|Rich Best has spent 28 years in the financial services industry, as an advisor, a managing partner, directors of training and marketing, and now as a consultant to the industry. Rich has written extensively on a broad range of personal finance topics and is published on several top financial sites. Recent books include The American Family Survival Bible and Annuity Facts Revealed: What You MUST Know Before You Invest.|
Having a spending plan aligned with your goals replaces the financial stress. Here are some tips on how to manage your finances as a single parent.
The Financial Impact of Being a Single Parent
By any measure, being a single parent is one of the most challenging things a person can do. If there is a silver lining to being a single parent, there is no fighting over money or financial decisions. But that is minimal consolation considering the daunting challenges a single parent faces. Having the sole responsibility for critical financial decisions only increases the stress of managing a household while making ends meet and planning for the future.
Whether there are two breadwinners or just one, the cost of raising a child until the age of 18 is still more than a quarter-million dollars, and that doesn’t include the cost of college or particular circumstances such as high medical bills. The change from a dual-parent household to a single-parent household can be a shock to the finances. It also increases uncertainty about the future. It can be harder to qualify for credit, which can limit options for financing future needs. However, with solid planning and the discipline to follow through, single parents have as good a chance as anyone to make the future happen as they would want.
Budgeting for the Single Parent
The biggest challenge for single parents is having to adjust to a single income. That makes the budgeting process even more critical, especially if you want to save for future needs. Your immediate need may be just to be able to pay the bills and maintain the health and well-being of your children. Whatever your budgeting process or spending plan was before, you need to start from scratch and put all expenses on the table.
It’s important to prioritize your spending, starting with determining what is essential and what is non-essential. Budget for your essential expenses first rent or mortgage, utilities, food, debt payments, and transportation. With your non-essential expenses entertainment and leisure activities, clothes, and other items that are nice-to-have but not needs. Find ways to reduce some of your essential expenses (negotiating discounts or lower interest rates on debt) and determine which non-essential expenses you can reduce or eliminate temporarily.
Budgeting for a household on one income is tricky. It’s all about tough choices. But the choices you make right now will determine how quickly you get on track to securing your financial future.
Avoid Using Credit
If you have debt, your budget and spending plan should be focused on eliminating it a quickly as possible. The sooner you can pay off your debt, the sooner you will be able to apply that cash flow to your savings. The only reason to obtain any more credit is to refinance your high-interest debt with lower interest debt. For example, if you have credit card debt, you could consider paying it off with a personal loan if you can secure a lower interest rate—the same with student loans. You can save thousands of dollars in interest costs by refinancing them to a cheaper loan.
Many single parents have trouble accessing credit due to the change in their financial circumstances. It may take a year or two of paying off current debt and building credit by getting a credit card in your name, but you will eventually be in a position to qualify for lower-cost credit. In the meantime, avoid taking on any new debt.
Plan for the Future
As a single parent, you have ambitions and goals for yourself and your children. It may seem difficult to look to the future when you’re mired in the challenges of managing your household; however, if you don’t envision it and plan for it, it is less likely to happen the way you want. As a single parent, you will need to rely on your own capital for retirement; so, it must take precedent over all else. There are a number of ways to pay for your children’s college education financial aid, school grants, relatives, and student loans. But, you only have one chance to secure your financial future.
It would be well worth the money to sit down with a financial planner to help you set your retirement goal and work out a savings strategy. Find a Certified Financial Planner who charges by the hour, and you should be able to set a course of action for around $250. You should take advantage of your employer’s retirement plan, if available, and start saving now, even if it’s just $25 a paycheck. As your income increases, you can increase your contributions. Right now, time is your most valuable asset, but it’s a wasting asset. The longer you can have your money working for you, the faster it will accumulate.
De-Stress Your Life
Managing the finances of a single-parent household can be very stressful. Having to make financial decisions for your present and future without understanding the consequences can be unnerving. Having a plan based on your goals and a spending plan aligned with your goals takes the guesswork out of the equation and replaces the stress with clarity and confidence.Archive