In uncertain economic times, you should be focused on protecting your assets for your family. Prudent planning is the only way to ensure that you’re prepared to meet unforeseen life events.
Investing for the long-term is crucial, especially when you are a single parent and therefore the main provider, but you also need to ensure that your assets are not at risk in the event of an emergency. Being a single parent family can often mean that you are having to work under tighter financial constraints meaning that every investment decision can have a greater impact on your immediate and future financial position. Building a cushion account to deal with unexpected expenses is one way to keep your investments intact and setting aside as much as you can as a contingency measure is an excellent strategy and will provide greater peace of mind and reduce stress in the event of a financial emergency.
While your employer or governmental agencies may have programs to provide aid in emergencies, it’s your responsibility to protect your family’s financial future, and being a single parent means that you have to be creative but sometimes conservative at the same time when it comes to money. Follow the basic steps below to build a better future and maintain your assets no matter what comes your way.
Build an emergency fund
A short-term financial safety net will help protect your financial health and help you to cope more easily with an unexpected financial emergency without having to resort to expensive short-term borrowing, which will only add to the overall cost if you have to seek a loan. This emergency fund should ideally contain 3-12 times your monthly income. The money should be in an easy-to-access account, so you can make withdrawals in case of emergency. Do not use this money – it might be tempting to use it for major purchases. Remember the purpose of the account is to provide a cushion to fall back on in case of some unforeseen distress. If it’s not there when you need it, you’ll have to depend on credit or dip into your retirement savings in order to survive.
When you have built up a sufficient amount of money you may even have the opportunity to “lend yourself” enough, for example to replace a domestic appliance that has broken down that you can buy outright rather than pay finance charges, and then repay at a monthly rate so that the money is returned to your savings over a period of time and a good way of increasing your savings this way, is to pay what the finance company would have charged each month for providing store credit , but you will be the beneficiary and not them.
Ditch credit card debt
Credit cards are convenient, and there’s a cost associated with that convenience if you don’t have the funds to pay your balance in full. That pair of shoe or plasma TV that’s on sale could cost a lot more if you don’t pay off the balance. When you are the sole provider it can be quite a financial challenge especially when there is always something new that your children will need in terms of clothing and shoes etc, but eliminating credit card debt is a positive step that will improve your financial health and reduce the stress of managing your finances.
You might be struggling under the burden of credit card debt, but it’s possible to dig yourself out if you break the process into small steps. Start paying off the account with the highest interest rate first and work your way down. You’ll feel liberated with every balance that you pay off.
Plan for retirement
It’s never too early to start saving for retirement. Set a yearly goal for contributions into the account and work that goal into your budget. Some retirement accounts will let you make withdrawals before retirement, but you should avoid this at all costs. Use your emergency fund – not your retirement savings – to fund urgent needs.
Discuss options for retirement planning with your financial planner. This account could be used in conjunction with your employer sponsored program so you’ll have a sizeable fund to enjoy your retirement. If your financial circumstances allow it, try to include cover for critical illness so that you have an income even if you are unable to work due to illness.
Safeguard your family with life insurance
Life insurance is not as costly as you think. You’ll pay a lot less for life insurance if you sign up early in life.
The coverage will take care of funeral expenses and will pay out benefit payments to your dependents if you choose that option. Term life and whole life insurance are the two most popular options. Ask your agent about the differences in order to choose the right type of coverage.
It’s impossible to foresee every disaster, but solid planning will protect your financial health and well being of your loved ones. Being a single parent is challenging and rewarding in sometimes equal measure but getting your finances in good order can help greatly.
Get rid of debt, create and emergency, plan for retirement, and provide for your family with insurance for that time when you’re no longer with them. Take these steps and you can relax knowing that your financial future is secure.
Helen Akin is a personal finance consultant. She frequently advises families and single mothers on how to live better lives by writing on personal finance blogs. For SMSF and life insurance information, visit the link.