Managing finances as a single parent can seem overwhelming and stressful. However, it’s an essential part of survival when raising a child on one income. The key is to implement small, manageable changes to create sustainable habits.
Here are some practical tips for long-term financial planning while handling the everyday costs of being a single parent.
1. Prioritize Retirement Savings
Creating a retirement plan should be a top priority as a single parent. There’s a common misconception that ample resources are required to start a retirement savings plan.
In reality, it’s better to start sooner with a smaller amount than to start later with larger quantities of money, thanks to the power of compound interest. If all you can put in your retirement account right now is $10 per month, do it.
It’s important to start building this long-term nest egg now and add more as you have the resources. For example, your childcare costs may drop dramatically once your child reaches high school, allowing you to increase your monthly contribution or use tools like a gold calculator to diversify. Remember, it’s better to take imperfect action than to wait for the perfect moment— or you’ll wait forever.
2. Create an Emergency Fund
Creating an emergency fund should be the second priority for future planning. This savings plan is meant for longer short-term costs. I.e., not your recurring bills, but one-time expenses as they arise. This fund could cover anything from an unexpected car repair to unpaid sick leave.
Start with a reasonable goal of saving up a month’s worth of your expenses. In other words, if you were out of work for a month, this fund could cover all of your bills. Then, extend it to 3-6 months worth over time.
If you have to make a withdrawal from your emergency savings account, pay the money back with interest. Many single parents with an emergency fund were grateful for this resource when the pandemic put 225 million people out of work.
3. Incorporate Automation
Automation is a lifesaver for saving money and establishing long-term investments. Consider scheduling automatic withdrawals to transfer to your savings account on payday. By skimming off the top of your income and having money automatically transferred, you’re less likely to notice its absence or accidentally spend it. You can also create separate accounts using an alternative bank to put the money out of sight and out of mind.
This strategy also works for paying bills and reducing debt. Create recurring transfers to ensure the money gets transferred to bill accounts right away. If your job pays biweekly, consider using automatic transfers to move half of the monthly bill total out of your account.
4. Take a Long View of Expenses
Most people take a reactive approach to expenses. In other words, the bill comes, and they pay it with the money they have available. If they don’t have money available, they default to credit.
Instead, look ahead and prepare for expenses you know are coming up. Holidays, birthdays, and sports registration for your child are common occurrences with the set, recurring dates.
Rather than paying for Christmas gifts on your credit card and paying it off later, set aside small increments of money in the months leading up to the holidays to purchase your gifts. Again, using automation and separate accounts can help with this effort.
Consider outlining your expected expenses for the year and putting yourself on an advance payment plan. This will help you avoid costly interest rates and set you up for long-term financial success.
5. Consider Health and Life Insurance
Insurance is beneficial for everyone but integral for a single parent. Health insurance will help you offset medical costs, which account for more than half of bankruptcies in America. If you only get one type of insurance, get health insurance.
If possible, it’s also important to consider life insurance. Life insurance ensures your child has long-term financial security if something should happen to you. It will also cover your debts and medical costs.
Long-term legal planning falls under the umbrella of long-term financial planning— get a will and guardianship documentation in place as soon as possible.
6. Deprioritize College Savings
This advice may seem controversial, but it needs to be said: that saving for college isn’t a top priority. There are always options for people interested in post-secondary education, such as grants, scholarships, and part-time jobs. People have been putting themselves through school without a savings account for decades.
As a single parent with finite resources, something has to give. A college savings plan for the future won’t put food on the table if something happens to your job in a few weeks, but an emergency savings account will. Sending your child to college is a smart investment, but retirement savings could be life or death.
If you have some spare money to build a college savings account, do so. If not, prioritize emergency savings, proactive expense planning, and retirement.
7. Develop a Debt Payment Strategy
Debt is the bane of a single parent’s existence. We live in a society that’s been raised under the narrative that debt is a part of life. It doesn’t have to be. However, as a single parent, getting away from debt can feel like an insurmountable challenge.
Many people feel confused over whether they should put extra money into savings or pay down debt. In reality, you should do both, even if you’re only putting a small amount in savings. Again, compound interest will work in your favor over time.
Consider implementing a debt payment strategy. There are several to choose from, like the debt snowball or the debt avalanche. Getting rid of debt and taking a proactive approach to short-term expenses will set you up for long-term financial success as a single parent.
8. Work with a Financial Advisor
Consider working with a financial advisor to create a realistic budget, a long-term financial management strategy, and a debt payment plan. Working with an expert can help you improve financial literacy and make informed decisions about your financial future— and most of the time, consultations are free.
9. Share the Experience
As you start implementing these strategies, share the experience with your child. Help them learn financial literacy as you embrace it to develop a healthy relationship with money.
You can help them set up a savings account for birthday or chore money, teaching them how to allocate their funds for long-term savings or how to plan ahead for things they want to purchase.
Show them how to create a budget and the expenses required to live in this world to build an appreciation for experiences and treats. With these strategies, you can help secure a strong financial future as a single parent. Financial stability doesn’t happen overnight, but you must start now to see results in the future.