Mastering the Art of Financial Planning as Single Parents

Raising a child as a single parent isn’t the easiest task in the world, but it shouldn’t be the toughest as well. If you are thinking of getting into the art of financial planning as a single parent for the future monetary security of you and your child, continue reading the best seven tips you will come across online.

7 Best Financial Tips for Single Parents

1. Get an Estate Plan Ready

The first and most beneficial financial wellness tip for any single parent is to prepare an estate plan. By an estate plan, we mean specifying how and to whom your assets are distributed after your demise.

While mortality is not in anyone’s hands, as a single parent particularly, you need to be ready for everything – even when it comes to life and death – for the sake of your child.

You need a will that contains information on who gets to be the guardian of your child after your death in case they are still minors. Along with a guardian who takes care of your child, you also need to assign a trustee who will manage the assets of your minor. 

The court, in most cases, always assigns the other living parent of the child to be their guardian, but you should be ready with a backup option if the other parent isn’t willing to or is not able to take such a responsibility.

2. Start Young with Retirement Savings

While we know being a single parent comes with loads of financial responsibilities, it’s still crucial to start saving for your retirement along with taking care of your child. You can never be too young to begin your retirement savings, and here are some options you can consider for the same:

• 401(k) Plan

A 401(k) plan is a retirement savings program provided by employers. Employees can allocate a portion of their pre-tax earnings to this plan. 

Financial advisors suggest contributing a minimum of 15% of your income to a 401(k). At a bare minimum, ensure your contributions are sufficient to qualify for any employer match.

• Traditional IRA

There are several benefits of a traditional IRA. In this retirement savings plan, you can contribute either pre-tax or after-tax funds. The investments within the account grow tax-deferred, and once you reach the age of 59 ½, any withdrawals will be taxed based on your income at that time. These approaches are beneficial for building your retirement savings.

• Roth IRA

With a Roth IRA, you contribute money that has already been taxed, the account balance increases without incurring taxes, and you can withdraw funds tax-free and penalty-free after reaching the age of 59 ½.

3. Create an Emergency Fund

An emergency fund is a reserve of money set aside specifically to cover unexpected financial emergencies. The primary purpose of an emergency fund is to ensure that you have immediate access to cash without needing to rely on credit cards, loans, or dipping into long-term savings and investments.

Having the security of an emergency fund can help you get through tough times, such as sudden income loss or unexpected financial burdens. According to financial gurus and other experts, it’s always a wise choice to stash at least three to six months’ worth of your living expenses in your emergency fund.

4. Open a Dependent Care Flexible Savings Account

Dependent care flexible spending accounts offer a tax benefit by allowing you to use pre-tax dollars for childcare expenses like daycare, preschool, nursery school, and summer camp. For 2024, the maximum contribution is $5,000 per household. These accounts are provided by employers, and you can enroll during your company’s benefits enrollment period.

5. Pay Off Your Debts

Debts can easily be the reason why so many individuals are unable to save, as half of their income goes into clearing these high-interest-rate debts. As a single parent, financial planning can become easier once you clear off your debts that are occupying half of your savings space.

List down your current debts and prioritize them based on which ones should be paid off depending on their interest rates and tenure. Talk to your financial advisor or the bank from where your loan or credit card payment is due.

6. Apply for a Term Life Insurance

A term life insurance makes sure your kids get the financial security they need after your death if you die before the term life insurance policy period ends. Take an example of a 20-year term life insurance policy. If you die, say, at 12 years of the insurance policy, your kids will receive the death benefits from the plan if they are added as beneficiaries.

7. Save for Their College

It’s never too early to plan ahead, and a 529 plan is a smart option for saving for your child’s college education. In a 529 plan, after-tax contributions are made, the funds grow tax-deferred, and withdrawals for qualified education expenses, such as college tuition, room and board, and even a student’s laptop, are tax-free.

Make Financial Planning for Single Parents Easy

You never know what the future has in store for you, so you should be prepared for everything. We hope these seven financial wellness tips made your life easier!

Author Bio

Donnell Stidhum, Private Pension Plan Consultant and Owner of Self Directed Retirement Plans LLC. Retirement strategist creating properly structured self-directed plans providing unrestricted investment control for use in both traditional and non-traditional investments. Explore self directed strategies and take control of your retirement savings. https://www.youtube.com/channel/UC7nxHVhkSY_7-bVfDGE_6aA