Single parent safety net for financial planning
Being a single parent cannot only stretch your time between family and career, but also financial future.
Brenda Merschdorf, Financial Adviser for Edward Jones has these specific tips for planning.
On any given day, you could incur an unexpected -and unexpectedly large - expense, such as major car repair, a new furnace or a toothache-inducing bill from your dentist.
Your daily cash flow may not be enough to cover these bills, and you won’t want to tap into some of your long-term investments or retirement accounts. So you’ll need to build a “safety net,” or emergency fund, containing three to six months’ worth of living expenses, held in a liquid, low-risk account.
Purchase adequate life insurance. With sufficient life insurance, you can provide your survivors with a level of comfort and security.
You might have heard that you require coverage worth seven or eight times your annual earnings, but there’s really no one “right” answer for everyone. A financial professional can assess your situation and recommend an appropriate amount, and type, of life insurance.
Consider disability insurance. As a single parent, without the support of a spouse’s income, you could run into serious financial difficulties if you were to become ill or injured and had to miss work for an extended period.
Your employer might offer disability insurance as an employee benefit, but it may not be enough to meet your needs. So you could consider adding private coverage.
Save for retirement. It’s not always easy to simultaneously save for your retirement and your children’s college education. You will have to decide on your own priorities, but keep in mind that your children may have access to grants, loans and scholarships, whereas you have to rely on yourself for your retirement income. Consequently, you may want to put in as much as you can afford to the retirement accounts available to you, such as an IRA and your 401(k) or other employer-sponsored plan.
Establish your estate plans. All parents need to develop their estate plans - but it may be even more essential for single parents. Your estate plans should include at least these three documents: a will, a power of attorney and a health care power of attorney. A will allows you to name a guardian for your children and specifies how you will pass your assets on to them.
A power of attorney gives someone the legal authority to make financial and other decisions for you, while a health care power of attorney authorizes someone to make medical decisions on your behalf if you become incapacitated. You may also need to create other arrangements - such as a living trust- but in any case, you will need to work with your tax and legal professionals to develop comprehensive estate plans.
Single parenthood can offer every bit as much joy as any other family situation, but it will require you to plan carefully and take advantage of every opportunity to help ensure financial stability for your children and financial freedom for yourself.