Financial Tips For Single Parents

Smart money management is always important, but it can take on more urgency for mom and childthose who are without a partner. Whether you’re divorced, widowed, or single by choice, single parenting brings unique budgeting challenges.

Marilyn Timbers, a Connecticut-based financial advisor, says of having to raise a child on one income: “Children are a joy, but they do not come cheap.” The U.S. Department of Agriculture notes in a report that it costs an estimated $241,080 for a middle-income couple to raise a child to age 18, and some single parents have to shoulder that responsibility alone. Even if child support is adequate – unfortunately nearly 50% of that support is never paid – you’ll do yourself a favor if you think ahead about financial matters as a single mom or dad.

Estate planning is your first priority, according to Lisa Hay of Ascend Financial. It’s essential to make arrangements for your children should you become incapacitated, and this means spending time on two documents that no one enjoys thinking about: a will, which specifies a guardian for your children and how you’ll pass assets down to them; and a “power of attorney,” which gives someone the legal right to make decisions on your behalf if you’re unable to do so.

You may also want to set up a trust. A trust is a legal structure in which your assets can be held for the children. It is overseen by a trustee. And check with your employer to see if it offers a disability benefit. Generally, you will get a reduced income amount when you claim disability – anywhere from 50% to 70% of your salary. “Your income is your most important asset,” says Tom Morrill, owner of Morrill Insurance Group. Insuring it can be especially crucial for single parents who don’t have a second income to cover a gap.

Hay also says be sure to have life insurance. What you purchase will depend on your finances, but a term policy is most economical because it’s a straightforward death benefit. A healthy 33-year-old woman, for example, would pay roughly $240 a year for a 20-year term, $500,000 life insurance policy. This would get your child through college should something happen to you.

Health insurance is “the number one insurance need for a single parent,” according to Morrill, who considers life insurance a close second. People often complain about the cost, but if you’re uninsured, a serious medical procedure or hospital stay can be disastrous to your finances. And, of course, losing a job or becoming ill is still more catastrophic as a single parent than as part of a two-income couple. A recent Harvard study revealed that 62 percent of bankruptcies were caused by medical debt. You can comparison-shop for policies at your state’s marketplace or at HealthCare.gov.

Along with the rest of your boring-but-necessary financial thinking, don’t forget about tax breaks. If you’re a single parent, you should probably file as head of household (not as single) because you’ll often pay less and get to claim a higher standard deduction. You can also claim exemptions for yourself and each qualifying child. You also might qualify for the earned income tax credit, the child and dependent care credit (if you pay someone to care for your kids), and the child tax credit.

As far as day-to-day household operations, here are a few more things to keep in mind:

  • Credit cards – In The Financial Guide for Single Parents Workbook, Larry Burkett warns single parents that, while credit cards may seem like an easy way to fill in the gaps of a decreased income, it’s wise to avoid using them as much as possible.
  • Shopping in general – Many single parents have to make lifestyle adjustments after a divorce or the death of a spouse. You may need to consider moving or changing your spending habits. Burkett notes that lots of people like to go shopping to cheer themselves up, but the added debt you’ll incur will only make you feel worse. This even applies to groceries, which are an expensive part of the budget. Plan that trip carefully, too, so you can better avoid impulse buying.
  • Holidays – Guilt causes many single parents to overindulge their children, even if they can’t afford it. This is especially true during holidays and birthdays. Be sure to set designated amounts for gifts, and stay within the budget.
  • Ask for help – Check with your credit union for financial advice. And there are many nonprofit organizations with programs specifically designed for single parents.

Whatever your income, it’s important to give yourself a safety net, because emergencies happen. Put aside a little bit of money from each paycheck to set up an emergency fund for car repairs, broken refrigerators and other realities of life. As a general rule, experts recommend having six months’ worth of non-discretionary expenses in an account that is separate from the one you use for daily expenses. That could be a savings account or possibly a low-risk investment account.

Bucket budgeting can help, says Jan Cullinane, author of AARP’s The Single Woman’s Guide to Retirement. That means creating four different accounts: one for fixed monthly expenses such as food and bills, another for long-term expenses like retirement or replacing appliances, a third for emergencies and a fourth for discretionary spending.

“Put the appropriate amount of money into the first three, and whatever is left is your discretionary or ‘fun’ spending,” says Cullinane. “If there is nothing left for that month in the ‘fun’ bucket, you simply go without – you don’t dip into the other buckets. Harsh, but necessary.”

And it’s more doable than you’d think. One study asked people if they could save 20 percent of their income. Most respondents said no. But, when asked if they could live on 80 percent of their income, most said yes. “Be aware of how you frame questions to yourself,” Cullinane says. “You might be surprised.”

Your Turn: Have you faced tough questions and financial circumstances as a single parent? What were the most useful solutions you found?

SOURCES:
http://www.familyminute.com/articles/parenting/single-parenting/financial-pitfalls-for-the-single-parent/#.WTnLa2jyvIU 

http://money.usnews.com/money/personal-finance/articles/2013/10/17/the-best-budgeting-strategies-for-single-parents 
http://www.cheatsheet.com/personal-finance/5-personal-finance-tips-for-single-parents.html/?a=viewall 
https://www.betterment.com/resources/life/family/7-financial-planning-tips-single-parents/ 
http://abcnews.go.com/Business/top-financial-planning-tips-single-parents/story?id=20906018# 

Putting Your Affairs In Order

It’s important to have your financial affairs in order, especially whe5cf7e-grandparentsn approaching an advanced age, but it’s all so overwhelming. How can you go about this task?

No one knows when their time will come. Whether you’re pushing late into your 70s or are a spring chicken, it’s best to be prepared. Also, a debilitating illness or car accident can incapacitate anyone without warning, leaving a person unable to manage their finances or express their needs. Establishing a clear protocol for the distribution of assets and for medical preferences will ease a painful time for family members while ensuring that your will is carried out.

Fortunately, this is not as overwhelming as it sounds. Here are nine steps you can take to make sure you’re fully prepared for any eventuality:

1.) Take inventory of all your items of value

List every item you own that’s worth $100 or more. First, list all physical items like your TV set, jewelry collection, vehicles, guns and computers. Next, list all non-physical assets, including 401k plans, IRA assets, and all existing insurance policies, such as homeowners, auto and health insurance.

Be sure to list all open accounts in your name with Destinations Credit Union and any other financial institution. While completing this step, check that all beneficiaries listed on these accounts are the ones you want and that all other information is correct.

2.) Assemble a list of all your credit cards & debts

Create a list of your open credit cards and other debts. Include auto loans, existing mortgages, home equity lines of credit, student loans and any other debts you may have. It’s a good idea to run a free credit report once a year; this will remind you about any open credit cards you may have forgotten.

3.) Select an estate administrator

Choose someone you trust completely to be responsible for executing your will. Think carefully before choosing your administrator and bear in mind that emotions accompanying your death may impair this person’s decision-making ability.

4.) Send a copy of your assets list to your estate administrator

When you’ve completed your lists, date and sign them. Make at least three copies of each list; give the original to your estate administrator and, if you’re married, give another copy to your spouse. Have your spouse place the list in a safe-deposit box and keep another copy in a safe place at home.

5.) Review all retirement accounts, life insurance policies and annuities

Every account in which you list beneficiaries will be bequeathed to the person(s) or entity designated on the actual account upon your death, regardless of how you list these accounts in your will. Take the time now to review all such accounts, policies and annuities to be sure they list your chosen beneficiaries.

6.) Assign TOD designations

Prevent your assets from being distributed in an expensive court process by simply assigning them a TOD, or transfer-on-death, beneficiary. Most accounts can easily be set up with a TOD. Call, click or stop by [credit union] to find out how you can set up a TOD beneficiary on your accounts.

7.) Create a will

Wills are not just for senior citizens – everyone over the age of 18 should have one. This document will serve as the guide for the distribution of your assets upon your death, preventing thorny family feuds and expensive court proceedings.

While creating your will, be sure to assign power of attorney to a designated lawyer, choose a health-care surrogate and select guardians for your kids and pets.

Sign and date your will, have two witnesses sign it, and obtain a notarization on the final draft. Give one copy to your designated estate administrator, keep another copy in a safe place at home and give your spouse a third copy to be kept in a safe-deposit box.

8.) Create a living will

You may be strong and healthy now, but there’s no guarantee you’ll always be that way. A debilitating disease or a car accident can incapacitate you, leaving you unable to care for yourself or to express your needs. At that point, having a living will, or a medical power of attorney, will be a true life-saver. This document will stipulate who you’ve chosen for the responsibility of making medical decisions on your behalf. It will also specify whether you’d like to be resuscitated, put on life support and have other invasive procedures done on your behalf. Having a living will takes a tremendous burden off your family during an already trying time.

9.) Create an estate-information packet

Now that you’ve gathered all your financial information and created your wills, it’s time to organize them. While you may know where all important documents are kept, it can be difficult for someone else to locate them when circumstances make it necessary. By creating one master document containing all important information, you’ll save your loved ones hours of work.

Your estate-information packet should include details like your Social Security number, the location of your living will, your designated estate administrator, a list of all accounts you own and a list of your investments.

This link will provide you with a checklist that can serve as your guide or template when creating your estate-information packet: http://drotterholt.com/affairs.html
Now that you’ve taken care of the hard work, you can get back to your bucket list of things to do before you die. Do you want to swim with dolphins? Visit the Alps? Go for it — the sky’s the limit!

Your Turn: Thinking about what happens after you’re gone is never easy. How did you motivate yourself to take care of this task?

SOURCES:

https://www.nia.gov/health/publication/getting-your-affairs-order

https://drotterholt.com/affairs.html

http://www.investopedia.com/articles/retirement/10/estate-planning-checklist.asp

http://www.investopedia.com/financial-edge/0709/3-things-to-get-in-order-before-you-die.aspx

http://www.webmd.com/healthy-aging/features/putting-affairs-in-order-before-death#1