When Kristin Wade became a single mom with a 9-month-old, she immediately felt the pressure of providing for her child while focusing on her financial goals.
“What if my ex-husband wasn’t able to contribute? I knew that even though it would be an adjustment to my budget, I needed to prioritize saving for both of our futures,” says Wade, a former registered nurse who is now the owner of Fiscal Bliss Financial Coaching in Albuquerque, New Mexico.
While people from all walks of life can face financial challenges at any time, single moms (or dads) have the dual responsibility of raising children and managing household finances on one income.
Balancing a family’s immediate needs with long-term goals like retirement and education savings, frequently with limited resources, typically requires a carefully tailored financial strategy.
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Fortunately, single moms and financial advisors have some tips for navigating those challenges:
1. Start now and start small.
2. Manage cash flows.
3. Put retirement savings first.
4. Build an emergency fund.
5. Automate investing.
6. Keep investing simple.
7. Avoid complex or expensive financial products.
1. Start Now and Start Small
A common mistake, Wade says, is waiting too long to begin a savings plan.
“So many moms will say ‘I’ll start once daycare payments are done’ or ‘I can wait until my child is out of the house,’ ” she says. “Every mom should set aside a small amount monthly, even if it’s $20, into a savings account.”
One tactic Wade recommends is creating a “match” to a child’s 529 education fund based on his or her allowance.
“For example, if they earn $5 per week as spending money, put that amount into a college fund. You can choose to match monetary gifts they receive as well,” she says.
2. Manage Cash Flows
Sarah Behr, owner of Simplify Financial Planning in San Francisco, was a single mom herself and now counts single moms among her clients. She recommends having a solid understanding of one’s cost of living.
“Create a method to periodically check in on your spending and know where your money is going each month. I can help clients track cash flow with a template,” she says.
3. Put Retirement Savings First
Prioritizing their own retirement over children’s education financing is a dilemma for many parents, not just single moms.
“There were times when it was tight financially and though I felt mom guilt, I chose contributing to my retirement over her college fund,” Wade says.
Wade took the approach of imagining her future self.
“Looking at this tiny baby, I could not imagine being a burden on her if I didn’t have enough savings to retire in the future,” she says.
Behr offers the same advice to her clients.
“There are many ways to support your child and finance education, but there’s no way to catch up on retirement if you aren’t consistently saving,” Behr says. “Your children will thank you when they’re older if you have a secure retirement.”
4. Build an Emergency Fund
No one likes life’s unpleasant financial surprises, such as an unexpected medical bill, car repair or job loss. An emergency fund prevents reliance on debt and can keep savers on track to continue funding goals like retirement and education.
“Keep at least three months’ expenses in an emergency fund,” Behr says. “As a single parent, you don’t have the safety net of your partner’s income if you encounter a financial shock such as job loss or illness.”
5. Automate Investing
Putting investments on autopilot can simplify the wealth-building process.
Common ways of automating investing include making regular contributions to qualified retirement accounts such as a 401(k) or individual retirement account.
To simplify rebalancing, many investors use robo advisors for portfolio management or to implement automatic purchases of mutual funds or exchange-traded funds (ETFs) through a brokerage account.
“Automating investing is a great way to take the work out of investing. Any amount is great to start,” says Stephanie Trexler, a certified financial planner at Golden Goose Wealth Planning in Grand Rapids, Michigan.
“On payday, set up a recurring automatic transfer from your checking account to your investment account. Out of sight, out of mind,” says Trexler, whose clientele includes single moms.
“You will be on your way to experiencing the benefits of compounding growth,” she says.
6. Keep Investing Simple
There’s no shortage of so-called “sophisticated” investing and trading advice on the Internet. Much of that isn’t well suited to novice investors, whether they’re single moms or not.
Instead, it’s important to focus on the basics of investing.
“Open an account at an established financial institution that offers low-cost index funds. I would avoid opening investment accounts at your bank or at a fintech such as Acorns. Just stick to the conventional path, slowly build the account as you can afford to,” Behr says.
“Save for retirement and if you have more money to invest, then open a taxable brokerage account,” Behr says.
She suggests that single moms focus on the same core investment choices that are appropriate for others. For example, investors can find low-cost index funds at custodians such as Vanguard, Schwab and Fidelity.
These funds can form the core of a diversified portfolio and often yield better results than chasing complex or high-risk trading strategies.
7. Avoid Complex or Expensive Financial Products
Along those lines, single moms, as well as other investors, are well served by steering clear of products that seem to promise eye-popping returns, or are complex and often challenging for a layperson without a financial background to understand.
For example, leveraged ETFs can magnify an index’s performance. That sounds great on the surface, but those products are extremely risky.
Many annuities and whole life insurance policies fall into the category of a product that a salesperson pushes, whether or not it’s in the client’s best interest. Anyone considering an annuity or a whole life policy should do thorough research and understand the product’s terms.
Other products that sound too perfect may include high-interest-rate loans, payday loans or credit card cash advances. A quick fix generally comes with high costs that a single mom, dad or any buyer may regret later.
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A Single Mom’s Guide to Investing originally appeared on usnews.com
Update 09/30/24: This story was published at an earlier date and has been updated with new information.
