For decades the number of single-parent households has been rising worldwide, with the U.S. having the highest rate of children living in single-parent households. Economic well-being for these households is concerning since it is up to the single parent to ensure their family's needs are met. Often, single parents may feel overwhelmed when it comes to paying expenses and managing debt.
Even though budgets may feel stretched, financial planning can help single parents manage the responsibility of raising children, handling money, and building financial security. Here are some things that single parents must diligently address if they hope to achieve financial security:
#1- Create and follow a family budget
A budget is an essential tool to understand where your money is going. Determine your monthly income and expenses on paper, a spreadsheet, or in a financial app by subtracting your total expenses from your income. Be sure to include:
- All living expenses- house payment or rent, utilities, food, auto expenses
- Daycare expenses
- Insurance- life, health, auto, property, or renter's insurance
- Debt- monthly payments of credit cards, auto or student loans, and mortgage loans
- Discretionary spending- entertainment, clothing replacement (children do grow!), activity fees, memberships
#2- Look for extra money
Once you have a budget, determine if you have extra money left over at the end of each month. If so, use it to fund an emergency fund, pay down debt, or invest for your future. If you live paycheck to paycheck, now may be the time to ask for a raise or look for a new, higher-paying job.
#3- Purchase life insurance
Life insurance is one way to help prepare your family from financial hardship if you die prematurely. To determine how much life insurance death benefit you should have, factor in the cost of caring for your children each month and their cost after you are gone each year until age 21. There are several types of life insurance to consider, such as term, guaranteed, or indexed universal. Your financial and insurance professionals can help you find insurance that addresses your needs and budget.
#4- Understand the Expanded child tax credits
The American Rescue Plan increased the child tax credit to $3,000 for families with kids ages 17 and under for 2021, with an extra $600 for children under age 6. To qualify for the full credit, single filers need a modified adjusted gross income of less than $75,000. Consult your tax professional to determine if you are eligible for this tax credit before filing your 2021 taxes.
#5- Eliminate debt and control credit card use
Interest rates and fees can negatively impact your finances, especially if you're working toward an independent financial future. High-interest rates cost you more, so work toward paying higher interest rate debts first, negotiating a lower interest rate, refinance, or finding a new lender to consolidate debt at a lower interest rate and transfer balances.
#6- Save for retirement
Saving for retirement through participation in your employer's retirement savings plan is essential. Ensure you are saving enough to receive your employer's match and automatically increase your contributions each year through automation. You may want to consider contributing to a Roth IRA with after-tax dollars and work towards maximizing your contributions.
Your financial professional can help you by assessing your financial situation today, offering suggestions to get your finances on track, and helping you prepare for the future with a financial plan.
#7- Have essential legal documents
Generally, a will determines who will care for your children if you die, an estate plan details now your assets will be distributed to beneficiaries, and a power of attorney document gives someone the legal right to make decisions on your behalf while you are still living. Work with a legal professional to determine which legal documents are necessary for your situation to help ensure your children are cared for in the manner you prefer.
Being a single parent can be challenging and rewarding when managing finances independently. By building financial security for themselves and their families, single parents can address financial shortfalls and plan for the future.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual insurance product or security. To determine which insurance product(s) or investment(s) may be appropriate for you, consult your financial professional prior to purchasing or investing.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by Fresh Finance.
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