Single parents trying to get their financial lives in order, this money guide is for you! 5 aspects of money to be tackled so you can gain control over your finances.
#1, Budgeting 101
It is time to get realistic about your needs, wants, and guilt spending. Get started with Budgeting Bootcamp. I have a simple template you can use to get started assess your income and expenses. Click HERE to send me an email and I will be happy to share this template with you.
You may quickly realize some of your spending habits do not align with what you deem valuable to your life.
- Did you pay all the necessary bills on time? Mortgage or rent, electricity, water, trash, car payment, auto insurance, and health insurance are requirements.
- Are you spending too much on Amazon or Macy’s? Reel in your one-click shopping.
- Instead of eating out all the time, could you save money and improve your diet if you prepare food at home?
#2, saving for your future
Does your employer offer a 401(k)? Take advantage and contribute at least enough to receive the full employer match. No excuses!
For example, your employer offers a 401(k) with a 3% match. You make $4000 per month. You can contribute 3% or $120 per month to your 401(k). Your employer will then match your 3% contribution. If you contribute 2% or $80 per month, your employer match will be 2%. If you contribute 4% or $160, your employer is only obligated to match up 3%.
What you receive from your employer is considered free money and the amount you contribute lowers your earned income for tax purposes. Additionally, your 401(k) will grow tax-deferred until you withdraw funds in retirement.
Emergency Fund, IRA, and Roth IRA
Be sure to maintain an emergency fund. You never know when unanticipated expenses will come up. You may think you have another 5000 miles on your tires. Bam! You run over a nail and your tire cannot be repaired. Instead of having another six months to save up for new tires, you are forced to buy a new tire when you do not have adequate funds in your emergency account. The way luck runs, you may need to have a cavity filled in the same month. Unanticipated events like these can cause havoc in your financial life.
Start small. It is advisable to maintain 3-6 months of living expenses in a liquid account; however, that may represent a big chunk of change. Just get started. Use a high-interest liquid savings account or an individual investment account so the power of compounding interest can work on your money. Set up automatic contributions of $100 or more each month. In no time, you may find you have established a good saving strategy that has grown to provide you with a feeling of financial security.
Depending on your tax situation, a Traditional IRA or a Roth IRA are the next saving strategies to implement. A Traditional IRA will provide you with tax savings today and a Roth IRA produces tax-free withdrawals in retirement. Talk with your financial advisor or tax professional to see which strategy is best for you.
#3, Credit Score
Take a few minutes to perform a credit score check-up. There are various credit check-up options available online. Credit Karma is free and can easily become part of your monthly money routine. Just set up an account, log in monthly, and review any changes to your score. Easy peasy.
Even more important than checking your credit score, consider placing a Freeze on your credit. Establish a log-in at the big three credit reporting agencies Experian, Equifax, and Transunion. The big three offer paid subscriptions with enhanced features for monitoring your credit, but if you build a profile to access Freeze capabilities, you can do so at no charge.
What is a Credit Freeze? Experian, Equifax, and Transunion will allow you to Freeze your credit to deter new credit from being opened without your knowledge. It does not have a negative impact on your credit score. You can still use your credit card to make purchases. However, when you (or someone posing as you) try to open a new line of credit like for an auto loan, the lender will not be able to review your credit unless the Freeze is lifted. This can be a very effective way to thwart unauthorized activity.
Experian, Equifax, and Transunion make it easy to set a temporary lift period. For example, if you are going to buy a new car on Friday, you can access Experian, Equifax, and Transunion online and have a temporary Un-Freeze assigned to your account for Friday. The lender can see your credit and approve a loan.
#4, Money and Kids
If you are new to single-parent status, don’t be afraid to talk with your kids about your situation and any changes that need to be made. Kids do not automatically know cutbacks in spending will be necessary to keep your household financially secure.
Share with them the cost of food and utilities. While shopping at the grocery store, help them to understand the cost difference between name brand and store brand. At first, splurge a little to make a game out of taste testing. Try something like the name-brand Oreo cookies versus the store-brand chocolate cookie with cream filling. The difference in price may be $1 or more. Explain that if the store brand tastes good, this can provide significant savings at checkout. Show them the difference in cost of Clorox bleach and the store brand bleach. The active ingredients are the same, but not the price!
Encourage them to think about saving on utility bills by turning out unused lights and taking shorter showers.
#5, Estate planning
If you are parenting solo, be careful to have estate documents in order. Beneficiary titles need to be updated or assigned to investment accounts.
Seek counsel from an estate attorney to learn which estate documents you may need to protect your assets and your children in case of your passing.
Write down an emergency contact sheet and share the location of this document with your kids or another trusted friend or family member. Include the names of all family members, your financial advisor, tax professional, and estate attorney.
The bottom line, start working on your goals. This can be done in small steps. For more tips read this previous Imagine Financial Services blog post – Money: Breath Deep and Dive In. Putting a financial plan in place helps streamline the single-parent transition.
During the financial planning process, your advisor will help you set and prioritize goals and prepare you for unexpected changes you may experience in life. Don’t become blindsided by the unknown. Be proactive in your approach to financial security.
You don’t have to navigate your finances alone
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