I appreciate the efforts and hard work that single parents put into raising their young children and doing whatever it takes to set them up for a bright and promising future. I lost my father at a young age and was raised by my mother. As I saw with my own mother, most single parents strive to set their children up for success despite all the challenges and obstacles life throws their way.
Here are seven financial planning tips for all you brave and selfless single parents.
1. Choose a guardian.
It is important to choose the right person to care for your young children if something happens to you. As part of your estate planning, you must name the guardian of your children and executor of your will. Someone your age is preferred, as an older person may predecease you, an executor should be well organized and have some basic personal finance knowledge.
2. Save for emergencies.
There are always rainy days. You have to start saving systematically. Create your emergency fund first before investing or spending on your favorite holiday gifts and other items. As a general rule of thumb, your cash fund should be three to five times your monthly expenses. If you spend an average of $3,000 per month on rent, mortgage, groceries, clothing, utilities, and other essentials, then you should have $9,000 to $15,000 set aside in a savings or money market account at your bank. In the event you are laid off or laid off, this fund should help you continue your lifestyle until you find a new job.
3. Get health insurance.
With medical costs constantly rising, anyone without health insurance faces an uphill battle against medical expenses. According to a report in the American Journal of Medicine, in 2007 medical expenses contributed to more than 62 percent of individual bankruptcy filings (1).
Divorce, death of a spouse, or loss of your job is the leading cause of losing health insurance. Learn more about the Affordable Care Act (Obamacare) and shop for insurance plans for benefits and costs in your state’s marketplace or at HealthCare.gov.
4. Get life insurance.
Depending on your finances, life insurance should be among your top financial planning priorities. The minimum coverage and policy that you should consider is to see the children to finish high school. To determine your life insurance needs, you need to identify what you must pay when you are gone. It can range from living expenses, paying a mortgage, college education, and anything else you want your child to have in your absence.
A term policy is the least expensive policy you can buy at a younger age. Rates go up as you get older. It is best to secure a longer term at the youngest age possible.
5. Get disability insurance.
Your income is the main source to reach your financial goals and live your dreams. A disability policy secures your income. It may surprise you to learn that, according to Social Security Administration studies, just over 1 in 4 of today’s 20-year-olds will be disabled before they turn 67 (2). Additionally, according to the Council for Disability Awareness’s 2012 Review of Long-Term Disability Claims, 90% of disability is due to disease; a prolonged illness could cause you to lose your income (3).
Disability policies can be short term or long term. A long-term disability can pay 50% to 70% of your salary until age 65 or 67. They may have different waiting periods starting at 30 days or more before benefits are activated. In addition, they could include a definition of disability called “own occupation” where the policy will pay a monthly benefit up to an age limit if she is unable to perform the duties of her own occupation. There may be more restrictive definitions of disability such as “any occupation.” It is best to discuss this with a disability income professional.
6. Save for retirement
Your employer may offer a 401(k) or any other employer-sponsored retirement plan. In general, you can contribute up to $17,500 to a federal government 401(k), 403(b), or Thrift Savings Plan in 2014. If you’re age 50 or older, your contribution increases an additional $5,500 to a 401(k) in 2014, or a total of $23,000.
You can open an Individual Retirement Account (IRA) that allows you to save tax-deferred for retirement. You can contribute up to $5,500 to an IRA in 2014, which increases to $6,500 if you’re age 50 or older. However, if you have a workplace retirement plan, the tax deduction for traditional IRA contributions is phased out for people with modified adjusted gross income between $60,000 and $70,000 in 2014.
Find any means to save for your retirement.
7. Get long-term care insurance
If you find yourself with a prolonged illness or disability, you may place the burden of your daily care on your children and loved ones. Among a wide range of services, a long-term care (LTC) policy is designed to cover the costs of care in a nursing home, an assisted living facility, or assisted at home.
The rising cost of a nursing home and 24-hour home care could deplete your hard-earned assets and savings in a short period of time. According to the American Long-Term Care Insurance Association, the best age to apply for long-term care is age 50 (4). Conversely, once you reach age 60, you are less likely to qualify for coverage. The association’s 2010 Sourcebook indicated that only 38% of applicants between the ages of 60 and 69 qualified for the good health discount (5).
If you thought long-term care was for older adults, think again. According to industry data, 43% of people who applied for long-term benefits are under the age of 65. Take advantage of your good health now to get an affordable long-term care policy (6).
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1. The American Journal of Medicine. 2009. Medical Bankruptcy in the United States, 2007: Results of a National Study.
2.Social Security Administration. Disability Planner: Social Security protection if you become disabled.
3. Council for Disability Awareness, Review of Long-Term Disability Claims. 2012.
4. American Association for Long Term Care. The best ages to purchase long-term care insurance are outlined.
5. American Long Term Care Insurance Association, LTCi Sourcebook – 2010
6. JHA Disability Factbook, 2008