Money and the Single Parent. Apprisen

Transcription

1 Money and the Single Parent Apprisen

2 Money and the Single Parent Being a single parent is not easy. As a matter of fact, it is really hard. Single parents are stretched in every direction and often face the problem of never having enough of anything - time, patience, or money. If you are like most single parents, one of the biggest challenges you face is the difficulty of keeping your personal finances on track. You feel as though there s not enough money to meet your needs. While the road is not an easy one, we have plenty of advice to keep your finances healthy. Together, we will tackle the financial problems faced by single parents by answering these questions and offering potential solutions. What makes a single parent s finances different? 3 What does financial stability mean? 4 What is a spending plan? 6 Why is saving more important for single parents? 9 How can you save money on a single income? 11 Why is it so important to anticipate future expenses? 12 How important is health and life insurance for a single parent? 13 How does being a single parent affect my taxes? 14

3 What makes a single parent s finances different? If you are a single parent, you probably don t need to think very hard to answer this question. Most single parent households struggle to find financial stability because of their reliance upon one source of income. When something goes wrong, you don t have as many resources to deal with the crisis. Do any of these sound familiar? Lack of a financial safety net means you feel as though you are always walking at the edge of a financial cliff. The need to earn more income can mean struggling to find enough time to spend with your children. You have to go to work, even when you are sick and should be in bed. You find yourself turning to credit cards more and more...and not just to cover emergencies. You have to turn to family or friends for help. Even if you have a second source of income, such as child support, it is only a fraction of what you had in the past. Face your financial situation head on and take concrete steps to improve your finances. Put your finances on paper - Don t bury your head in the sand and ignore your financial situation. Seeing your finances in black and white will allow you to understand how much money you have coming in and where it is going. Take the time to write down all of your income, debt, and other expenses. Only then can you make a spending plan and tackle your money problems. Follow your spending plan - Don t spend money unless the expense is part of your plan or a real emergency. Maximize your earning potential - Take advantage of every opportunity to advance your career through training and the acquisition of new skills. Increasing your income will allow you to stabilize your finances and back away from that looming financial cliff. Make decisions that lead to financial stability - Did you just receive a large sum of money from your taxes, divorce or a bonus at work? Now is not the time to go out and buy a new car or go on vacation because you think you deserve it. Use that money to improve your financial stability. Pay down debt, increase your emergency and long term savings or invest in educational opportunities that will positively impact your income. Involve your children - When your children understand your finances, they will be able to better cope with the situation. If they are old enough, you might want to involve them in prioritizing expenses and looking for ways to save in order to get some of the extras they may want.

4 What does financial stability mean? Think of your personal finances as though they were sitting on a balance. All of your positive financial elements like income, savings, and assets are sitting on the left while all of your negative financial elements, like debt and expenses, located on the right. If your positive finances outweigh your negative finances, your personal finances are stable. If your negative finances outweigh your positive finances, your personal finances are not stable.

5 If your finances appear to be about equal, your personal finances only look as though they are stable. In reality only one small thing could go wrong and your finances would tilt towards instability in a hurry. That s why we placed life on the balance in the image below. Life can throw you a curve at any time. Many families live in this false sense of stability. They have lots of debt, a good job and some savings. Suddenly, they lose their job, have unexpected medical bills, or need to replace their car and they quickly find themselves in over their heads. How do you make your finances stable? Simply, your income must be higher than your expenses and you must follow a spending plan to keep your finances in check. Most importantly, if you want your personal finances to be stable, your income must be higher than your expenses. The second most important point to remember is that to be successful, you must have a spending plan.

6 What is a spending plan? I hesitate to tell you that at the heart of a spending plan is a budget. Nobody likes to hear the B word. It s like diet, you re on one or you re not. On the other hand, a spending plan is a work in progress. It changes as your financial situation changes and is one of your strongest tools to achieve financial stability and wealth. You can find some helpful tools on Apprisen s website. Step One -Track your expenses. This will give you a good idea where you are spending your money and help you when you are setting up your spending plan. You might also be surprised by how much you are spending on the extras. Step Two - Make a list of all of your monthly income. Be sure to include all sources of money that is coming into the household. Step Three - Write down all of your expenses. Be sure to include your periodic expenses also, such as, clothing, gifts, insurance, etc. Step Four - Compare your income with your expenses. If your income is greater than your expenses then you can implement a plan to get your spending on track, start saving, and plan for the future. Your month might be tight, but you are not in over your head. If your income is less than your expenses, there are only two things you can do increase income or cut expenses. Get a second job or search for temporary work Use community resources Know dining specials at restaurants Barter your services Sell stuff you have laying around the house Check with your employer to see if you have benefits with area merchants Do your homework before you go out shopping and always ask for the best price. Use direct deposit. You will be less likely to spend money if it goes straight to your account Don t use credit to supplement income you do not have Buy only what you need don t buy things just because they are on sale Take lunch to work Pay your bills on time to avoid late fees

7 Step Five - Make a plan to manage your finances. Now is the time to create a plan that you can use to make financial decisions and take charge of your money. When creating your plan, prioritize your spending as follows: Pay expenses Pay emergency savings Pay down debt Pay long term savings Paying Expenses - When organizing your expenses you need to set priorities. Housing, food, medicine and insurance are typically at the top of the list. Next comes secured debt, (car payments and students loans), unsecured debt, (credit cards) and then collections. Your living expenses need to be prioritized also. Do you need hundreds of channels of cable when there is nothing on anyway? Or, all the bells and whistles on your cell phone? Your family s priorities are different from others. But there is only so much money coming in and sometimes extras need to be cut. You need to also plan for your periodic expenses. Have a specific set aside account that you put money in each paycheck to cover things like car repair, clothes, insurance, etc. For example, if your car insurance is $300 every six months, divide $300 by six to find you need to set aside $50 every month to cover that expense. Paying Down Debt - Paying off your debt as fast as possible is critically important. Debt is like an anchor that drags on your financial stability and prevents you from moving forward with your financial plan. Start by paying your bills on time. Late fees and higher interest rates will lengthen the time it will take to pay off the debt. Often times, credit card minimum payments go down when your balance starts to shrink. Don t reduce your payment when that happens. Continue paying the original minimum payment amount and you will pay that credit card off much faster. Create a Power Payment system. Pay the minimum payment to all your credit cards except for the one with the lowest balance or highest interest rate, whichever you prefer. Add to that payment any additional money you have found in your spending plan that you are allocating to pay off debt. Once that debt is paid off, add that payment to the next debt. Should you focus on paying off the debt with the lowest balance first or pay off the debt with the highest interest rate first? Paying off the debt with the highest interest rate will save you money in the long run. However, paying off the lowest balance first provides you with a psychological boost by having the satisfaction of an account with a zero balance. Either method is OK, so pick the one that works best for you.

8 Remember that you are in charge - For good or bad, you are the one in charge of your personal finances. In the past, you might have had someone else taking care of your money. Not anymore. Use your situation as an opportunity to be responsible and make good decisions for yourself and for your family. You are doing good if you perform the following: Review your finances every pay period Know how much money you have in your bank account at all times Use your credit cards for emergencies only Stick to your spending plan at all times Make responsible financial choices (decisions that improve your financial stability) Pay your bills on time, every time Save money, even if you can save only $10 per pay check

9 Why is saving more important for single parents? Savings and life s surprises - Single parents rarely have the extra money in their spending plan to pay for one of the expensive surprises that life throws at them. Nor does their spending plan have room to tackle occasional expenses like back to school clothes, presents, taxes, and insurance payments in a single pay period. Having only one income in the family just doesn t lead to much flexibility. All too often, we find ourselves turning to credit cards, payday loans, or friends and family when we are in trouble. If we have an emergency savings account or if we set aside money for those big occasional expenses, we might not need to take out loans or turn to credit to weather the storm. Think back to the personal finance balance. Loans and credit cards are debt and debt makes our financial situation unstable. With that in mind, we know that turning to debt would be a bad financial option unless we are facing a true emergency and turning to debt was our only option. The better way to balance out life s surprises is with a healthy emergency savings plan. Emergency Savings - Most financial experts agree that you should have an emergency savings account that contains enough money to cover 3 months of your living expenses. The intent is that you have the money to cover emergencies, job loss, and extended illnesses. The thought of saving 3 months of expenses is a tall order and the goal is intimidating to say the least. However, start small. Put aside whatever you can each pay period. If it s only $10 every week, that s still $520 over the course of a year. $520 might cover a car repair or an emergency room visit. If you don t need it for an emergency, then it will gain a little bit of interest and you can continue to add to it. Having money automatically deposited into your savings account every pay check is the best way to grow your savings.

10 Long Term Savings - While your emergency savings is there to cover unexpected surprises, long term savings accounts provide you a place to save for your future financial goals. Do you want to retire with more than just a Social Security payment? Do you want to be able to buy a home? Setting up a long term savings plan is a must. If your employer offers a matched 401k retirement savings plan, you should at the very least save enough to maximize your employer s match. Anything less and you are just throwing money away. Once again, you will be more successful if the money is automatically deposited into your savings account each pay period. Start now. The earlier you can contribute to your long term savings or 401k account, the more time compound interest has to work its magic and the more money you will have over the long run. Retirement versus your kids college fund - What should you do if you can t afford to both save for retirement and for your kid s college fund? Pay yourself first. There are a lot of ways to pay for college, including grants, scholarships, and student loans. However, after you retire, you have to live with only a social security payment and the income that you can get from your savings. Do not jeopardize your future financial stability by sacrificing your retirement fund.

11 How can you save money on a single income? In truth, how can you afford not to save money? Having savings provides security and financial stability. Having savings also reduces your use of credit cards and by not paying high credit card or payday loan interest rates, you will save a lot of money in the long run. So, how can you do it when money is so tight? Start small and start now. From our discussion about emergency savings, we showed that just $10 every week would add up to $520 per year. That is a significant amount of money. Make savings a priority. Treat your savings contribution just as you would any other bill. When you are creating your spending plan, add your long term and emergency savings contributions to your list of bills. They just happen to be due every payday. Reduce other expenses to make saving a possibility. Be disciplined. Every payday, have money transferred into your savings account. You will not see it in your checking account and you will quickly forget the money is there until you really need it for an emergency. Make tough choices. Be honest. When tempted to raid your savings account, ask yourself if your need is really an emergency? Repairing your car so that you can get to work and earn a living is an emergency. Taking your child into the ER is an emergency. Repairing your furnace in the winter so that your home does not freeze is an emergency. If your situation is not on the same scale as these examples, then it is not an emergency. The air conditioner in your car is not working? Sorry, that is not an emergency. Roll down your car s windows until you can afford to make the repair using money from your non-emergency savings.

12 Why is it so important to anticipate future expenses? Surprises are never good for your spending plan. Especially, if you knew they were coming and didn t prepare for them. You don t want to wait until an occasional expense is due to figure out how to pay for it. Instead, work that expense into your spending plan ahead of time. Let s say that you pay $300 for car insurance every six months. When the bill comes due, do you have enough discretionary money in your spending plan to cover the extra $300 in a single pay period? Probably not. There is a better way to handle these occasional expenses. When you are creating your spending plan, add your occasional expenses as though they were monthly bills. In our car insurance example, we would divide the $300 total by six months to find that we need to set aside $50 every month. At the end of six months, we will have the $300 saved up and will be ready to pay our car insurance. What other occasional expenses do you have? Clothes for the kids? Car repairs? Gifts? Back to school supplies? Each of these is an expense that you need to anticipate and have money saved for when they happen.

13 How important is health and life insurance for a single parent? Insurance is very important because, like savings, it is a way to offset unexpected life events. Some types of insurance, like car insurance, are not optional. If you have to go to the hospital and don t have health insurance, you could be facing thousands of dollars in medical bills. If your employer offers affordable health insurance, you should sign up for it. If not, look into the health insurance exchanges set up as a result of the Affordable Healthcare Act (ACA). You may qualify for a subsidized low insurance premium if your income meets the requirements. Life insurance is important because it provides for your children s needs in the event that you die. Term life insurance policies are not very expensive and may be offered through your employer. You might also consider disability insurance. If you are injured and can t work, disability insurance will give you money to pay your bills. Deductible - Be aware of your insurance policy s deductible. Consider this periodic expense when you are creating your spending plan. Don t pay for policies you don t need and can t afford Make sure you review any insurance policy before you commit to it. If unsure, consult with a member of your family or a friend to get their perspective. Don t let an insurance salesman convince you to buy a premium policy that you don t need and can t afford.

14 How does being a single parent affect my taxes? Being a single parent has a huge impact on your taxes. Here are some things that you need to consider: File as Head of Household - If your children lived with you for more than 50% of the year and if you are the one that provided more than 50% of the financial support for your household, you can file as Head of Household instead of Single. You will pay less in taxes and have higher deductions. If you are divorced, clarify if it is you or your ex-spouse that is claiming the children on the tax return. Child and Dependent Care Credit - You may be able to claim a significant portion of your child s day care expenses if your child is under 13 and the care was not provided by another parent. Child Tax Credit - You may be able to file for a tax credit for each of your qualifying children. A tax credit is not the same as a deduction. With a tax credit, the amount is subtracted straight from the amount of taxes you owe. Earned Income Tax Credit - The Earned Income Tax Credit was designed to assist working people with low incomes. You don t have to have children to benefit from this credit. However, the amount of the benefit is increased by the number of children that you have. Do your homework - The suggestions listed here are meant for informational purposes only. Visit or consult a tax professional to ensure your taxes are done correctly and you are receiving your maximum benefits.

15 How can Apprisen help you? Financial Stress Test Not sure just how bad your personal finances are? Apprisen s Financial Stress Test can show you how good or bad your finances are in just five minutes. The test it free and painless. Take the Financial Stress Test. Financial Counseling Apprisen has provided non-profit financial counseling for almost 60 years and we can help you as well. From basic personal finances to HUD approved housing counseling and bankruptcy counseling, our certified Financial Services Specialists can help you get your finances on the right track. Find out more by calling: Or, by visiting our website: apprisen.com/get-started Apprisen