A Single's Income
by Anna Harrington
Savings for Singles
Buying for One
Being single can be wonderful. On one hand, being single means financial independence. You, alone, are responsible for managing your hard-earned money. On the other hand, it can also be a burden, as you, alone, are responsible for managing your hard-earned money. There's no one you have to consult when making a financial decision, and the final say for all expenditures is yours. But all that financial freedom also means there's no one to rely on during the rough times.
While some married couples choose to live on only one income, the truth is that if financial troubles hit, the unemployed spouse can return to work either full time or part time until finances are more stable. As a single, you don't have that luxury. There's only you. And unless you're willing to move back home to your parents or onto their sofa at the retirement home, depending upon your age, you need to learn to take care of yourself.
- Establish an emergency fund equal to 9 to 12 months of income. Financial experts recommend emergency funds of only 3 to 6 months. But when you've lost your job and only source of income, it might take much longer to find another one, and you don't have a spouse to help keep the repo man away. Do yourself a favor and save a year's worth of income and keep it in I-bonds. (They are tax-free, inflation resistant, and pretty easy to access. They are the perfect emergency saving vehicle). This is not the fund you use for car repairs, that broken refrigerator, etc. This fund is strictly for job loss. Period. (And if you go through the rest of your life without being unemployed, then rejoice. You are truly one of the lucky ones, and that one year's income will have matured into a hefty retirement egg.)
- Assume the worst. What would you do if you lost your job tomorrow? What if you were suddenly unable to work for 6 weeks, 3 months, a year? What if a family member needed an emergency loan? We create disaster plans for natural disasters; we need to create them for financial disasters, too. Include provisions for such items as mortgage/rent payments, insurance, medical/dental emergencies. By the way, you do have a will, don't you? A single's paltry assets can still end up embroiled in probate. And you'll need some place to keep that will, so invest in a fireproof/waterproof safe. You should be able to find one for less than $40.
- Expand your job skills while you're still employed. This makes it easier to find another job or give you the office skills to temp until the next regular job opens for you. At the very minimum, you should know the MS Office Suite and be able to type 60wpm. As an added bonus, extra skills sometimes result in higher pay, bonus or promotion opportunities at your current job.
- Establish a slush fund of $1000 to $2000. Keep this fund in a limited withdrawal money market and use it to pay for emergencies and unexpected expenses. This is the money you use for those car repairs, new refrigerator, etc. If you use this money, put it back (with interest) as soon as possible. Remember: emergencies only please! No new dresses, concert tickets, sports equipment, furniture...
- Keep your fixed monthly expenses low. How much could you make if you lost your job and had to temp or work retail? Figure out the amount you could make and use that as your guideline. Keep monthly fixed expenses, such as housing, car payment, insurance, and utilities, below this amount, and you'll be able to ride out unemployment much more easily. Any money you make over this guideline is yours to do with however you'd like. Save or spend it. Can't make that guideline? Then don't buy that new car or condo you can't afford until you've saved up a large enough down payment to keep the monthly payments low.
- Consider credit to be the devil. Don't cut up your credit cards, but don't use them either. Except for emergencies and for those activities such as renting cars and booking hotels when they are required, don't carry them. Leave them at home in your brand-new fireproof safe. Besides, if you follow the advice in #5 and keep your fixed expenses low, you should have more than enough money at the end of each month to buy with cash.
- Consider investing in a Roth IRA instead of a traditional IRA. As a single, it's very important that you plan for your future, and a retirement savings vehicle is a must. Financial experts will tell you that you should invest in a traditional IRA for tax purposes, if you qualify. However, you might want to consider a Roth IRA instead. If you lose your job and times grow desperate, as a last resort, you can withdraw the contributions you've made to a Roth IRA without penalty. But again, emergencies only please.
- Buy a house that fits you. If you're careful with your fixed expenses, a home of your own is a wonderful investment. Be careful. Bigger is not necessarily better. As a single, you don't need 2500 square feet, four bedrooms and a separate family room, but a cute 3-bedroom bungalow might be perfect. And it comes with lower insurance and utility bills, too.
As a single, you've got wonderful opportunities available to you that your married counterparts don't. You have complete control over your income and your finances, but you also have no one to blame for your mistakes but yourself. Your single income can equal freedom, security, and possibility. However, you must take care of your money, or your money will never be able to take care of you.
Take the Next Step:
- For more information on single living, click here