Raising children is one of the hardest jobs on the planet--if not the hardest--and more than 13 million parents do it solo, according to 2006 Census data.
Experts recommend single parents create a balanced strategy that meets both the emotional and financial needs of themselves and their family. In 2010, raising a child cost $226,920 on average, according to the Department of Agriculture. Single parents are now the only head of the household, and have to calculate their finances to make sure family member’s needs are being met with diligent budgeting and planning.
Plan for the future. “Single parents tend to have less money for financial goals,” says Walter Primoff, director at Altfest Personal Wealth Management. “Once you’ve established goals that you can afford, you have to figure out how you’re going to pay for them.” Experts suggest single parents contribute monthly to retirement and education accounts.
Set Priorities. “Balance out what’s important to you,” says Patricia Seaman, senior director at the National Endowment for Financial Education. She notes that single parents are often tasked with making difficult choices between, for example, a family vacation or home improvements so families can spend more time together, solo, but it’s important to figure out what’s best for the family.
Budget. “Financial management for single parents is not much different than that for two parents,” says Primoff. “Everything is more pronounced because there’s no second person. Even with child support and alimony, a single parent still needs to watch their budget to cover necessities.” He suggests using software, like Excel or Quicken, or websites like mint.com, to review the household budget and find ways to save money.
Build a Safety Net. “Knowing that you don’t have a partner or spouse to contribute income, build a good safety net for yourself,” Seaman says. “Save more than if you were in a dual income family.” She recommends having an emergency fund that can cover living expenses for six to nine months, as well as unexpected events like car repairs and emergency room visits for a child.
Prepare Your Estate. “Make sure there’s a will in place, a guardian is named to take care of your children, and there are financial means for the child’s future goals,” says Sue Tirukonda, certified financial planner and certified college planning specialist at Financial Benefits. If a guardian isn’t named, either the other parent will become the caretaker or a judge will assign one. Tirukonda also suggests having a life insurance policy that can provide for the child with the proceeds and any inheritances held in a trust.
Manage Risk. Tirukonda advises single parents to have adequate coverage should a life-altering event happen. Most companies offer benefit plans with insurance, but, if they don’t, “long-term disability insurance is more important than short-term disability insurance as it will cover unexpected illnesses that last for longer than 90 days,” Tirukonda says. Sick leave is the equivalent of short-term insurance.
Know Your Own Level of Security. “Consider higher insurance limits and lower deductibles to protect your savings,” Seaman says. Lower deductibles translate into lower out-of-pocket expenses while higher insurance limits can help to protect savings if, for example, there’s a car accident. She also advises single parents be more careful with savings and investments. “As your children get older, consider safer investments for money you’ll need next month to five years from now,” she says.
Take Advantage of Income Tax Deductions. “Child-care deductions can help lower what you pay in taxes,” says financial planner Edward Wacks. “If you qualify for head of household status, you can get a more favorable tax rate than if you’re filing single.”
Create Job Security. “Be the outstanding employee and lay-off proof yourself,” says Seaman. She recommends single parents insure job security by, for example, turning in the best work, arriving early and staying late, volunteering for opportunities, taking advantage of education and networking. “This will help lay the groundwork to find a new opportunity if something happens,” she says.
Teach Your Children About Money. “Conversations about money management are important, but they become that much more so in a single income household,” says Leslie Linfield, executive director and founder of the Institute for Financial Literacy. “Since a child with a single parent will have friends from two income households that can afford more, having open conversations can help ease a child’s negative emotions from not having as much.” Once a child understands a single parent’s financial situation, they generally want to do what they can to contribute towards the family’s financial success, she says.
For parents who share custody, Linfield advises both parents to communicate with each other and to coordinate large purchases. “Two parents need to be on the same page about financial issues so that the child doesn’t look at the parents differently from a financial perspective,” Linfield says. “This will help the child learn good money management along with other life skills.”
Child Support. Experts agree that child support can help ease a tight budget. “If you are receiving child support, keep an eye on your ex-spouse’s financial situation,” says Seaman. “An increase in earnings is an opportunity for you to petition the court for an increase in the financial support you’re receiving.” She suggests that the parent receiving child support plan for when the support ends, which could mean moving into a smaller home if the money paid a significant portion of rent or mortgage payments. For the parent paying child support, Seaman recommends having a plan for the money when they stop making payments, such as contributing more to an emergency fund or a retirement account.
For parents who don’t receive any child support, “a single parent has a legal right to collect child support even if they don’t know where the other parent is,” Linfield says. Child support can help with a tight budget and entitles a single parent to social services, she adds.
Take care of yourself. Single parents will be better providers and caregivers if they give themselves a break once in a while, says West Virginia State Treasurer John Perdue. He recommends joining a network of other single parents who can help with clothing and toy swaps, babysitting co-ops, and even house sharing. “Finding out how to balance a checkbook, manage your credit and save for retirement aren’t the only lessons to learn,” Purdue says. “For any parent, creating balance in your life and prioritizing your goals may result in a payoff that is greater than money.”