“I’m a single parent. What’s your super power?” may be a somewhat humorous quote to which only single parents can truly relate, but it does however prompt some fairly serious consideration as to how financial planning in the realm of the single parent differs from that of the two-income parenting partnership. There is no doubt that where a single parent fulfills the role of sole guardian, custodian, parent and provider to the minor child, a completely unique set of circumstances exist which, from a financial planning perspective, need to be addressed and ultimately protected. In providing financial planning advice to single parents, our top ten guidelines include:
1. Protect your greatest asset
While you have the ability to earn, your income is undoubtedly your most valuable asset and is worthy of protection – especially when it is the family’s only source of income. Without the buffering of a partner’s income, single parents endure an enormous financial burden as the sole and only provider, especially in the face of catastrophes such as severe illness, disability or similar personal crises which can decimate one’s earning potential. Whilst most large insurers offer excellent income protection benefits which will pay out between 75% and 100% of one’s income in the event of temporary or permanent disability, our recommendation would be to speak to a certified financial planner who can help you select the most appropriate income protector for your specific qualifications and profession.
2. Brave the budget
As laborious as it may seem, preparing a monthly budget can be extremely empowering for single parents, who tend to stress about finances much more than dual-income parents. As a starting point, our advice is to separate one’s budget into the following categories:
- Fixed monthly expenditure – such as electricity, water, bond/rental, groceries and school fees.
- Long-term expenses – for example, a deposit on a new vehicle or your retirement funding.
- Emergency Fund – a small, easily accessible sum of money to help with unforeseeable expenses such as washing machine repairs.
- Discretionary savings – any surplus income that you are able to save in, for example, a tailored portfolio.
3. Ensure they will is done
An absolute must-have for any single parent with minor children, a valid Will is a powerful tool which will ensure that your children are cared for, protected and provided for according to your specific wishes in the event of your death. Furthermore, a well-drafted Will makes provision for the hassle-free distribution of your assets as you would have them apportioned. There are massive financial and emotional repercussions of dying intestate (i.e. without a valid Will), and being a single parent makes it even more important to draft and sign this vital document.
4. Have a guardian angel
As a parent to minor children, your Will should include the appointment of a suitable guardian for your children. In the absence of a natural guardian, our advice to single parents is to appoint a guardian in your Will – making sure that the appointed guardian is (a) aware of your intentions and (b) young enough to assume guardianship of your children and to care for them until they reach adulthood. If your Will does not make provision for the appointment of a guardian, the High Court will appoint a guardian for your child – and it may not necessarily be the person you would have chosen for this all-important role.
5. Trust in a Trust
A Testamentary Trust is an excellent vehicle to protect any assets left to your minor children until they are capable of fending for themselves and looking after their own affairs. A Testamentary Trust is formed by placing a clause in your Will, and will only come into being in the event of one’s death. The Trust, which is administered by Trustees appointed by the Testator, is usually valid for a pre-determined period of time, for example, until your child reaches age 21. The Trustees (whom you would appoint in your Will) will ensure that the assets in the Trust are looked after and that your children are provided for financially.
6. Execute your plan flawlessly
Appointing an independent, qualified and financially astute person as the Executor to your Will can ensure that your Estate Plan is not sabotaged by incompetence and inexperience. Executors need specific skills, knowledge and experience to wind up your Estate properly and efficiently. The Executor’s job involves reconciling the account statements from date of death until the closure of the Estate in order to make sure that no unauthorised payments were made from the account, and the Executor must account for any differences. Appoint someone that you know, trust, and who can competently execute your plan.
7. Value your life
With the help of a financial planner, it is relatively simple to calculate the amount of life cover one requires in the event of death. As a starting point, a single parent would need to consider having sufficient life cover to settle any amount outstanding on their home loan. Adequate life cover to settle any other outstanding debts would also be advisable. After assessing one’s net realisable assets, further provision would need to be made for the minor children’s continuing living expenses and education costs until at least Grade 12, or after completion of their tertiary education. When putting a life policy in place, it is essential to nominate your beneficiaries correctly, especially if you have made provision for a Testamentary Trust in your Will.
8. Preserve it
One of the greatest temptations when moving between jobs is to cash in one’s accumulated retirement funds, which can have hugely detrimental effects on your longer term retirement planning. As a general rule our advice is to always elect capital preservation by transferring your funds to an appropriate preservation fund. Resist the allure of cashing in your capital, and defer instead to re-investment – no matter how tempting it may be.
9. Take care of your health
As a working mom (or dad) with no spousal support, your good health is the common denominator when it comes to maintaining your career/parenting equilibrium. Even a mild dose of flu can wreak all manner of chaos when you don’t have a partner to rely on for support. As a single parent, time is no doubt a rare commodity which makes queuing in a state hospital an unlikely possibility. As an absolute minimum, our advice is to ensure that you and your children are covered by a reputable hospital plan. If you elect not to fund for day-to-day medical expenses through a medical savings account, ensure that you make provision for these by bumping up your emergency fund.
10. Take care of your wealth
Saving for retirement and a tertiary education at the same time is a challenge for many families, especially single parent families. Whilst wanting to pay for your child’s tertiary education is a wonderful gesture the reality is that, if funds are limited, one should prioritise retirement funding. In the absence of scholarships or bursaries, it is entirely possible to borrow for your child’s education, but it absolutely impossible to borrow for your retirement. A good metaphor would be the instructions given to aeroplane passengers – put your oxygen mask on your own face before putting it on your child’s. While many parents balk at the idea of burdening their offspring with student debt, shortchanging yourself now to help pay for university can backfire later on in life. By foregoing your own retirement funding in favour of your child’s tertiary education, you may simply be increasing the likelihood that your children will have to support you later in life.
Putting appropriate plans in place to ensure that you, your income, your assets and your children are protected will undoubtedly make the journey of a single parent a less challenging and more fulfilling one.
Wishing you a blessed day!