Six Financial Planning Tips for Single Mothers 
Ned Gandevani, PhD, May 10, 2014
Happy Mother’s Day!
This is a special occasion to appreciate mothers, and mothers to be women in our lives. I know I’ve learned a great deal from my mother, in particular her drive to achieve success despite all the challenges and curve balls life throws at you. She taught me to create my own life and destiny with my good thoughts and positive intentions.
This is a super special day for single mothers who sacrifice their personal life and professional careers to raise their young children and do whatever it takes to get them ready for a bright and promising future.
Here are some financial planning tips for all the brave and selfless single mothers.
1. Choose a guardian.
It is important to choose the right individual to look after your young child if something happens to you. As part of your estate planning, you should name the guardian and executor for your will. Someone at about your age is preferred since an older person might be gone before something happens to you. Furthermore, an executor should be well organized and have some basic knowledge about personal finance.
2. Save for emergencies.
There are always rainy days. You need to start saving in a systematic way. First build your emergency fund before investing or spending on your favorite holiday gift and other items. As a rule of thumb, your cash fund should be about three to five times of your monthly expenses. If you spend on average $3,000 per month for rent, mortgage, groceries, clothing, utilities and other basic staples, then you should have $9,000 to $15,000 set aside in a money market or savings account in your bank. In case you are fired or laid off, this fund should help you continue your life style until you find a new job.
3. Get health insurance.
With the constant rise in medical costs, anyone without health insurance faces an uphill battle against medical expenses. According to a recent report published in the American Journal of Medicine, medical expenses contribute to more than 62 percent of individual bankruptcy filings.
Divorce, the death of spouse, or losing your job is the primary cause for losing health insurance. Learn more about Affordable Care Act (Obamacare) and shop for insurance plans for benefits and costs at your state’s marketplace or at HealthCare.gov.
4. Get life insurance.
Depending on your finance, life insurance should be among your top priority in financial planning. The minimum coverage and policy you should consider is to see children to finish high school. To determine your life insurance needs you should identify what it should pay when you are gone. It could range from living expenses, paying off a mortgage, college education and anything else you like your child to have in your absence.
A term life insurance policy provides a pure insurance for a term or certain period. For instance, a healthy 35-year-old woman would pay about $250 a year for 20-year term, $500,000 life insurance policy. A term policy is the most economical policy that you could buy.
5. Get disability insurance.
Your income is the main source for achieving your financial goals and living your dreams. A disability policy ensures your income. It may surprise you to learn studies show just over 1 in 4 of today’s 20 year-olds will become disabled before reading age 67. Furthermore, 90% of disability is due to sickness; a prolong sickness could cause you lose your income.
Disability policies could be short term or long-term. A long-term disability may pay 50% to 70% of your salary up to age 65 or 67. They could have different waiting periods for more than one before the benefits are triggered. Furthermore, they carry a rider for “own occupation” or “modified occupation.” If you cannot perform your own occupation, the own occupation rider provides a monthly benefit. In other words, if you can’t perform your own occupation, even if you can perform other jobs the policy will pay you monthly benefit until age 65 or 67. Social security disability benefits may offset the amount you receive.
6. Save for retirement
Your employer may offer 401K or any other employer sponsored retirement plan. Generally, you can contribute up to $17,500 to a 401(k), 403(b) or the federal government’s Thrift Savings Plan in 2014. If you are 50 or older, your contribution is increased by an additional $5,500 to 401(k) in 2014, or a total of $23,000.
You can open an Individual Retirement Account (IRA) that allows you to save tax deferred for retirement. You can contribute up to $5,500 to an IRA in 2014, which increases to $6,500 if you are age 50 or older. However, if you have a workplace retirement plan, the tax deduction for traditional IRA contributions is phased out for individuals with modified adjusted gross incomes between $60,000 and $70,000 in 2014.
Find any means to save for your retirement.