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Be in Control of Your Finances
Parenting on Your Own Series
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Many people find themselves short of money, short of time and short of help.
Single parents certainly do.
As a single parent, it’s important for you to master the basics of money
management. But take it slowly. Don’t make any hasty decisions. They could turn
out to be costly.
Stay flexible in your plans at first. Don’t tie up money in long-term
investments. Learn step-by-step about planning your spending, getting more for
your money, obtaining different kinds of insurance, handling taxes and wills and
making long-term financial arrangements. Be wary of well-intentioned friends and
relatives who give you financial advice. Check all the facts before you act. By
learning more about money management, you will be in control. Here are several
steps to take.
Develop a Spending Plan
The first step is to create a spending plan. Why take the time to make a plan
or budget? One reason is that budgeting will help you reach your financial
goals. Your income probably dropped once you became single. You may feel
differently about how you spend your money. A spending plan will help you get
more of the things you and your family want and will keep you from overspending.
Begin by listing all of your income. All families are different, so the
following is just a list of possible sources: your wages or salary, earnings of
other family members, alimony, child support, life insurance benefits, pension
benefits, Social Security and Veterans Administration benefits, interest,
dividends, rent from property, food stamps and any public welfare payments. Add
it all up. No matter what our incomes, we always want more. Begin by seeing if
you can manage with your present income.
Now list your expenses. You probably have an idea of some of these. Look at
your checkbook and other records to begin.
Keep track of expenses for a month or two so that you know where your money
is going. It’s likely to be different now that you’re on your own. Knowing what
comes in and what goes out helps you set upper limits on spending so that you
don’t go into debt beyond your means.
Look at what you spend in various categories – for example, transportation.
Is this where you want your money to go? If so, fine. You’re off to a good
start. If not, study what you can do to reduce this expense. Try to distribute
your family’s income in a way that it will do your family the most good.
Not all expenses will be due each week or once a month. You will need to plan
for periodic expenses such as auto insurance and car registration. You will
spend more in some months than in others – for example, during holidays and
before school begins in the fall.
The sample budget (at left) has some categories for income and expenses to
help you get started. Don’t give up if your plan doesn’t work the first time.
Review and revise your plan as necessary. Don’t worry about keeping track of
every penny. It’s probably not worth the time and effort. Remember: you should
be the one in control, not your budget.
Look ahead for a year. What major expenses will you have? Will you need to
replace the tires on your car or buy a new refrigerator? Will you or your
children have extra expenses coming soon? Estimate the cost of those expenses.
Next, record how soon you will need the money. This method will help you plan
for the more frequent shorter-term expenses.
Begin a Savings Plan
Financial emergencies will happen. So, it is best to plan for them. No matter
what your income, start an emergency fund. It will be small at first, but as you
regularly add to it, you will be surprised at how fast it grows. You can set up
your emergency fund in a savings account or an interest-paying checking account.
If having your emergency money in a checking account tempts you to spend it,
keep the funds in a separate account.
When you have $500 or more in your emergency fund, look into other accounts
that will pay a higher interest rate and still allow you to withdraw money on
short notice. A money market fund with the bank or an investment company is one
example.
If it’s hard for you to save, have your employer put some of your paycheck
into a savings plan. If you are not employed, remember to save for yourself
before you spend money on extras. If your income is from an insurance policy or
from Social Security, arrange to have part of the money available for emergency
needs.
Stretch the Dollar
A drop in income forces you to think about your spending priorities. You know
that some goods and services are more important than others to your family.
Managing with what you have will help your income go farther. What you have
includes more than your possessions and money; it also includes your time,
energy, skills, knowledge, community resources and, yes, even your attitude.
By combining your time, energy and talents, you can provide things, such as
clothing or car repairs, for less money than you would have to pay for them if
obtained from someone else. You may also choose to sell some of the products you
make and the services you perform. Use community resources for entertainment,
for learning new skills and for improving what you already have. Your attitude
is important. A positive attitude gives you the desire to stretch your dollars
and also provides you with satisfaction as you follow good management practices.
And remember to invest in yourself to get a good or better job or to reach your
long-range goals.
Below are some ideas for making substitutions, conserving resources and
taking advantage of what you have. Choose those ways to stretch dollars that you
think you could try. Then remember to follow through with your plan.
• Substitute less costly transportation whenever possible. Walk or ride a
bike whenever you can.
• Learn to do simple maintenance on your car. Check out a “how to” book at
the library or try to attend an adult education car repair class.
• Coordinate errands.
• Use a car pool and share rides.
• Don’t overeat.
• Substitute lower-cost ingredients to meet both nutritional goals and family
preferences.
• Buy produce in season.
• Plan the use of leftovers.
• Store foods promptly and carefully.
• “Brown bag it” at work or on short trips with your children.
• Entertain at home; have a potluck.
• Refinish furniture. Learn and perform simple home repairs.
• Rent out a room, garden or parking space for income.
• Hold a neighborhood garage sale to raise money and get rid of unneeded
items.
• Watch for store sales and garage sales.
• Rent seldom-used equipment.
• Check to see if you qualify for subsidized housing if you’re having
problems making ends meet.
• Use the Food Stamp and Women, Infant, and Children’s (WIC) nutrition
programs if you qualify.
• Keep clothes clean and in good repair. Remove stains promptly.
• Follow care instructions.
• Protect shoes from water stains and clean promptly.
• Swap outgrown children’s clothing, maternity clothes, baby accessories and
sports equipment with neighbors.
• Shop at thrift stores.
• Take dry cleaning to a coin-operated dry cleaner.
• Learn to sew at home. Remodel an outfit you already own.
• Join or form a baby-sitting co-op or a food co-op. Barter for goods and
services.
• Visit community parks, museums and libraries. Use entertainment provided by
the community.
• Check on free or low-cost health, dental or counseling services.
Phone or write to the Cooperative Extension Service for information and
programs on energy use, food preservation, gardening, nutrition, money
management, health care, child development and family relations.
Investigate Insurance
Some emergencies are large. Insurance can provide you with protection when
emergencies happen. Often, the cheapest way to obtain life, health and
disability insurance is through an employee-group plan. Many employers provide
group insurance plans at a reduced cost for you and your dependents.
If you do not work, compare the benefits and costs of insurance protection
among several companies. Check to see what kind of coverage you can buy through
an organization you belong to, such as a teachers’ association.
Practice the “Rule of 3” and look at three different plans before you buy.
By investigating three different alternatives, you will have a good chance of
knowing what benefits are available to you and the range of premiums.
Health Insurance. If you carried health insurance through your spouse’s
employment and you are now single due to your spouse’s death, divorce or legal
separation, you are often eligible to continue coverage. You must act quickly.
Notify the employee benefits office immediately to learn your options. You have
60 days to decide if you will continue your former spouse’s health insurance.
Keep in mind, premiums will probably increase.
If you work and had health insurance through your former spouse, you can
probably sign up for your employer’s insurance to cover both yourself and your
children. Again, you must act quickly. The special enrollment period is only 30
days after a divorce or legal separation.
Your former spouse may be able to add the children to his or her plan as
part of the divorce or separation agreement or may pay the premiums to cover the
children as dependents on your policy. Another option is to apply for ARKids
First Health Insurance through the county DHS office to cover your children.
If you need more protection, many plans allow you to buy additional coverage
that is usually cheaper than buying the same insurance through an individual
policy. You may be required to make the changes during the special enrollment
period.
Health insurance not provided by an employer is expensive. Do all you can to
qualify for a group policy.
Medicare. Most likely you will be eligible for Medicare when you reach age
65. If you don’t qualify on your own work record, you can receive Medicare
benefits at age 65 on your spouse’s record if he or she has died or your former
spouse is also 65. If you are on general public assistance, find out what kind
of medical coverage you are entitled to receive.
Disability Insurance. Disability insurance pays part of your lost earnings
while you are disabled. You may be eligible to sign up for your employer’s plan.
Group disability insurance is less common than other types of employer-provided
insurance, and some policies begin only after you have been on the job a couple
of years. Disability payments will only partly make up for lost earnings. The
difference is partially made up by workers’ compensation and Social Security
benefits.
Workers covered by Social Security can qualify for disability payments if
their condition prevents them from working for at least 12 months or could
result in death. Payments are made to the disabled employee and her or his
dependents.
Life Insurance. You may need life insurance to protect your children in the
event of the loss of your income. Before you buy, determine what benefits would
be available to your children in the event of your death or disability. These
may include Social Security, Veterans’ benefits, pension benefits, proceeds from
a beneficiary IRA or life insurance policies or even investments.
There are only two general types of life insurance: cash value and term.
Cash value, often called whole life, is the more common type sold. It builds up
a sum of money while providing protection. The premiums usually remain the same
each year. When you die, your beneficiary receives the total value of the
policy, less any amount that you may have borrowed.
Term insurance does not build up a cash value. It is pure protection. The
premium on term insurance goes up each year as the risk of death increases. Term
is less expensive than whole life. For example, a woman age 35 with $500 a year
to spend can buy $200,000 of term insurance compared with $40,000 of whole life
insurance (a cash-value policy).
Life insurance on your children’s lives is usually not a wise investment.
The expenses associated with a child’s death are usually only funeral and burial
expenses. What you need to protect is a loss of income and services performed
for your children. So investing the money in extra protection on your own life
would be a more sensible choice.
Social Security. As a widow, you may qualify if your spouse contributed to
Social Security. You must be taking care of your unmarried children under age 16
or your disabled child of any age. As a widow, your unmarried children are
entitled to Social Security benefits until age 18, or age 19 if they are
attending high school full time. You do not qualify for survivor’s benefits
until at least age 60 if your children are over 18.
For a divorced person, if your former spouse dies and the marriage lasted at
least ten years, then you may qualify for Social Security benefits similar to
those for a widow. You and your children may also receive other benefits based
on your ex-spouse’s record. For example, your unmarried children may qualify if
your ex-spouse retires or becomes totally disabled. You, too, may qualify for
benefits at age 62 if your ex-spouse becomes totally disabled.
You will be entitled to retirement benefits on your working record if you
have been covered for the specified time. Check with your local Social Security
office about any of these benefits.
Widows and widowers need to check out eligibility for their spouse’s
retirement. Eligibility will depend on the plan’s rules, if the spouse was
vested in the plan and whether the spouse listed the widow or widower as the
primary beneficiary. If divorced after 1984, a divorced spouse’s eligibility for
pension benefits often hinges on whether a Qualified Domestic Relations Order (QDRO)
is part of the divorce decree. Check into Veterans Administration and fraternal
organization benefits, too.
Obtain Tax Benefits
The child and dependent care credit allows you to deduct childcare expenses
you pay while you are at work from the total taxes that you owe. The amount of
your child tax credit depends on your income and number of qualifying children.
The credit will reduce the taxes you owe. In certain situations, the additional
child tax credit may mean you get a refund even when you owe no taxes.
If you have children living with you and your earned income is under $33,178
(2002 figure), you may qualify for the Earned Income Credit (EIC). Earned income
includes wages, tips, earnings from self-employment and money, goods or services
you received from your employer. Earned income does not include interest,
dividends, Social Security and Veterans Administration benefits or welfare
benefits.
If you qualify for the earned income credit, you subtract the amount of the
credit from the tax you owe or get a refund even if you had no tax taken out of
your pay. The credit can be as high as $4,140. (The figures given here are for
the 2002 tax year.) Eligible families must do two things to receive the EIC.
First, they must file a federal income tax return. Second, they must file
“Schedule EIC” with their return.
You can also save tax preparation fees by scheduling an appointment at a VITA
(Volunteer Income Tax Assistance) site in February. Trained volunteers will
complete your tax return for no charge. VITA volunteers often file tax returns
electronically so you will receive any refund due you in two to three weeks. You
can learn about VITA site locations by calling the toll-free number to the
Internal Revenue Service found in most telephone directories.
Alimony you receive is taxable income and alimony paid is tax deductible.
Child support is not taxable.
Write a Will
One of the most important reasons for having a will is to be able to name a
guardian for your child (or children). Who do you want to take care of your
children if you die or are no longer able to care for them? If you don’t name a
person in a will, the state will appoint a guardian. Of course, your former
spouse has some legal rights in choosing a guardian. If you choose someone other
than your former spouse, consider the person’s age and child-rearing practices.
While you may want your parents to raise your children, they may not be the best
choice. It can be quite a burden on them. Be sure to ask the person you want to
designate as guardian if he or she is willing to be one.
Another reason for having a will is so that you can pass on money and other
assets (things you own) to your child through the guardian to be used for the
child’s welfare. An attorney may suggest setting up a trust for the child. To
hold down the cost of writing a will, be prepared to furnish important papers,
name of the guardian for your child (or children) and names of those people you
want to receive your possessions at your first appointment.
Important Financial Tasks for Now and Later
Check the ones you are interested in doing.
- Investigating ways to reduce the cost of housing, food and other
necessities.
- Involving your children in some financial matters as a way of
developing their skills.
- Making adjustments to cope with increasing child-rearing costs.
- Reviewing insurance policies, retirement and pension plans and fringe
benefits to make sure that all your needs are met.
- Setting long-term goals (for example, education, career training) to
improve your economic situation.
- Increasing savings and investments for long-range security.
- Making financial arrangements, including picking an adult to handle
financial affairs for your children in case of your death or disability.
- Finding reliable assistance in managing your personal and economic
affairs.
Keep Good Records
Keeping good records is vital. If your records were organized, it’s likely
that the adjustment to your new marital status was easier because your personal
and financial records were available to you when you needed them. If you didn’t
know where your important papers were kept, you probably now realize the
importance of this task. Why not take some time now to organize your important
records and set some goals for the future?
Planning Is the Key
Once you begin mastering the basics of financial management, you will feel
better about yourself because you will be in control. You will see the value in
planning. The more you can plan for, the better your financial situation is
likely to be and the more goals you are likely to reach. More information on
managing your finances is available from your county Cooperative Extension
Service.
For Further Reading
The information in this fact sheet is adapted
with permission from Be In Control of Your Finances by Sheila F. Krein, former
lecturer of family economics extension, Cooperative Extension Service,
University of Illinois at Urbana-Champaign, and recommended to Arkansans by Dr.
Judith R. Urich.
| Author: |
Judith R. Urich, Ph.D.,
CFPTM Family Resource Management Specialist |
DR. JUDITH R. URICH,
CFPTM is a family resource management specialist,
University of Arkansas, Cooperative Extension Service, Little Rock.
FSHEI48-PD-7-03
|
