Organising and planning for your family’s financial well-being can be challenging at the best of times. However, there are more challenges involved when managing and maintaining a household as a single parent. This can sometimes mean you have less money to spare because there are no alternative sources of income. That’s why it is crucial to have a solid long-term financial plan in place.
The stress of knowing there is no other adult to share the financial responsibilities can be overwhelming; however, the weight of this pressure can be reduced by implementing a few key elements of financial planning.
I often say to my clients, it is important to know where your money goes as it is really the foundation to not only getting on track but also staying on track. So where do you start?
Create a Budget
If you do not have a budget that you follow and review monthly, create one by writing down your costs daily or input your expenditures into an Excel spreadsheet. Then track everything for a period of three to six months. Everything means everything, including little things like the lunch you pick up for work or the coffee you buy yourself every morning.
It is important to capture what you spend and then compare your income to your expenses. This assessment will clearly determine where your money is currently going. You will be surprised how easy it is to identify ways to reduce expenses in order to put a little extra aside for a rainy day. There are two significant ways to have enough money to save: either earn more or spend less.
Manage your Debt
Limit your obligations to the bare minimum. Use credit cards only for emergency situations. If you have credit card debt, pay it off as soon as possible. If you have substantial debt, create a plan to pay it off over a set period of time and stick to it. If you have one or more credit cards with a high balance, work with your bank to see if you can consolidate your debt and reduce your interest rate. Remember credit and credit cards are not designed to maintain your day-to-day lifestyle.
Buy Life Insurance
Having life insurance will give you peace of mind knowing that your children will be taken care of financially should something happen to you. The amount of life insurance you need depends upon the number and age of your children, your debt level and what you would like the life insurance coverage to achieve. Life insurance through your employer ends when you terminate your job, so it is important to have life insurance coverage beyond what you have with your employment.
Start a University Fund
The earlier you begin to save for your children’s university expenses, the more time that money has to grow. Even if you can only afford to put away $100 each month, after 15 years of that discipline you will be in a far better position. Also talk to your child’s other parent to see how much each of you can deposit towards this savings plan and note how often.
Plan for your Estate
Regardless of your age, it is essential that you have an estate plan to provide for your children in case something happens to you. Your Last Will and Testament identifies who will inherit your house, bank accounts, investments, personal property, and, most importantly, it appoints who will serve as guardians for your children. Without a will, the courts will decide what to do with your assets and your children.
Do not forget about your retirement. In Bermuda we are fortunate to have a mandatory pension programme. That means, whether we like it or not, we will be saving for our retirement. However, relying solely on your mandatory pension contributions for retirement is typically not enough. Even if it is only an extra 1 or 2 per cent from your monthly salary directed towards your pension, in the long term it will make all the difference.
Maintaining your finances and planning to be financially independent is going to take some time and discipline, but if you are willing to spend time focusing on your finances and are open to a little creativity, you could significantly reduce your stress level. Focus on what is most important: your family and making sure you provide a solid financial foundation for them.
For more information, please contact Danielle Pacheco, Pension Sales Advisor at Freisenbruch Meyer on 294-4660 or at [email protected]
75 Front Street, Hamilton