Households look different than they did just a couple of decades ago. According to a recent study from the Pew Research Center, roughly 38 percent of adults (ages 25-54) are living alone, which is a nearly 10 percent increase from 1990. As a single person, you have likely fostered a healthy independence and possess a good deal of autonomy in most areas of your life. While being single certainly comes with plenty of benefits, it also comes with serious responsibilities, including managing your finances.
Unlike a household where there are multiple breadwinners, single women need to be sure they have enough money set aside to take care of themselves now and in the future. Even women who are living with a romantic partner are likely to find themselves alone at some point in the future whether because they become separated, divorced, or widowed.
Regardless of your relationship status, the five financial strategies below will help you safeguard your financial future and ensure your peace of mind.
1. Commit to Your Financial Literacy
Since you’re responsible for your own finances, it’s imperative that you have a solid understanding of basic financial matters – this is called financial literacy. The term may sound intimidating, but it has truly never been easier to achieve.
In today’s digital age, free resources abound, including blogs, podcasts, articles, and other materials covering a wide range of topics. Consider which areas of finance you want to explore and commit at least a few hours a week to increasing your knowledge in those areas. Keep doing this until you feel confident about your finances, which will empower you to make wise decisions about your money moving forward.
A great place to begin your financial education is MyMoney.gov, a government website that offers information, resources, and tools for five areas of finance: earn, save and invest, protect, spend, and borrow.
2. Invest, Invest, Invest
Women tend to live longer than men, which could mean that women who had been part of a couple most of their lives may find themselves on their own. This means that all women – not just single women – need to turn a shrewd eye to their financial futures. While women may live longer than men, they often don’t have as much money set aside for their retirement needs.
Get started saving as soon as you can by participating in employer-sponsored retirement offerings. Not only should you participate, but you should contribute as much as you can to maximize your employer’s match, if one is offered. For example, if you make $50,000 a year and your employer matches your contributions up to 5 percent at $0.50 on the dollar, you will receive $1,250. Essentially, that’s added income to put toward your savings. If you can afford to do so, make sure you invest that maximum match percentage so that you don’t lose out on potential money.
If you have some discretionary income left, consider a Roth 401(k), Roth 403(b) or Roth IRA. With the Roth feature, you don’t get the upfront tax breaks, but you will be able to withdraw from these accounts once you retire without having to pay taxes then. You could also explore the option of a Health Savings Account (HSA), which allows you to contribute pre-tax money and withdraw it to pay for medical expenses without paying taxes.
If you still have money left, consider investing so that you can take advantage of the magic of compound interest for other goals you may have, including home improvements, travel, or many others.
3. Establish an Emergency Fund
One critical factor of your financial planning should be an emergency fund. Earmarking a cash cushion to protect you will make it easier to navigate whatever emergency situations may arise, whether it’s the loss of a job, medical expenses, or home repairs, to name a few. If you don’t know where to start, you can explore this guide from the Consumer Financial Protection Bureau. Additionally, a good standard rule is to save about three to six months of expenses in your emergency fund. If that feels overwhelming, begin with just $1,000 and go from there.
As you build your emergency fund, keep in mind that being a single woman means you will not have the added safety net of a spouse or partner should you experience an emergency. It may take you longer to recover financially. In such a case, it would be wise to save between six and nine months of expenses instead. That extra three months will allow you to have a longer timeframe to get back on your feet.
4. Expect the Unexpected
This is the next logical step after setting up your emergency fund. How can you possibly plan for the unexpected? The definition of the word means you aren’t anticipating it to happen. But, if you consider some “what-ifs,” you can craft a plan to deal with unexpected situations like death, disability, or long-term or terminal illness.
The best way to plan for an unexpected crisis that could upend your finances is to have insurance in place to protect yourself. Life insurance or insurance for accidental death or dismemberment, disability or income replacement might be worth considering.
When you’re flying solo, long-term care is another financial concern. If you don’t have a plan in place and you end up needing long-term care, you could find yourself receiving that care in a facility that’s less than optimal because you may not have someone to advocate on your behalf. (That’s why estate planning is so important, but we’ll get to that next!)
5. Estate Planning is a Must
Many people put off estate planning for a number of reasons. In fact, single people without a partner or any children might think they don’t even need an estate plan, but that’s simply not true!
While estate planning does provide a roadmap for family and friends to follow should you pass away, it also includes provisions for you should you become incapacitated. If something happens that leaves you unable to communicate your wishes and to pay your expenses, having an estate plan in place can protect you.
Your estate plan is a legal document that expresses your wishes, including decisions about your assets, healthcare preferences, and bills. In fact, developing an estate plan usually involves selecting individuals to oversee your healthcare and finances, so be as clear as possible. Also, be sure all of your financial accounts include up-to-date beneficiaries.
Financial Stability for Single Women
You are already a self-written success story; you’ve come this far on your own, and I know you can continue to build upon your success. Keeping a keen eye on your finances will help ensure that you continue to flourish financially and implementing the strategies above is a great way to get started.
At Flourish Wealth Management, we understand the unique financial challenges single women face, and we strive to provide the guidance, resources, and tools they need to reach their goals and achieve peace of mind. If you are ready to start planning for your financial future, please contact me today!