Column: Planning Finances As A Single Parent

[Written by Carla Seely]

Organising and planning for your family’s financial well-being can be challenging at the best of times. However, there are many challenges involved in managing and maintaining a household as a single parent. Being a single parent means you have less money to spare, and there is a pressing need to have a solid long-term financial plan because in most cases there are no alternative sources of income.

The stress of knowing that there is no other adult to share the financial responsibilities can be overwhelming. However, this stress can be reduced by making sure that some key elements of financial planning are in place.

It is important to know where your money goes – it really is the foundation to getting on track and staying on track.

Create a budget

If you don’t have a budget that you follow and review on a monthly basis, create one by writing one down or using an Excel spreadsheet, and track everything for a period of three months. Everything means everything, including little things like the lunch you pick up at work each day or the coffee grab at Rock Island in the morning.

It is important to capture what you spend and then compare your income to your expenses, as you will clearly be able to determine where your money is going. You will be surprised how easy it is to identify ways to reduce expenses. After implementing the easy cost savers, you then have to make some hard decisions on where you can further reduce expenses. There are only two ways to have enough money to save: either earn more or spend less.

For most people, the quicker option is to spend less. But how exactly can you reduce costs? Well, you need to be creative. Most of us need a cell phone, but do we really need an iphone10? And if you still have a landline, do you really still need it? If you have enough space, put on your overalls and grow some of your own vegetables. If you don’t have garden space, these can be grown in containers.

One of my greatest pleasures is cooking at home. I’m not a great cook, but I have lots of cookery books and love following the recipes. The bonus of cooking at home is it saves money and brings the family together.

When it comes to clothing, we have fantastic second-hand clothing stores on the island. You don’t always have to buy new items; second-hand shops offer great value for clothing and various other items, but it takes a bit of time and effort to find the bargains.

So once you have generated extra cash each month, here is what you need to do with it.

Create a cash reserve

It is especially important for single parents to have an emergency cash fund in case of illness, injury or the loss of your job. This should be equivalent to three to six months of your monthly expenses.

Manage your debt and implement a pay-down schedule

Limit your liabilities to the bare minimum. Use credit cards only for emergency situations. If you have credit card debt, pay it off as soon as possible, and if you have substantial debt, create a plan to pay it off over a set period of time, and stick to it. If you have one or more credit cards with a high balance, work with your bank to see if you can consolidate your debt and reduce your interest rate. Remember: credit and credit cards are not designed to maintain your day-to-day lifestyle.

Buy life insurance

Having life insurance will give you peace of mind knowing that your children will be taken care of financially should something happen to you. The amount of life insurance you need depends upon the number and age of your children, your debt level and what you want the life insurance coverage to achieve. Life insurance through your employer ends when you terminate your job, so it is important to have life insurance coverage beyond what you have with your employment.

Start a university fund

The earlier you begin to save for your children’s university expenses, the more time that money has to grow. If you can put away $100 each month for the next 15 years at an average rate of return of 6 per cent over the long-term, you will have saved $18,000, but it will be worth $29,327 taking into account compounded interest. Talk to your child’s other parent to see how much each of you can deposit and how often. In addition, since this is such a large expense, you should make it clear to your child that you are willing to contribute to their education but that he or she will also be responsible for the remaining portion.

Plan for your estate

Regardless of your age, it is essential that you have an estate plan to provide for your children in case something happens to you. Your will names who will inherit your house, bank accounts, investments, personal property, and, most importantly, it identifies who will serve as guardians for your children. Without a will, the courts will decide what to do with your assets and your children.

Retirement

Don’t forget about your own retirement. In Bermuda we are fortunate to have a mandatory pension programme. That means, whether we like it or not, we will be saving for our retirement. However, relying solely on your mandatory pension contribution for retirement is not enough. We all need to save more than what is legislated to have a comfortable retirement. Even if it is only an extra 1 or 2 per cent from your monthly salary, in the long term it will make all the difference.

Maintaining your finances and planning to be financially independent is going to take some time and discipline, but if you are willing to spend time focusing on your finances and are open to a little creativity, you will significantly reduce your stress level. Focus on what is most important: your family and making sure you provide a solid foundation for them.

- Carla Seely is the Vice President of Pension and Investments at FM Group. If you would like any further details, please contact her at cseely@fmgroup.bm or call +1 441 297 8686.

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