Being a single parent can be particularly scary because your children usually depend solely on you when it comes to finances. If you lose your job, or worse, get very sick and can’t work, there may not be anyone else to fill your shoes or pay your bills. Being prepared for the worst-case scenario is never fun, but planning a will can be especially important when you are a single parent. Deciding who will take care of your children if you can no longer care for them should be a priority. Besides the emergency-related planning that you need to do, there are many ways single parents can manage their finances in an effective manner. Read on to learn five finance tips for single parents, and how to make them work for your family.
1. Plan your will and choose an executor
If you are a single parent (or a parent at all, really) one of the best financial investments you can make is planning a will. If you have family that can take care of your children in an emergency situation, that is great, but if not, you still need to choose someone. You will also need an executor for your estate to make sure that your child is taken care of, that all the necessary fees are paid, and that your child receives the money you left at an appropriate age and time. Make sure you ask the person you plan to list as an executor if they are really up to the job, and if possible, don’t list several executors because that can lead to disaster. If you choose to purchase life insurance or disability insurance, which also seem more important if you are a single parent, you will need someone to manage that for you as well.
2. Prioritize health insurance
Dental and vision insurance can be very helpful if you can afford them, but health insurance is an absolute necessity. People often complain about the price of health insurance, but facing an unplanned medical procedure or hospital stay will cost you a lot more than your health insurance.
If your employer offers health insurance, hopefully you are already signed up for it. If you are having a difficult time affording your monthly premium, consider a high-deductible plan. Many of these plans cover well visits and regular check-ups, but require a high deductible before covering other health issues. Still, if your family is generally healthy, this can be a great way to save money. Many of the plans also come with a certain amount of money that the insurance company provides for medical fees. For example, a plan may have $2,500 deductible, but offer $500 per year that you can use for medical bills.
If you can’t afford health insurance for your entire family, you should at least have your kids covered. If you don’t qualify for Medicaid, consider the Children’s Health Insurance Program.
3. Have an emergency fund
This is one of the hardest items that most parents deal with, and it can be doubly difficult for single parents who only have one income. However, saving for emergencies is one of the smartest possible ways you can protect your children. If possible, you should have at least three to six months of post-tax income saved for emergencies, but having at least eight months of income saved would be even better. Your emergency fund should be easy to access, so unlike other savings accounts, you probably should not put it in a CD or any other account that will be hard to use. If you are able to save up at least a few months worth of income, you will be prepared if you ever lose your job, or if an unexpected house issue or medical expense arrises.
4. Use your tax breaks
If you’re a single parent, there are several tax breaks you should know about. First, if you qualify, you should file as head of household, not single, because you will often pay less taxes, and you will be able to claim a higher standard deduction. Second, if you are a single parent, you can claim exemptions for yourself and for each qualifying child against your taxable income. 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, which is different from claiming a tax exemption. You can learn more here.
5. Stay on budget and teach your kids about money
These two ideas might seem separate, but they are very related. By staying on budget, you teach your kids about money, which is an important lesson. If your kids are old enough, talk to them about your monthly bills and how you budget. By teaching your kids about money, you are teaching them the value of it, and that can often help them to understand why you can’t afford certain things.
Budget a certain amount of money into your monthly budget for fun; explain to your children how much you have each month, and if they want to go to a movie or go out to eat, determine together how that will affect the rest of the month’s fun budget. Being honest with your kids can take some of the guilt you might have about your fun budget away. You can also let your kids help — some children love comparing prices at the grocery store or cutting coupons. Making your budget a family priority can help you stick to it. Still, be sure you do allow yourself and your kids to have some fun.
There are many other important financial items you should keep in mind. Although saving for your kids’ college tuition is important, saving for your retirement is more important. You should set aside some money each month for unexpected expenses (in addition to the emergency fund: think, a school field trip or a birthday party.) Finally, start small if you have to. Pay down high-interest debt first and then focus on your long-term savings.