Single parenting brings unique budgeting challenges. According to the U.S. Department of Agriculture it costs an estimated $241,080 for a middle-income couple to raise a child to age 18 – and many single parents shoulder that responsibility alone. Even with adequate child support, it’s smart to be proactive about financial matters as a single mom or dad. Here are a few things to think about to get you started.
First, estate planning should be your top priority. It’s essential to make arrangements for your children should something happen to you. Draw up a will, designating a guardian for your children, and a “power of attorney,” giving someone the legal right to make decisions on your behalf.
Second, consider setting up a trust – a legal structure that is overseen by a trustee, in which your assets can be held for your children. Also, ask your employer about disability benefits. Generally, you will receive a smaller income when you claim disability; however, ensuring even partial income is crucial for single parents who don’t have another source of income to cover a gap.
Next, taking out a life insurance policy is equally important. The policy you purchase will depend on your finances. A term policy is the most economical because it offers a straightforward death benefit.
Health insurance is also essential. Premiums may be high, but if you’re uninsured, a serious medical procedure can be financially crippling. Comparison-shop for policies to find one that fits your needs.
Lastly, don’t forget about tax breaks! If you’re a single parent, file as head of household. You’ll pay less and claim a higher standard deduction – you can claim exemptions for yourself and each qualifying child. You also might qualify for the earned income tax credit, the child and dependent care credit, and the child tax credit. Always be sure to speak to a tax professional for the proper procedures.
Whatever your income, it’s important to give yourself a safety net. Put aside a bit of money from each paycheck to set up an emergency fund for car repairs, broken refrigerators and any other unexpected expenses that might come up. Every little bit helps, and we hope we’ve given you information to get your financial planning moving in the right direction.