishes for your belongings. Next, follow your state-specific requirements for naming guardians for your children. Life insurance is an essential need for both parents, and most attorneys will include this as part of the divorce decree.

Next, you'll want to review your existing retirement plans, and other financial accounts for which you can name a beneficiary.

Future Planning for Children - Since it will take some time to get used to being a single parent, it's often wise to establish an emergency fund, which typically includes enough liquid cash to cover six to nine months of expenses.  Also consider establishing a 529 College Savings Plan.

The Bottom Line - Single parenthood offers many challenges, most of which you may not be fully prepared for. By planning and budgeting wisely, you can not only raise your children more comfortably but also help them develop positive, life-lasting spending habits as well.

Source:  Investopedia

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

The Jacksonville Business Journal has ranked D2 Capital Management in 

the top 25 of Certified Financial Planners in Jacksonville

D2 Capital Management is a Member of the Southside Businessmen's Club and the Beaches Business Association