How to manage your finances as a single parent

In most cases, when we have children, we do not plan on raising them as single parents. But sometimes dreams and plans for a family change or get derailed as we navigate life, and wind up raising children on our own.

For years, the U.S. Department of Agriculture published an annual report that calculated the cost of raising a child to adulthood, not including college expenses. When the last report was published in 2017, the cost of raising a child born in 2015 was $233,610. According to the U.S. Bureau of Labor Statistics CPI Inflation Calculator, $233,610 in January 2015 has the same buying power as $299,045 in January 2023.

That means we can expect the cost of raising one child to adulthood to be roughly $300,000, not including the additional cost of college. This is a staggering number, especially if you’re responsible for it all on your own.

Understanding and managing your finances while setting realistic goals can help reduce financial anxiety. How can you manage your finances as a single parent so that you do not feel overwhelmed or helpless?

Budget

First, you need to take control of your finances by analyzing and tracking your monthly cash flow.

Budgeting will help you prioritize your spending, earmark money to save for the future, and plan for your short- and long-term goals.

Are you living within your means or spending more each month than your income allows? The goal of a budget is to ensure you are meeting your basic needs — and some wants — without spending more money than you receive as income.

Manage credit and debt

Credit is borrowing money to buy goods and services with the promise that you’ll pay the money back by a specific date.

Credit cards are easy to access and, if responsibly managed, will help to establish you as a good borrower. When you apply for a credit card, it is especially important to understand the terms. Often, the fees and interest rates are not obvious when you are signing the application. The annual interest rate on your credit card — that is, the percentage of interest you will pay on credit card debt — will be nowhere near the interest rate your bank is paying on your savings account but closer to a range of 17% to 29%.

If your credit history is poor, perhaps because you are not making your loan payments on time or at all, it can take up to seven years for the data to be removed from your credit report. Some negative credit issues, such as bankruptcy, can last ten years on your credit report.

The unexpected

As we have recently experienced throughout the pandemic, life can change unexpectedly and fast. Are you prepared for a job loss, illness, disability, natural disaster, or lawsuit?

Insurance and savings can help to protect you against unforeseen events. Confirm with your insurance agent that your policies are providing the coverage you need and keep an emergency reserve fund of three to six months of cash to help make sure unexpected expenses do not financially derail you from your budget.

Leasing a vehicle instead of buying

Before you lease a car for your child, understand the long-term ramifications of this decision.

When you lease a car, you will usually have lower monthly payments than if you finance a car with a loan. And you can transition to a new car every two to three years by simply returning the car to the dealer at the end of your contract.

Unfortunately, you will need to refinance the debt or pay off the outstanding balance if you want to keep the car when the contract has reached full term. Additionally, you will be penalized if you terminate your lease early, exceed the allowed annual mileage (usually 9,000 to 12,000 miles per year), or damage the vehicle through excessive wear and tear.

Save for retirement

When we are raising children, retiring can seem so far away that ignoring it is easy. Unfortunately, delaying saving for retirement often means that you will be working well into your later years. Even if you cannot afford to save much, allocate some funds each month to contribute to your retirement savings.

If your employer has a company retirement plan, understand the benefits of the plan. Will your employer match a percentage of what you save? If so, take full advantage of the company match; this opportunity provides tax-deferred funds at no cost to you.

Remember that even though retiring may seem like it is a lifetime away, you will eventually reach an age when you no longer want to work. In retirement, you will need assets and income sources to maintain your current standard of living.

Review tax return

Filing a tax return and paying taxes is not anyone’s favorite task. Gathering data to submit to the tax preparer is a chore, and waiting for the results can be laden with anxiety. When your tax preparer calls and provides your update, good or bad, make sure you spend a few minutes reviewing the data.

What is your household income? Does the information on the tax returns look accurate? If reading your tax returns is completely foreign to you, ask the tax preparer to explain the information you are reviewing. You may not prepare your state and federal tax returns on your own, but you will sign the documents and are accountable for accurately reporting the information to the tax reporting agencies.

Learn to negotiate

Strong negotiating skills are beneficial when seeking a raise or a promotion and when buying a home or a new vehicle. Spend some time learning and practicing the key steps to fine-tune this art. Successful negotiators learn to control the process, coming away with an outcome that feels equitable and favorable to their objective.

Being engaged and vocal about your finances will not only increase your confidence, but it will also empower you to maintain control of your financial life over the long term. Living within your budget while raising a child may not be an easy journey. And temptations to spend money will present themselves every day. Fortunately, setting an example as a fiscally responsible parent will be a skill set your child learns by observation.

Place your needs before your wants and learn that it is OK to say no when you cannot afford a purchase. As a parent, showing your child that you manage your finances is one of the best gifts you will ever give them—the gift of a lifetime.

Teri Parker is a vice president for CAPTRUST Financial Advisors. She has practiced in the field of financial planning and investment management since 2000. Reach her via email at Teri.parker@captrustadvisors.com.