Single living comes with many unique financial challenges. Whereas married couples can rely on each other during difficult times, unmarried individuals must have a prudent financial plan that provides protection against unforeseen emergencies. Although this may seem like a daunting task, you can get off on the right foot by embracing these nine financial planning tips for staying financial fit during your single years.
1. Create a budget. Whether you’re single or married, creating a budget is always the first step in creating a comprehensive financial plan. Add up your income and your expenses, and do whatever you can to make sure that the former is greater than the latter.
2. Pay off your debts. When you create your budget, make sure to set aside enough money to pay whatever debts you have – whether they’re student loans, car payments, rent, or credit cards. Given that the average interest rate on a credit card is nearly 15%, debt repayment will give you a far better return than any traditional investment.
3. Build your credit. You may be single now, but eventually you may want to start a family. With this life change comes greater responsibility…and oftentimes the need for a house. To get a mortgage, you must have good credit, so it’s important to start building yours now. Make sure you’re paying all your bills and debts on time each month and not overextending yourself financially. In other words, don’t max out the credit card on a new TV or sound system.
4. Consider disability insurance. When you’re young and single, you probably don’t have much in the way of savings. Instead, your biggest asset is the future income from your job. Therefore, you need to protect that asset with disability insurance just in case you incur an injury or illness.
5. Draft a financial power of attorney. Single people who become incapacitated don’t have a spouse to manage their finances, so it’s important to assign a trusted friend or family member with the power of attorney. With a power of attorney, you have someone to act as a good steward of your money if the unexpected occurs.
6. Don’t forget a medical power of attorney. Not only do you need to worry about your investments in the event that you become incapacitated, but you should also designate someone to act as your health care proxy through a medical power of attorney. This person can be the same as your financial power of attorney or someone completely different. The important part is that it’s someone you trust to make decisions about your health if you’re unable to make them yourself.
7. Create an emergency fund. It is an unfortunate fact of life: Bad things happen to good people. However, you can protect yourself from adverse circumstances, such as an unexpected job loss, by saving at least three to six months worth of expenses in a designated savings account.
8. Fund your 401(k). If your employer provides the opportunity to save for retirement via a 401(k) plan, you need to take advantage of it — especially if your company provides matching funds. The combination of free money and tax-deferred savings is simply too good to pass up.
9. Open an IRA. A 401(k) is a good start, but you shouldn’t stop there if you’re planning to amass all the retirement money – at least 20 times your annual expenses – you’ll need to live a comfortable life during your golden years. A Roth IRA will allow you to make tax-free withdrawals when you retire.
Financial planning, like many things in life, is easier said than done. The principles are simple to understand, but it can still be a challenge to develop a plan and commit to it, especially if you don’t have a partner to keep you honest. If you have any questions about creating a plan, retirement savings, insurance, or any other financial concern, Pathway Financial Planning is here to help.
For more information or to set up a free initial consultation, contact Pathway Financial Planning at 248-567-2160 or email firstname.lastname@example.org.