Creating a budget can be difficult for single parents. Making ends meet is hard when you are single and have kids. Aside from a roof over your head, you also need to consider buying food and clothing for you and your little ones.
Budgeting for your children is important, especially when you are raising them on your own. What follows are some ways you can improve your finances as a single parent.
Create a Monthly Budget
The best way to make sure you have enough money for your family is to create a monthly budget. You can optimize all your resources so that you can provide for the needs of your family. The most challenging part about creating a budget, however, is allocating the resources properly.
List all sources of your income, including paycheck from work, money earned from part-time jobs, alimony, investments, and other sources of income you receive regularly. After summing up your income, the next step is to list all your payable bills, obligations, and debts. You should be honest when auditing your finances so that you get a realistic look into both your expenses and your income.
Another factor to consider when creating a financial plan is the debt-to-income ratio. This is the ratio that shows the relationship between your debt and your income. To find the ratio, you add up your monthly income. Then find the sum of your monthly debts. Divide the total debt by the total income. The result is your debt-to-income ratio.
The higher the ratio, the harder it is for you to get better terms for loans and credit cards. With a single income, you should do your best to pay off your debt fast. You should also avoid making reckless financial decisions.
With a high debt-to-income ratio, your only solution to financial emergencies is through some non-secure realistic personal loans. Just make sure that you can repay the loan on or before the due date.
Set Your Priorities
It is important that you pay the most important bills first every month. Your priorities should be housing and food. After these expenses, look for other things that are vital to your household, such as tuition, utilities, and daily expenses.
As a single parent, you might need to hire a babysitter or nanny while you are at work. You can save on childcare by asking your mother, father, or other close relative to care for your child when you are not at home. Doing this would also give you peace of mind knowing your kids are safe.
Utility bills should also be part of your priority list. You can’t live without water and electricity. You can downgrade some services to save money, such as phone and internet. However, you might need a fast internet if you are working from home. The good thing is that you don’t need a sitter if you work from home.
Once you have your priority list, the next step is to find ways to reduce your overhead costs. You could look at your electric consumption and can turn off appliances when they are not in use.
Budgeting Methods for Single Parents
Single parents can use three budgeting strategies. Keep in mind that each household is unique, and one method might work for other people but not with you. Find the one that suits your lifestyle and stick to it.
1. Zero Based Budget— In this method, you take all your money and spend it all during the month. It guarantees that you don’t spend money that you don’t have.
2. Balanced Money Strategy— This is also known as the 50/30/20 plan. With this type of budget, you spend 50 percent of your income on your needs, 30 percent on your wants, and the remaining 20 percent goes for savings. You can also use that 20 percent to pay off your debts.
3. Cash Only Method— With this strategy, your purchase and pay with cash only. You thereby avoid using your credit card as much as possible.
Don’t Forget to Save
Whatever method you choose to use, you should stick to your budget. Don’t overspend because now you know that you can live on a single income. Once you have covered all your priority expenses, you should consider where you would use the remaining money.
As a single parent, you should always have a savings cushion that you can use for unexpected situations. This fund can be used to stay out of debt, and at the same time, accumulate savings for other expenses.
Keep Your Kids Involved in Financial Planning
If your kids already understand the concept of money, then you should consider making them part of the budgeting process. This action will help you keep the budget on track and provide them with a good foundation for managing their own finances later in life.
Discussing with your children about the budgeting process guides them on the most sensible ways to spend their money wisely. It also makes them aware of the importance of limiting expenses. Kids learn the financial limitations of their family in a realistic manner while participating in planning the budget.
Give Older Children an Allowance
You should start by giving a weekly allowance to your kids once they reach the age of 12. It teaches them how to spend their money wisely, and at the same time, it helps them save up for what they want to buy. The amount of the allowance depends on the child’s expenses, maturity, and the household budget.
Set Financial Goals for the Household
It is easier to make a financial plan when you are aiming for a goal. You should set short-term and long-term goals for the household. You need to compute how much money you require in order to achieve your goals. A short-term goal might be something like a family getaway.
One long-term goal is saving for a college fund. You should start a 529 plan for college so that you can afford to send your child to college in the future.
You should also start saving for your retirement. Look into your company’s 401k program and try to contribute enough money to get the full match from your employer. You can also look into an IRA, which is a retirement fund for people who want to save up for their future.
Loans and Credit Cards
While credit cards can help improve your cash flow, you should know how to manage repayments. It is important to use plastic properly so that you can get its benefits, such as cash-backs, discounts, and reward points.
Another advantage of using a credit card is that you can monitor your expenses and pay them off every month. However, there are instances that might force you to miss your payments. When that happens, you can’t use your card. And you will suffer from increased debt.
When you face financial difficulties, you can obtain a personal loan to get by. When applying for a personal loan, make sure that you get one with low interest rates. Make sure that you pay it on time so as to avoid expensive fees.
Paying off your debt faster will improve your finances. You should set a fixed amount every month to decrease your financial obligations. If you can, you should pay it off early so that you are not tempted to use the money on unimportant stuff.
These tips are ones you can incorporate into your household’s budgeting plan. Being a single parent can be difficult, but it will be important to use all your resources properly to ensure you and your children enjoy financial security today and in the future.