Financial Planning for the Single Parent

Though the exact number is difficult to pin down, the percentage of single parent homes in the United States is growing. In 2002, the U.S. Census Bureau (USCB) reported that three out of every 10 children being raised in America was living in a single parent home.
With the cost of just about everything on the rise, getting by for many single parents is harder than ever. But while some single parents might feel financial planning is a luxury they simply cannot afford, in fact it's one they must afford. With no second income to fall back on, single parents could very easily find themselves in a difficult situation in the case of an emergency or accident.

Secure your earnings. While most single parents are aware of the need for life insurance to provide for their children in the event of the parent's death, what about in the case of an injury that doesn't result in death? Relying solely on disability insurance through an employer is a risk many single parents simply cannot afford to take. Typically, such disability insurance only replaces 60 to 70 percent of income - and that's before taxes.

To put that into perspective, a single mother who makes $5,000 per month before taxes can expect that income to shrink to, at best, $3,500, and more likely closer to $3,000 if she's forced to go on disability. Taxes will decrease take-home to even less than that. In that light, most single parents without a considerable reserve of cash would admit that a major injury that forces them to go on disability could spell disaster for their family.

To avoid such a fate, single parents should secure their income with an individual disability policy. Such policies can be tax-free and inexpensive. For those with sufficient disability policies through their employer, an additional individual policy to replace 20 to 25 percent of income should be sufficient, and not very expensive.

Build an emergency cash stash. Particularly for single parents of young children, it's impossible to predict what lies around the corner. Kids get hurt, need braces, grow out of their clothes - the list goes on and on. To prepare for these "surprises," sock away any extra cash that surfaces each month in an interest-bearing account.

While many parents fret about the cost of a college education, and do their best to put as much money away for college as possible, this shouldn't be a chief concern to single parents. Single parents who don't earn exorbitant salaries should expect their children to receive substantial financial aid packages, reducing the urgency of saving for college. While it's never a bad idea to save money for college, it's imperative single parents have access to cash in the inevitable case of emergency, and this should come before saving for college tuition.

Consult the IRS. While many hear the letters "IRS" and look for the quickest way to run in the opposite direction, the Internal Revenue Service (IRS) is actually an ally to single parents. Numerous tax breaks exist to make things easier on single parents, including credits for day-care, dependent exemptions, and child support breaks. Unfortunately, many single parents are just too busy to even know that these tax breaks exist. To learn more, visit the IRS Web site at www.irs.gov.