6 smart financial moves for single parents

As a single parent, it’s possible to do it all: work, play, take care of your children, and plan for the future. However, there are certain financial realities one must prepare for when raising kids by yourself. How will you pay for your children’s college? What about your retirement? What happens if you pass away unexpectedly? Here are some ways to prepare your finances for your current and future challenges.

1. Protect your children with an estate plan

It is not easy thinking about your own mortality, but as a single parent, it's necessary. Decide on who you would trust to raise your children in your absence and, if they are willing, add them to your will as your children’s guardian in the event of your death. Doing so gives you the power to choose the best guardian for your children.

“Have an estate plan, no matter your level of wealth, because you need a legal document that outlines who would become your child’s guardian if you become incapacitated or die. This is critical since, without that document, the courts would decide,” says Alina Fisch, a chartered financial analyst and founder of Contessa Capital Advisors, a firm that specializes in single moms.

2. Stash some cash in an emergency fund

When raising a family, unexpected expenses are inevitable. Put yourself on solid financial footing by building up savings for emergencies and a sudden loss of income. Putting aside enough funds to cover three to six months worth of living expenses is ideal and would come in handy if the unexpected event is a job loss. Of course, putting aside large amounts of money each month isn’t always possible but try to save what you can. Even a couple of hundred dollars in savings will make a big difference when an out-of-pocket expense arises.

3. Sign up for dependent care flexible spending accounts

Dependent care flexible spending accounts are tax-advantaged spending accounts that allow you to use pre-tax dollars to pay for expenses such as daycare, preschool, nursery school, and summer camp. The 2023 contribution limits are $5,000 per household. These accounts are available through your employer and you can sign up for benefits during your company’s enrollment period.

“Look into your employee benefits program and make sure you are taking advantage of tax benefits like dependent care flexible spending accounts,” Fisch says.

4. Save for college with a 529 plan

It is never too early to start thinking ahead, and a 529 plan is a smart way to save for a child's college education. With a 529 plan, you contribute after-tax money, the plan grows tax-deferred, and you can withdraw the money tax-free when you use it for qualified education expenses such as college tuition, room and board, and even your student’s laptop. With a 529 plan, you don’t have to save on your own; your relatives can also help out.

“A 529 plan is a good way to save money for your child’s college education, and it’s easy for grandparents and other family members to gift to it,” Fisch says.

Friends can contribute to your child’s 529 plan as well. Encourage gifts to the plan for a child’s birthdays and school graduations. These monetary gifts can help to build a child’s college fund.

5. Get a term life insurance policy

With a term life insurance policy, you can ensure that your children’s financial future is protected if you should die during the policy’s term. For example, if you name your children beneficiaries of a 20-year term life insurance policy and you die 15 years into the term, your children as beneficiaries would receive the plan’s death benefit.

“Term life insurance is another good way, in addition to a will, to ensure your child’s care is funded in case you die unexpectedly. A twenty-year term policy is usually quite affordable, especially if you are in relatively good health,” Fisch says.”

6. Start saving for retirement

Even with all the expenses on your plate as a single parent, it is still essential to start saving for retirement. Don’t neglect your future. Here are three easy retirement savings options to consider.

401 (k) plan

The first is the 401(k) plan which may be the most convenient. A 401(k) plan is an employer-sponsored retirement plan. You contribute a percentage of your pre-tax salary into the plan. . Experts recommend investing at least 15% of your paycheck into a 401(k). At the very least, you’ll want to contribute enough to receive a matching contribution from your employer.

Roth IRA

Individual retirement accounts, or IRAs, are another way to contribute to your retirement savings. With a Roth IRA, you put in the after-tax dollars, the money in the account grows tax-free, and you will be able to make withdrawals without taxes and penalties after the age of 59 ½.

Traditional IRA

With a traditional IRA, you may put in pre-tax or after-tax dollars, the money in the account grows tax-deferred, and your withdrawals from the account will be taxed at your current income after the age of 59 ½. All are good strategies for your retirement savings.

“Don’t forget to set aside money for your retirement and wellness needs; your kids will benefit from this almost as much as you!” Fisch says.

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