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| Decision Center | 5 financial basics for single parents
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No one says it's easy, but single parents can keep their families economically stable.
By Kiplinger's Personal Finance Magazine
Seeing your teenager pull out of the driveway for the first time might make you shudder. But it seemed like a miracle to Katherine Engel. A single parent since 2003, the 43-year-old Tucson, Ariz., woman spent several hectic years playing chauffeur to daughters Anya, now 17, and Anastasia, 15. After Anya scored her license last fall, Engel scraped together the money to buy a second car, a 2000 Saturn. "Now the girls go everywhere, and I don't have to worry about their schedules," she says.
Like the 13 million other parents who raise kids on their own, Engel wouldn't mind a few more miracles like this -- say, limitless time and energy and the ability to do ten things at once. "Single parents work, come home, supervise homework, try to get the house together and are back at it the next day," says Kathleen Soucy of Parents Without Partners. "They spend weekends shopping and running errands. There's a lot of stress."
Add money to the list of worries. Single women, by far the majority of single-parent households, earn an average of $26,500 a year. Child support, for the 45% of custodial parents who receive the full amount, averages about $5,800 a year. Raising a family on such modest means can feel like teetering over a precipice, says Jeffrey Mehler, a financial planner in Centerbrook, Conn. Even solo parents who are more affluent sometimes feel their situation is precarious. "There's this fear because the first level of safety -- the other parent -- isn't there," says Mehler.
Find secure housing
Engel, a native Russian, has more reason than most to feel as if she's on her own. Her first husband, the girls' father, remains in Russia. She met her second husband in Tucson while participating in a teaching-exchange program. When that marriage foundered about three years ago, she agreed to move out with the children.
Related news and commentary on MSN Money and Kiplinger's
Finding an affordable place for a family of three wasn't easy. Although Engel receives neither child support nor alimony, she did get a $30,000 divorce settlement. When she discovered a new housing development with homes advertised for $140,000, she used her settlement as a down payment and grabbed one. Now, she says, she is "ecstatic" to be settled in the modest, three-bedroom home, which borders a sidewalk punctuated by mesquite saplings. Engel has planted two more trees in her backyard in anticipation of hanging a hammock someday.
Engel had one advantage over many solo moms: She and the kids had no special attachment to her husband's house. Many single parents, especially women, try to keep the family home for the children's sake, says Soucy, even if that means stretching to make the mortgage or signing away their share of a pension. Better to downsize than to jeopardize your future, she says. "Keeping the house isn't the be-all and the end-all."
Another solution to the housing dilemma can be to find a roommate. When Marian Morley of Olney, Md., divorced in 1982, she and her young daughter moved in with a friend who was also a single mother. "We knew each other from day care," she says. "The kids got along great. It was the best living arrangement I ever had." The deal was so successful that it self-destructed: Within a year, Morley had saved enough money to buy her own house.
Secure your income
Wherever you end up living, you're well advised to concentrate on your biggest asset: earning potential. "With no backup, your ability to make money is that much more critical," says financial planner Sheryl Garrett, of the Garrett Planning Network. "If hiring a babysitter and taking an extra class enables you to earn an extra $5,000 a year over the course of your career, that one evening a week is definitely a worthwhile investment."
When you're the breadwinner, you have all the more reason to protect your income against disaster. (See "How to insure your growing family.")
Most experts recommend carrying life insurance equal to six to ten times your salary. A healthy man or woman at age 45 can pick up $500,000 in term-life insurance for as little as $450 to $600 a year. "That provides an awful lot of security for you and your kids," says Garrett.
As for anticipating the disaster that doesn't kill you, no matter how much disability insurance you've got through your employer, you will likely need more, says Garrett. "The goal is to replace as much income as you can."
Employer-paid disability coverage typically replaces 60% to 70% of pretax income; you may be able to pick up an individual policy that replaces another 20% and is tax-free.
For instance, a 45-year-old professional man earning $60,000 a year might replace $2,250 a month after taxes through his employer. Then he could pick up another $1,000 a month (nontaxable), with a 90-day waiting period before payments begin, for about $850 a year. Individual premiums are usually higher for women, who tend to live longer. A 45-year-old woman in the same circumstances would pay $1,250 a year for the extra coverage.
Parcel out your pay
Engel, who teaches immersion English to young immigrants at Amphitheater High School, enjoys her job as usher to a new culture. But with a salary of $40,000 a year, she doesn't expect to get rich from it. She boosts her income by taking in-service training and by tutoring students preparing for the state competency test. Partly as a lark, she also spent a few weekends as a "mystery shopper," checking out local business services and wares for $7 an hour.
Even with all that scrambling, her income is mostly spent on the basics -- mortgage payments, groceries, utility bills and out-of-pocket medical expenses. Engel's health insurance, which includes vision and dental benefits, costs $230 a month and carries an annual deductible of $4,000 a head (up to a total of $8,000). She contributes pretax dollars to an employer-sponsored flexible spending account, which reimburses her for some of her health-care expenses.
For families with similar constraints, a budget becomes "hugely important," says Mehler. He encourages single parents to track expenses on a spreadsheet and to allocate the first spare dollars to an emergency stash. Retirement savings is the next priority, Mehler says -- "Mom or Dad should be looking out for Mom or Dad" -- and college savings comes in a distant third. That's because single parents with modest incomes and no other support can probably expect financial aid for their kids' education. Engel hopes Anya will attend the University of Arizona, from which the high school junior has secured free tuition for the first year by surpassing state competency standards.
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