Very often, single parents find themselves solely responsible for the needs of their children which can be hugely daunting. Besides for providing for their child’s day-to-day expenses, single parents need to prioritise job security, save for their future, and mitigate against the risk of ill health or disability. In this article, we take a look at a number of financial solutions available to help single parents navigate their finances more effectively.
Medical aid
Although technically a healthcare solution, membership of a reputable medical aid scheme – which comes at a price – can greatly assist with the costs of private medical care. For most of us, accessing private healthcare providers and/or facilities is simply unaffordable – making medical aid membership a must-have, especially for single parents who don’t have the benefit of a second income. As a minimum, it is advisable to keep yourself and your children on an affordable network option that provides hospital cover at 100% of medical aid tariff. These types of plans cost in the region of R2 500 per month for a main member and around R800 per child per month, although keep in mind that these costs will vary from scheme to scheme so be sure to do your research. What you’d ideally want to avoid is a lapse in your medical aid membership so, if affordability is an issue, consider downgrading to a more cost-effective plan option rather than terminating your membership. Terminating your medical aid membership not only leaves you financially exposed and at the mercy of public health facilities, but you may find yourself compromised by waiting periods, exclusions, and/or late joiner penalties when reapplying for membership later on. While many government facilities offer excellent care, it is often difficult to access the system and the long waiting times can be enormously frustrating – especially as a sole breadwinner.
Your will
Ensuring that your estate is appropriately structured in the best interests of your minor children is no doubt top of mind. If you are the sole guardian of your children, appointing a legal guardian in your will is critical to ensure that someone you know and trust will be available to care for your children if you are no longer around. Before nominating a legal guardian in your will, be sure that the person you’d like to stand in as your children’s guardian is willing to take on the responsibility. When drafting your will, be sure to understand the legal framework when it comes to bequeathing assets to minor children. Specifically, children under the age of 18 lack contractual capacity and are therefore not legally capable of managing their inheritance until they reach age 18. Practically, this means that your minor children may not take ownership of an asset bequeathed to them. Generally, funds bequeathed directly to minor children will be administered by the Guardian’s Fund – which is a state-run fund designed to protect and manage money inherited by minor children – until the child reaches age 18. Assets, such as property, bequeathed to minor children are likely to be managed by the child’s surviving legal guardian or nominated guardian until the child reaches age 18. To ensure that those funds and/or assets intended for your minor children are protected for their benefit, consider setting up a testamentary trust in your will and bequeathing such assets to the trust. In the event of your death, the testamentary trust will come into being and any assets bequeathed to the trust will become property of the trust with your minor children as the nominated beneficiaries. These assets will be administered on behalf of your nominated trustees in the best interests of your children until they reach a pre-determined age (which you are able to determine in your will) at which point ownership of the assets will transfer to your children. Estate planning can be complex and if you’re planning to draft a will or revise an existing will, it is advisable to seek advice from a fiduciary expert to ensure that your will correctly expresses your intentions.
Income protection
In a dual-income family, the financial impact of one partner falling ill or becoming disabled may not be quite as devastating as in a single-income household. As a single parent, putting an income protection benefit in place should be a financial priority to ensure that you can continue receiving an income from your insurer should you become temporarily or permanently disabled. Income protection cover is a form of long-term insurance that effectively replaces your salary should your illness or injury leave you in a position where you cannot work and generate an income. When determining the level of income protection you need, give careful consideration to your living expenses, debt, existing healthcare cover, and your retirement funding needs, keeping in mind that you will want to ensure that your benefit keeps pace with inflation. An important consideration when taking out income protection cover is to check what waiting periods if any, apply before you can claim your benefit because if there is a self-funding gap you will need to ensure that you have sufficient emergency cash in place to tide you over while you wait for your claim to become payable. Importantly, be sure to review your income protection benefit regularly so that you can adjust your policy and nominated income as and when your personal circumstances change. Finally, keep in mind that income protection cover is specifically designed to replace income lost as a result of ill health or disability and, as such, does not provide cover if you are retrenchment or made redundant.
Life cover
While most parents want to provide financially for their children in the event of their passing, single parents often find themselves solely responsible for this. While you are accumulating your wealth, life insurance is the most obvious mechanism for ensuring that your children’s living costs will be provided for if you were no longer around. When putting life cover in place, our advice is to be intentional about the quantum of life cover you elect and what you intend such cover to achieve. For instance, you may want to make provision for your children’s living expenses and education costs sufficient to fund a four-year tertiary qualification until your child reaches age 23. These expenses can easily be quantified and capitalised for the purposes of life cover calculations, so speak to your advisor about selecting an appropriate and reputable life insurer who can meet your specific needs. Once again, however, keep in mind that it may be more appropriate to nominate your testamentary trust as the beneficiary on your life insurance policy, the result of which is that the insurance proceeds will be paid directly into the trust where they will be administered by your trustees for the benefit of your children. While life cover can be expensive, keep in mind that your long-term insurance needs change over time and it is important to regularly review your cover to ensure that it remains appropriate for your circumstances. For instance, as your children grow older and your net worth increases, you may be able to gradually trim back your life cover and use any saved premiums to bolster your retirement funding.
Retirement plan
Saving for retirement may feel like an impossibility for a single parent, especially when your children are younger and the continuous stream of expenses seems insurmountable. It may help to remind yourself that saving for retirement is a long-term process and your affordability right now may look very different a few years from now. As your children grow more self-sufficient, your home and vehicle debt decreases and your need for life insurance reduces, you may find yourself in a position to ramp up your retirement savings. There’s little point in making enormous financial sacrifices for your children while they are young only to end up being a financial burden on them when you retire. Take a balanced and realistic approach to what you can afford to provide your children without compromising your own financial future. Remember, while you can always borrow money to help fund your child’s education, it is not possible to borrow money to fund your retirement.
Accessible funds
Having said that, it’s just as important to have funds that are easily accessible and that are not locked away in long-term investments such as retirement funds. As a single parent, you do not have the luxury of a partner’s income to fall back on in the event that you are retrenched or unable to work, so consider building an emergency fund that will cover at least six months’ worth of expenses. If you rely on the monthly maintenance from your child’s other parent to cover your living expenses, be sure to keep the equivalent of at least three months’ worth of maintenance payments on top of your normal emergency cash as protection against a default maintenance payment. Your access bond facility can be used effectively to house emergency cash as it has the added effect of reducing the interest payable on your bond, which has a knock-on savings effect.
Have a fantastic day.
Sue
