Life has a funny way of not turning out exactly how we planned.
If you recently became a single parent because of divorce or death of a spouse or partner, you may feel like your whole life is spiraling out of control, including your finances. But going through it solo doesn’t have to result in financial free fall.
Raising a child with a single income entails a lot of financial planning. To some single parents, budgeting may seem like a challenging concept because it’s hard to budget when you can hardly make ends meet. One cannot simply do it alone without exerting more efforts in your finances.
Here are five leading strategies to help you regain and maintain control of your money:
Analyze Your Budget
One of the biggest parts of managing your finances is budgeting. It’s basically making the most out of the available resources that you have. The challenging part is how to allocate your resources properly.
After having a full look at how much you actually have on hand, write down every debt, bill, or obligation that you have to pay regularly or at least for the month. The only realistic approach in this exercise is to be completely honest with yourself about your finances and spending.
Pay your most important bills first. Usually the top priorities will be food and housing. After paying these, check to see which other things you can’t live without.
Your child’s school fees and day-to-day expenses are also top priority. Childcare is optional, to avoid spending on a nanny or babysitter, it’s more practical and safer to ask your mother or elder relatives to care for your child when you’re working. Not only will you save money from child care expenses, you can also take comfort knowing that they’re in good hands.
Create Savings Account for Your Emergency Fund
One of the most important steps in financial planning is to have an adequate emergency fund that acts as a financial safety net. As a general rule, you should have at least six months’ worth of non-discretionary expenses in an account that is separate from the one from which you use to handle daily expenses. That could be a savings account or a low-risk investment account.
Make Sure to Prepare Your Estate Plan
It’s essential to make to make arrangements for your children if you die or become incapacitated. You will need three major documents:
- A will that specifies who will take care of your children if you die and how you will pass your assets down to them. One of the most important functions of a will is to name a guardian for your children. When selecting an executor, you should choose someone whom you trust, but that person should also be well-organized and have some knowledge of financial matters.
- A “power of attorney,” which gives someone the legal right to make decisions on your behalf if you are unable to do so.
- An additional power of attorney specifically for healthcare, which gives someone the right to coordinate with doctors about your care if you are incapacitated
Consider Your Own Security
When talking about your own security, you can consider either of the two: a fast cash loan to cover any immediate debts, or get an insurance of your choice.
Life insurance can also be extremely important for single parents. However, what you purchase will depend on your family and finances. To determine your life insurance needs, calculate what you want the proceeds to do. For example, in addition to covering living expenses, do you want the proceeds to pay off a mortgage or pay for college? A term policy is most economical because it’s pure insurance.
Disability insurance can be especially crucial for single parents who don’t have a second income from a spouse to help cover the gap. Check with your employer to see whether it offers the benefit. Generally, you will get a reduced income amount when you claim disability—anywhere from 50% to 70% of your salary.
Talk to a Financial Advisor
Most of us consider the services of a financial advisor a luxury reserved for only the wealthiest, for people with money that they need help managing, which well, is no one who knows it all comes in and all goes back out with the bills.
On the contrary, a good financial planner isn’t going to sell you a specific product in order to make a commission. Instead, a quality advisor will listen to your goals, look at your current finances and recommend how best to move forward with your money.
It’s a good time to seek out professional financial advisors: whenever you enter or leave a marriage. Bringing in an unbiased third party can help minimize financial losses in a divorce and may make it easier for engaged couples to have conversations about combining assets and income in marriage.
“One of the biggest reasons people should work with a financial planner is so that they don’t make emotional mistakes,” says Richard Wald, managing director of Merrill Lynch Global Wealth Management. For example, a spouse might feel attached to a family home and insist on keeping it as part of a divorce settlement. In exchange, he or she may lose out on retirement savings that could prove to be much more valuable in the long run.
As you can see, there are many aspects of financial planning that single parents need to consider. While you want to improve your budget so that you can more easily make ends meet now, you also need to plan for the future in various ways. You may need to trim down your current spending so that you can pay for life insurance, retirement savings and more. However, by taking these steps today, you can rest easy knowing that you and your kids will be provided for now and in the future.
Aisha Workman is a financial solutions adviser at Cash Mart SG. She works in financing for over 5 years and is an authority on emerging financial services. She’s also a speaker at financial planning conferences and visual learning events around Singapore.