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Building a Solid Financial Future as a Single Parent

Being a single parent comes with its unique challenges. According to the Brookings Institution, raising a child to age 18 costs an estimated $310,605 today. With so much responsibility and just one income, how can you secure a strong financial future for your family? Here are five essential money moves to consider, including buying life insurance, creating an estate plan, and managing debt.

1. Purchase Life Insurance

Protect your children’s financial future with life insurance, which provides a death benefit to your beneficiary if you pass away while the policy is active. You have two main options: permanent life insurance and term life insurance.

Term life insurance covers a specific period, typically up to 30 years, with premiums remaining constant during that term. Permanent life insurance, such as whole life insurance, lasts your entire life or until age 100 and includes a cash value component that grows tax-deferred over time. However, permanent life insurance can be significantly more expensive than term life insurance.

The cost of life insurance varies based on coverage amount, age, health, and other factors. For instance, a $500,000, 30-year term life insurance policy costs an average of $30.80 per month for a 20-year-old woman, but rises to $79.87 per month at age 40. Purchasing life insurance early can lock in lower premiums, saving you money in the long run.

When determining how much life insurance to buy, consider your income, expenses, assets, and any other potential income for your children, such as Social Security survivor benefits. Employers often offer limited term life insurance for free, with the option to purchase additional coverage. Ensure the policy remains in force if you leave your job.

If you list minor children as beneficiaries, also designate an adult custodian to manage the funds until your children reach legal age. This option is typically available on beneficiary forms.

2. Create an Estate Plan

An estate plan outlines how your assets will be distributed after your death. It includes a will, power of attorney for financial and healthcare decisions, and possibly a living trust.

A will is the cornerstone of your estate plan, specifying who will become your children’s guardian and trustee if they are minors. A guardian raises your children, while a trustee manages their assets. You can choose one person for both roles.

If your child’s other parent is still alive, courts usually award guardianship to the surviving parent. However, you should still name a guardian and trustee in case the other parent is unable to fulfill the role. If you believe your ex is unfit, attach a letter to your will explaining why and provide supporting documentation to your chosen guardian.

A living trust can be beneficial if you have a complex family situation or significant assets. It holds your assets, simplifies the inheritance process, and gives you greater control over when your children receive their inheritance.

Many attorneys offer flat fees for drafting wills or estate plans, ranging from a few hundred to a few thousand dollars. Alternatively, you can use estate planning software or legal websites like RocketLawyer.com, Nolo.com, or LegalZoom for less than $100. Draft your documents using these tools and have an attorney review them for added peace of mind.

3. Build an Emergency Fund

An emergency fund provides a financial cushion for unexpected expenses, such as medical emergencies or job loss. To determine how much you need, create a budget that includes your income and expenses. Separate your expenses into essential (e.g., rent, food) and discretionary (e.g., entertainment, dining out) categories. Aim to save three to six months’ worth of essential expenses.

Accelerate your emergency fund savings by reducing spending or increasing income. For example:

• Cook at home instead of dining out.
• Cancel unused subscriptions and services.
• Shop around for lower insurance rates.
• Utilize employer benefits like FSAs, HSAs, and commuter benefits.
• Sell unneeded items online.
• Ask for a raise or seek a higher-paying job.

Keep your emergency fund in a separate savings account to avoid spending it. A high-yield savings account offers more interest than standard accounts while keeping funds accessible. Set up automatic transfers from your checking account or direct deposit part of your paycheck into your savings account to save consistently.

4. Get Debt Under Control

High-interest debt can hinder your ability to save. Free up cash with these strategies:

• Use the debt avalanche or debt snowball method to prioritize debt repayment.
• Consider a debt consolidation loan with a lower interest rate to pay off high balances on multiple credit cards.
• Apply for a balance transfer card to shift debt from high-interest credit cards to one with 0% interest during its promotional period.

If your budget is tight, a certified credit counselor can help you manage your finances and develop a debt repayment plan. In extreme cases, they may negotiate with creditors to reduce the amount you owe.

5. Invest for the Future

Save for retirement to avoid relying on your children in your old age. If your employer offers a 401(k) or other retirement plan, contribute enough to maximize any employer match. If not, open a traditional IRA or Roth IRA on your own.

Starting early and investing consistently, even in small amounts, leverages the power of time. For example, saving $232 a month over 40 years could net you $1 million, assuming an 8.7% rate of return. If retirement is just 10 years away, you’d need to save $5,218 a month to reach the same goal.

The Bottom Line

Balancing your family’s current needs with future financial goals can be challenging. However, with careful planning and effort, you can set your family on the path to success. Consulting a financial advisor to develop a tailored plan for your family’s needs could be a wise investment.

Maintaining good credit should also be part of your financial strategy. Regularly check your credit report and take advantage of free credit monitoring services. This allows you to focus on what matters most—spending quality time with your kids.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you secure a brighter financial future for your family.

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