Regardless of your gender or age, being single and in charge of your own destiny can be an empowering experience. But while living alone can bring certain freedoms, it also has its challenges, particularly when…
Regardless of your gender or age, being single and in charge of your own destiny can be an empowering experience. But while living alone can bring certain freedoms, it also has its challenges, particularly when it comes to financial planning, including money mistakes. Without the accountability or income of a partner, “It’s all on you,” says Kevin Brauer, chief financial officer for Affinity Federal Credit Union.
Brauer says single people need to adopt a CFO mindset to managing their money. Otherwise, they may fall victim to money traps such as forgetting to plan for a rainy day, overspending and ignoring insurance needs. With that in mind, here are five financial errors to dodge if you’re single, and tips for maximizing savings when you’re not splitting costs with a partner.
Failing to map out a budget. “The No. 1 thing single people need to do is create a budget,” says Jules LeFevre, principal with financial firm Retirement Income USA in Rockland, Massachusetts. Without a budget, it can be difficult to identify financial goals and track progress toward them. It can leave you with little money in the bank and nothing of value to show for your spending.
Everyone can benefit from a spending plan, but single people seem especially resistant to creating one. “They keep things in their head,” says Kelsa Dickey, financial coach with money management firm Fiscal Fitness Phoenix in Arizona.
Lacking a budget and neglecting to identify how you spend your money may not feel like a problem, since you don’t have to worry about sharing finances with a partner if you’re single, Dickey says. However, it can become an issue if your financial situation becomes too complicated to track or if you get married and decide to merge finances with someone else down the road. If creating a budget sounds overwhelming, try a budgeting app like Mint or Personal Capital to simplify the process.
Overspending without realizing it. Aside from failing to make and maintain a budget, impulse purchases are another common pitfall among those living on their own. “If there’s one issue that stands out, that’s the one,” says Ryan Wibberley, CEO of advisory firm CIC Wealth in Rockville, Maryland. “There’s the psychology of, ‘I only have to worry about me.'”
People living on their own may feel free to give into impulsive spending because they don’t have a partner watching what they buy. “It becomes easy to spend with your friends,” Brauer says. Rather than be intentional about their money, singles may find they are swept up in the buying habits of their social group. To avoid that, set ground rules for your personal spending. For instance, determine in advance how often you’ll go out for dinner and drinks with friends or limit yourself to paying with cash when shopping, so you don’t go over budget.
Ignoring insurance needs. Insurance takes on increased importance when you’re single. If someone should become sick or disabled, there is typically no second income in the house to fall back upon. Having disability and health insurance are essential to avoiding a financial crisis should you be unable to work.
What’s more, you need to be thinking far into the future when considering your insurance needs. “I think it’s really important for single people to put a lot of thought into long-term care,” Wibberley says. Single people can’t rely on a spouse to care for them and need to consider how they will pay for a nursing home or assisted living. In some cases, that may mean buying a long-term care insurance policy.
Forgetting to create an emergency fund and save for retirement. Beyond having the right insurance policy, you need to ensure you have adequate savings to weather any financial storm. “You absolutely need an emergency fund,” LeFevre says. “Depending on your credit card is not the way to go.”
Single-income households may have less discretionary money to put toward savings. However, LeFevre says even depositing $10 to $20 per pay period can eventually build up an emergency fund equal to three to six months’ worth of expenses. That money should be in addition to cash being set aside in retirement accounts.
Lacking financial accountability. Couples have built-in accountability partners. There is someone in the house to help build a budget, review major purchases and share common goals. When you’re single, you don’t have a partner to provide accountability, so you must seek out someone else to fill that role.
Wibberley says it may feel awkward to ask a family member or friend to be an accountability partner, but it can be critical to help you stay on track to achieve your financial goals. The best accountability partners are people you trust and who have strong money-management skills. Depending on your level of self-discipline, you may want to check in with your accountability partner monthly, weekly or even daily.
Those who can’t find a friend or relative to fill this role can opt to meet with a financial planner periodically. What’s important is letting another person into your financial life. “Doing that will solve a lot of the other problems,” Dickey says. If you have to confess to someone you blew your whole paycheck on something frivolous, you may be less likely to make that money mistake in the first place.