Hopeton Morrison, ContributorIt is a challenging job to be a single parent regardless of your gender. For, where on the one side women live three and a half years longer than men, women will also spend 11.5 years out of the workforce during their work-life for reasons such as pregnancy and parenting. Where a woman works for the average 40 years in a full working life this represents a whopping 28 per cent less earning time than men have and this will have a deleterious effect on her income stream and retirement plans, putting her at a distinct disadvantage here.
Here are three basic approaches for managing your finances if you fall into the category of a single parent whether male or female.
Establish a Strong Foundation
Long term investments and asset allocation should be a secondary goal as your primary goal should be to establish an emergency fund. The first step here is to set up a budget and to live within it. Integral to this first step is the need to eliminate debt. Financial advisers recommend six months' savings for an emergency fund, but this may be onerous for some (single mothers especially) and so three months of savings is acceptable.
Why do you need an emergency fund? Unforeseen events can always surface, not least among them finding yourself out of work. So keep this emergency fund preferably in a flexible interest-bearing current or deposit/savings account. In other words, in a place where your money is earning interest while remaining accessible.
Another crucial aspect of your foundation is putting in place adequate life and disability insurance and preparing a will.
This need is quite straight-forward as risk management is crucial for a single parent. In the event that you fall sick, disabled or die prematurely, consider the challenges for your child.
Save Sensibly
Having established a strong foundation it is now time to plan for your retirement and your child's education. Did you take notice of the order in which those two are placed? It is not insignificant. Single parents are prone to dole out everything on their children, while being completely indifferent to the fact that their own last 20 or 30 years will be spent in a retirement in which they are unemployed and where the supportive attitudes of their loving son or daughter sometimes change when he/she becomes married or establish a family of his/her own. You don't want to be left scratching for your sense of dignity in retirement knowing full well that you supported your dependents in earlier years above and beyond what was reasonably expected.
Last week we examined the fact that where a separation or divorce takes place one parent invariably takes custody of the children. As stated then it is recommended that you prioritize a retirement plan even as
you take on (some experts recommend even before) your child's long term education needs. The new employment construct speaks to persons changing careers up to five times during a working lifetime so it is advisable to consider a "Growth and Income" asset allocation financial plan as modest capital growth here will be balanced by reasonable income, appropriate for a person with a moderate risk tolerance.
Finally go for Preservation
As a single parent you must engage in estate planning for one simple reason. To ensure that your estate is not eaten away by taxes and administrative costs.
Hopeton Morrison is general manager of St. Thomas Cooperative Credit Union Ltd. and lecturer in the School of Business Administration at the University of Technology. Please send comments and questions to: hmorrison@stccu.com
