Parenting comes with a deep sense of responsibility for your children and a lifetime of having to make difficult decisions. Raising kids in a two-parent household can be stressful enough; being a single parent can be downright overwhelming.
When it comes to managing household finances, being a single parent isn’t necessarily different from any other household with children. Instead, there just may not be a lot of financial flexibility — so there’s more pressure to get things right early on. Take a breath and work toward reaching these financial markers to give you peace of mind.
1. Prepare your estate planning documents
People tend to procrastinate about getting their estate paperwork in place, but it’s a smart idea for everyone to make it a priority. Experiencing a major life event, like having a child, should prompt you to either update your old documents or establish an estate plan.
Unless you’re comfortable leaving your personal and financial decisions up to state officials, it makes sense to sit with an attorney to discuss your wishes should you pass away or become incapacitated and unable to make financial and health decisions for yourself. Since minor children cannot take control of inheritance money or make legal decisions, listing them as direct beneficiaries on your accounts and assuming that will accomplish your goals may not be the case. Every parent should also have guardianship papers in place, especially if they are raising children alone. (See also: Here’s What Happens If You Don’t Leave a Will)
2. Purchase life insurance
Generally, if someone is dependent on your income, you probably need life insurance. While you’ll want to sit with a financial adviser or life insurance agent to discuss how much insurance you need, some factors to consider are how much it will cost to raise your children and send them to college, as well as to protect certain assets and pay off debt. You’ll also want to consult an attorney or financial professional about properly selecting a policy beneficiary. While there are various types of life insurance, a term life insurance policy can be an affordable and efficient way to protect your family. (See also: Term vs Whole Life Insurance: Here’s How to Choose)
3. Fund an emergency savings account
Having a fully funded cash reserve on hand is a critical component of everyone’s personal financial health. In a one-income household with children, it’s recommended to work toward having at least six months’ worth of monthly bills and expenses saved and set aside. Once you reach six months’ worth, aim for a year’s worth. In a two-parent household, one adult may be able to cut back on essentials in the case of a job loss, but when children are financially dependent on you and only you for everything, that can be difficult to manage without a padding of emergency cash. (See also: 5-Minute Finance: Start an Emergency Fund)
4. Contribute to a retirement account
After fortifying your financial house with savings and the proper risk management documents in place, you should focus on saving for your own retirement. As a parent, you naturally put your children’s needs and wants before your own, and there is nothing wrong with that. But it’s also important to recognize that your early working years are critical to your retirement savings goals. There are no do-overs when it comes to saving for retirement, and every year you don’t save is a year lost.
If you have access to a retirement plan at work such as a 401(k), strive to save 15 percent of your total income. If money is tight and your employer offers a match, start by contributing just enough to earn the full match. Over time, you can gradually increase your own contributions. If you don’t have access to a workplace retirement plan (or in addition to one), you should open an IRA, which you can do at a discount brokerage firm or bank. For 2018, anyone with earned income under the age of 50 can contribute the lesser of $5,500 or their total yearly income. Make this a priority and make this a habit. (See also: 7 Retirement Planning Steps Late Starters Must Make)
5. Open a 529 account
A 529 plan is a tax-favored education savings account that allows individuals to save for future qualified education costs. Contributions are made on an after-tax basis, and the money grows tax-free. Distributions for qualified education expenses are also tax-free. Once you set up an account, anyone can make contributions to it; for example, grandparents could contribute on behalf of a grandchild. Even if you don’t have enough money in your current budget to make regular contributions, saving your child’s birthday, holiday, or other gift money they receive throughout the year can be a helpful way to see your funds grow.
Covering the entire cost of your child’s (or children’s) college education is a difficult task for any set of parents, so don’t feel guilty about what you may or may not be able to accomplish with this account. Every little bit helps. (See also: The 9 Best State 529 College Savings Plans)
Being a single parent can sometimes make you feel as if you need to overcompensate in certain areas when it comes to raising your children, but it’s important to not lose sight of building a strong financial foundation for your family and also for your own future.