Single parent households usually face more difficulties managing their finances due to reduced earnings capability, in comparison to dual-income families. Despite the challenges, though, single parent financial planning is not impossible to do.
Single Parent Financial Planning List for Success:
1. Safety Net Building
The first tip single parents can follow is putting together a safety net fund. Readily available emergency resources help alleviate any problems that often arise without warning such as car troubles, health scares or accidents, etc. Having money on hand to handle such matters expediently eliminates stress and further financial struggle. In general, single parents should set aside a minimum of six month’s worth of expense funds in a separate account. This rainy day fund should stay untapped until needed, and replenished when possible once it is accessed.
2. Invest in Insurance
Medical emergencies can often drain a family’s savings without warning; this is why it is important for single parent households to invest in health insurance. Often such coverage will be provided through a parent’s job. However, more options exist now if an employer does not offer insurance themselves. Many insurance plans include regular check-ups for everyone insured on the policy, thus attempting to head off any potential issues through early warning.
Besides health insurance, investing in a reliable life insurance plan is also important as it will inevitably help secure your family’s financial future. Research available policies to balance out the amount of coverage they provide versus the premium amount you will be required to pay.
3. Develop a Cash Flow Plan
Designing and following a cash flow expense plan is helpful to families by helping them stay on budget when money is typically tight. By doing so, you can stay on top of all your expenses in an organized fashion while avoiding impulse spending as much as possible. However, it never hurts to build in a certain percentage of discretionary spending for things like a spa treatment, or a nice meal with the kids. Speaking of which, following a cash flow plan also helps teach children about money and how to manage it on a daily basis.
4. Estate Planning
Parents should always consider estate planning, i.e. drawing up a will, select an executor, etc. when planning for the future. The reason being that in the case of an early death or permanent incapacitation, they know that their children will be taken care of, and a clear plan has been created to leave money to them at an appropriate age and time with no room for error.
5. Retirement Planning
Many single parents are often caught up in making sure their kids’ immediate needs are always handled first, leaving preparation for their retirement behind and often starting too late, if at all. However, with some foresight and steady saving, a single parent can take care of their child’s and own immediate needs while still preparing for life after their career comes to an end. How to proceed correctly can be figured out with the help of an advisor.
Putting a Financial Plan Together
While everyone agrees that living as a single parent can be difficult, it does not have to be impossible or lead to a lesser quality of enjoyment for all. Many of these tips boil down to planning ahead and allocating one’s limited assets in a strategic manner. You can do a lot of this work with the aid of financial advisors who can look over your assets, assess your immediate and long-term goals, and then collaborate with you in figuring out how to achieve them. If you are looking for a place to start and have questions that need answering, then be sure to contact us here at Anderson today to speak with one of our experienced advisors.