single income

5 Things Every Single Person Needs to Do With Their Money

Denise Hill — Mon, 12 Mar 2018 10:00:06 +0000

The number of Americans who wait to get married — or never get hitched — is growing. In fact, for the first time in history, the number of unmarried Americans almost equals those who are married. The U.S. Census Bureau reports that there were 110 million unmarried adults (age 18 and older) in 2016, which is 45 percent of all U.S. residents over the age of 18.

Living a Sex in the City lifestyle may be alluring, but it also comes with hidden financial pitfalls. This is especially true for singles who have never been married. While divorcees and widows have distinct challenges, there are resources and services out there to assist them through their transition. However, if you are someone who has never been married, you're pretty much on your own.

With that in mind, we've compiled a list of the top things that every single person should do with their finances.

1. Make saving money your top priority

As a single person, you only have one income. You have to pay for living expenses and handle any emergency that arises on your own, so having a true emergency fund is paramount.

Financial experts advise that singles have as much as a year's worth of living expenses put away in lieu of the traditional three to six months' worth. A larger emergency fund will help sustain you for longer during lean times or a job loss. Married couples have the benefit of sharing expenses and may have a second income to help them through difficult times. As a single person, you don't have that luxury.

It is also highly advisable that you begin saving for retirement now. Look for ways to maximize your contributions. Take advantage of things like a company match, and contribute 10 to 15 percent of your pay to your employer's 401(k) or an IRA. Educate yourself on the different types of investments and pay particular attention to index funds, which usually have low fees. (See also: 5 Actions Women Can Take Right Now to Get Their Retirement On Track)

2. Stick to a zero-based budget

As a single, your budget is your financial guide and road map. It undergirds your financial success.

It's a good idea to use a zero-based budget as your cash flow plan. A zero-based budget makes you account for every single dollar you spend before you spend it. It makes you accountable for how you choose to allocate your funds and makes you cognizant of where all your money is going. If you earn $3,000 per month, your monthly budget — including every cent you spend, save, or invest — should be accounted for and should total $3,000.

It's also a good idea to institute a routine system to track your expenses. Every few months, keep an extra keen eye on the dollars that go in and out. This will help you gauge and adjust how much you are spending on things like gas, eating out, groceries, and clothes. It will also show you where you can cut back during lean times or if you want to build a fund for a specific purpose such as a vacation or a new vehicle.

3. Protect your credit and avoid debt

Protecting your credit is very important no matter who you are. When it comes to using credit, make sure you use it responsibly. If you use credit cards, keep your balances low enough that you can pay them in full at the end of each month. You should also strive to keep your credit utilization ratio below the recommended 30 percent threshold. (See also: The Fastest Method to Eliminate Credit Card Debt)

If you do have debt — including the dreaded student loans — prioritize paying it off as soon as possible. And once you've gotten rid of it, only use additional financing for large purchases such as a home or a car.

Another part of protecting your credit is routinely reviewing and correcting any mistakes on your credit report. You're allowed one free copy of your credit report every 12 months from each of the three nationwide credit bureaus: Equifax, Experian, and TransUnion. You can obtain these reports from AnnualCreditReport.com. You can also use free resources such as Credit Karma to check your credit score and monitor your information to ensure it's accurate and that your identity hasn't been stolen or misused. (See also: How to Read a Credit Report)

4. Get disability insurance

Disability insurance is critical for all singles, but especially for single women. A 2012 study from the American College showed that women were more likely than men to have a disability that prevents them from working.

The study also found that women were more vulnerable to experiencing tremendous financial distress if they became unable to work due to a disability. Nearly 50 percent of the women surveyed categorized experiencing a disability as "somewhat devastating" in regards to their family's finances. And 22 percent believed that their savings would last less than a month if they were unable to work.

Regardless of your gender, if you are single and employed, your entire source of income could be in jeopardy if you suddenly become disabled. It is imperative that you have adequate disability insurance (especially if you are a single parent).

If your employer offers both short- and long-term disability, take both. Choosing to forgo disability insurance to save a few dollars a month isn't a gamble worth taking. Sure, you are healthy today, but what if …? Insurance helps you plan for and protect against life's what-ifs. (See also: 4 Things You Need to Know About Disability Insurance)

5. Get an accountability buddy

Discipline is easier when you use the buddy system and when you are required to account for your actions and decisions. Married couples often rely on each other for this, but you can rely on the advice and motivation of a trusted friend or family member. Making good financial decisions is tough. Having someone to help you weigh your options will save you time, energy, and money.

When choosing a financial accountability buddy, choose someone who is financially astute, knows you well, is frugal, and has your best interests at heart. Get someone you know will be brutally honest with you and will make you talk through financial decisions. It should be someone with whom you are comfortable sharing financial intimacy.

This may not be your best friend or the one you go to when your heart is broken. This person should be practical, pragmatic, and analytical. He or she should make decisions from the head, not the heart.

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This article is from Denise Hill of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Everybody's Wrong About How Much House You Can Afford

Matt Bell — Wed, 09 Nov 2016 09:30:07 +0000

A home is one of the most expensive — and most emotional — purchases you'll ever make. That high cost and high emotion combination can be dangerous, tempting you to spend so much on a house that it ends up owning you.

Instead, buy a house you can actually afford. What is a reasonable cost, you might ask? For starters, ditch the conventional homeownership wisdom, and consider this plan to help you buy a home you can truly afford.

A Reasonable Percentage

I've spent a lot of time crunching numbers to come up with recommended cash flow guidelines, showing how much various sized households with various levels of income can afford to spend on everything from clothing to vacations. All that spreadsheet time gave me more than a headache; it gave me a deep appreciation for the importance of keeping housing costs under control.

Here's what I found: If you're going to be able to save for emergencies and near-term purchases, invest for longer-term needs such as retirement or your kids' college costs, live generously, and enjoy some financial breathing space, you have to keep your total housing costs (mortgage, property taxes, homeowner's insurance, and association fees, if applicable) to no more than 25% of monthly gross income. Preferably, no more than 20%.

Even more radically, I recommend that two-income couples run the numbers on what they can afford based on just one of their incomes.

I know this all probably sounds ludicrous, but hear me out.

But I Qualify for More!

Mortgage lenders will typically allow you to devote 28% of your gross income to housing costs. They assume you'll have other debts as well and will be fine with that as long as it takes no more than 36% to 40% of your gross income to cover your housing costs and these other debts.

But mortgage lenders aren't the ones who'll be making the payments. You will.

Keeping your monthly housing costs within the parameters I suggested, and holding no other debt, will do wonders for your solvency and stress level.

Why Not Use Two Incomes?

If you're a double-income household, think twice before basing your housing decision on both incomes.

If you don't have kids but would like to someday, and if one of you would like to step out of the paid workforce for a period of time in order to be home with your kids, it'll be a lot easier to transition to that life if your home doesn't require two incomes.

That was the single best financial advice my wife and I received before we got married. Following that advice meant renting for the first 10 months of our marriage and then buying a condo in what our realtor optimistically described as "an up and coming neighborhood" in Chicago.

After our first child was born and my wife left her job to be home full-time, the financial transition wasn't very difficult at all.

The key to getting acclimated to living on one income is not getting acclimated to living on two incomes in the first place.

If you don't plan to have kids, or if you do but you both plan to continue working full-time, it can still be dangerous to buy a house that requires two incomes. What if one of you loses your job?

Choosing to transition from two incomes to one because one parent wants to stay home for a period of time is one thing. Being forced to make that transition because one spouse goes through an extended time of unemployment is far more painful.

What If You Already Have a Two-Income House?

Very often, when people say they can't afford to save, invest, or support charitable causes they care about, it's because they're spending too much on housing.

If you're in that situation, consider something radical. Consider moving to a home you can more easily afford.

There's nothing easy about moving. I realize that. But I know two couples that have sold homes they realized they really couldn't afford. In both cases, moving was difficult, time-consuming, and even embarrassing. But both couples are so happy to have made the move. It's been better for their finances and their marriages.

Keeping your housing costs reasonable is an essential part of wise money management. That means keeping your housing costs to no more than 20% to 25% of monthly gross income — and preferably basing that on one income. It's a radical idea, but it may just enable you to enjoy your home without financial worries. And that's worth more than extra square footage any day.

This article is from Matt Bell of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Running the Numbers: Living on One Salary

Kelly Kehoe — Thu, 05 Jul 2012 10:24:08 +0000

Whether you’re a single or stay-at-home parent or have a disabled or unemployed spouse, there’s something you likely have in common — your family is living on a single income. In a day and age where statistics show the number of working couples on the rise (not to mention inflation in terms of the cost of living), the notion of forgoing one spouse’s income sounds preposterous. It’s not impossible, however, as many middle class couples and families are managing just fine without the extra income. All it takes is some careful planning. (See also: Is Living on One Income a Status Symbol?)

Patience Required

If you're fortunate enough for this lifestyle to be a choice for your family (as opposed to a sudden layoff forcing a partner to stay home and look for another job), then you have more flexibility in deciding how to to go about living on a single salary. For budget issues, you can cut back in some areas of your budget and continue to splurge in others. However, even with this breathing space, a certain level of patience is required. Perhaps you're in a situation where one spouse wants to leave their job to fulfill their dream of becoming an author or go back to university to get their master's degree. In these cases, it's possible that the spouse working for a paycheck may feel resentment or envy for having to take on the role of sole breadwinner while the other pursues a different calling than paid work. This must be avoided at all costs, so before you make the leap and leave your job, make sure both spouses are content with the idea of living on a single salary.

Downsizing

If you are caught unprepared (in instances of disability or lay-offs) or your personal situation calls for it, you may need to look into downsizing your lifestyle. This can involve: moving into a smaller house or apartment (or to a more affordable neighborhood in your area), selling the nonworking spouse’s car, cutting luxuries such as movie rentals or pricey wine from your budget, and accounting for lowered discretionary expenses from month to month.

Balancing Act

After constructing a new budget, now look to the workload shared between partners. Even if one spouse or parent isn’t working for a paycheck, that doesn’t necessarily mean they aren't working at all. To make this a fair and successful venture, the stay-at-home partner will likely be responsible for housework, yard work, taking care of the kids, and anything else to support the household while the other partner is away at the office.

Side Jobs

If the nonworking partner has the entrepreneurial spirit or your family would like a little extra money so cutbacks in discretionary expenses won’t seem so severe, consider starting a small, home-based business or taking on side jobs to put your time to profitable use. This can involve: childcare, yard work, repairs, selling products, writing, web design, and more. Your options are limited to your imagination (a few stay-at-home parents have come up with great ideas that went on to earn them more than a salary at a regular job would have).

What about your family? Do you live on a single salary? If so, how do you manage? Tell us in the comments below!

This article is from Kelly Kehoe of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: