The following article was published by the MSCPA.
Managing a family and a household while holding down a job is enough to keep any single parent busy. When you are running your children to day care, driving them to other activities and helping with homework, it’s difficult to think about financial planning. But financial planning is essential if you want a secure future for you and your family, reports the Massachusetts Society of CPAs.
Here are some steps CPAs suggest that single parents take to get started on the road to financial security.
Since it can be difficult to address all of your financial needs at one time, you need to set priorities. Determine what’s most important by writing down your short- and long-term goals. Then come up with a plan to achieve them. Calculate your income and track your spending for three months in preparation for establishing a budget that will help you meet your goals.
Establish A Cash Reserve
Everyone should have an emergency cash fund, but it’s especially important forsingle parents, who don’t have a spouse’s income to fall back on. Most CPAs agree that your emergency cash fund should be equal to six months of income.
Start A College Fund For Each Child
The earlier you begin to save for your children’s college expenses, the more time that money can grow. State-sponsored Section 529 college savings plans, which grow tax-free, are a great way to put away money for future higher education costs. If you are divorced, work with your former spouse to determine how much each of you can deposit and how often.
Buy Life Insurance
Having the right type and amount of insurance can give you the peace of mind in knowing that your children’s financial future will be secure. Life insurance is a necessity for anyone with dependent children, but the amount of life insurance you need depends on the number and ages of your children, your income level, debt level, and the value of your assets. A good guideline is to buy coverage at six to eight times your annual salary. In general, term life insurance, which is less expensive than permanent or cash value life insurance, is your best alternative.
Consider Disability Insurance
What if you were injured or became seriously ill? Would you be able to pay your monthly bills? Many single parents overlook the importance of having disability insurance to protect their most valuable asset – their income – in the event of injury or illness. You may be able to pick up extra coverage at a better rate through your insurance coverage at work. Check with your employer before signing up on your own.
Plan For Retirement
As a single parent, it may be difficult to save for both your retirement and your children’s education, but it’s important not to ignore your retirement needs. Keep in mind that student loans are available to pay for college tuition – but there’s no such thing as a retirement loan. Take advantage of your company’s 401(k) plan, particularly if your employer matches your contribution. And don’t invest too conservatively. You need growth-oriented investments to achieve your goal.
Write A Will
No matter what your age, it is vital that you have a will to provide for your children in case something happens. Your will names who will inherit your house, bank accounts and investments, and personal property, and identifies who will serve as guardians for your children. You should also consult with an attorney about setting up a living will and a durable power of attorney. A living will expresses your wishes if you become terminally ill or incapacitated, and a durable power of attorney empowers someone you trust to carry out your wishes.
Meet With A Tax Advisor
There are a number of tax breaks you may be eligible for as a single parent – for example, filing as head of household. A CPA can help you identify other ways to cut your tax bill and make the most of what you earn.