5 steps to help single parents stay on track financially
Saving money is a big goal for all of us. So in a single-parent family, when one parent bears the responsibility of raising kids and making financial ends meet, saving for something like your own retirement might be further down the priority list compared to your other financial goals.
Today, approx. one-third of children in the U.S. live with an unmarried parent.¹ And for single parents, paying for basic needs like housing, food, and transportation accounts for nearly 70% of their total annual expenses.² So what’s left to save and how can you prioritize to meet your goals? Here are five steps single parents can take to help prioritize saving without skipping a beat:
1. Build an emergency fund
The first step is to make sure you have an emergency fund that could cover three to six months’ worth of daily living expenses. Start by making a budget and track your expenses to find money to save. You can build your emergency fund over time – the most important thing is to start. Even $20 a week will add up $1040 a year. Add to that any tax return you receive or bonus, and you could have your emergency fund built in a year.
Tip: Set up automatic transfers from your checking account (or direct deposit from your paychecks) to your emergency savings account each pay period. Not only does this kind of enforced saving encourage you to live within your means, but it also gives your money a chance to grow. Out of sight, out of mind is an ideal way to build up your savings and strive for a goal.
2. Get the most from your employer-sponsored retirement plan
If your employer offers a retirement plan – think 401(k), 403(b), or 457 – take advantage of its tax benefits, such as pre-tax saving, tax-deferred investing, or Roth’s tax-free qualified withdrawals. Many companies now even feature auto-enrollment, which signs you up to participate automatically – in other words, you have to opt out rather than opt in. Just keep in mind that you’re ultimately responsible for deciding how much you need to save to meet your retirement income goal, so think about things like annual increases in your contribution rate.
Tip: Does your employer offer a matching contribution? If so, take advantage of it. Try to save at least enough to get the full contribution match from your employer - it's like an instant return on your savings.
3. Proactively save for health care expenses through an HSA
Did you know that 30% of retirement plan hardship withdrawals are due to unplanned medical expenses?³ To avoid tapping into your hard-earned savings to cover unplanned hospital bills when you have a high deductible healthcare plan (HDHP), you should consider contributing to a health savings account (HSA). An HSA allows you to save pre-tax dollars for future healthcare expenses; contributions are pre-tax, taken out of your paycheck before withholding kicks in, and withdrawals, if used to cover qualified medical expenses, are tax-free. And the best part is, if you don’t end up spending it, it will be there for you in retirement.
Tip: To help boost your HSA savings, find out if your employer offers any wellness incentive programs. Employers across the country have started offering incentives like health screenings, wellness training, gym memberships, even healthy snack days as a way to motivate and reward their employees. For your participation in these programs, your employer might contribute a little something to your HSA. The upside? A year-end bonus is taxable; an employer contribution to your HSA is not.
4. Complete your estate planning
Estate planning simply means making arrangements and outlining your wishes for the management and disbursement of your assets after your death (and in some cases, even while you’re living). As a single parent, this type of planning – which can include trusts, wills, beneficiary designations and guardian appointments – is even more critical to ensure your children are taken care of should something happen to you. And if you’re caring for a child with special needs or a disability, it’s important to know how things like beneficiary designations could impact eligibility for government benefits. Get more tips on special needs financial planning at voya.com/voyacares.
Tip: Be sure to legally name a guardian for your child or children in your will or in a Nomination of Guardian document. Although care will automatically fall to your child’s other parent (if he or she is fit) regardless of whom you appoint – it’s important to have someone named in the case that the other parent cannot fulfill the role.
5. College comes last
Saving for an emergency fund, health care expenses and retirement should be at the top of your financial checklist. Then, if you have some wiggle room, consider a college savings plan like a 529 plan. You can also encourage your kids to contribute to their own education. By doing so, even if it’s a few dollars here and there, they’ll learn the value of saving and spending wisely. And when college application time rolls around, chances are pretty good that they’ll be invested not only in their education but in their financial future as well.
Tip: Sit down with a financial professional to help you determine to what extent you can afford to help with your child’s college education. You can also encourage grandparents to contribute towards a 529 plan instead of adding to the overflowing toy bin.
Use the tips above to stay on track and consider other ways to save, including creative house-holding (i.e. parents move in to help or you move in with parents) to reduce day-to-day living expenses costs. If your children see you putting your financial wellness first, chances are it will teach them about the importance of saving early and often for their own future financial health.
¹ Pew Research Center Analysis of U.S. Census Bureau data, http://www.pewresearch.org/fact-tank/2018/04/27/about-one-third-of-u-s-children-are-living-with-an-unmarried-parent/
² Bureau of Labor Statistics, Consumer Expenditures 2016 https://www.bls.gov/news.release/cesan.nr0.htm
³ Based on aggregated Voya retirement account data for full-year 2017