Whether through birth, divorce, or death, becoming a single parent can mean tremendous pressure to figure things out—fast. And while life may have changed dramatically for the adults involved, the kids still need new practice gear, daycare tuition is still due, and those credit cards aren’t going to go away. It’s undoubtedly a stressful time for everyone involved, but it doesn’t mean that a financially healthy life is no longer an option.
We won’t say it will be easy, because it won’t be. But if you’re strict with yourself, diligent, and willing to make some sacrifices, getting your family back to a good financial spot on a single-mom budget (or single-dad budget) is absolutely possible. We’ve created a step-by-step guide to get you started not only paying off debt, but even generating positive cash flow.
Step 1: Budget For Your New Reality
The first step is to create a workable, yet conservative budget based on your new income, which may be less than before, and your new expenses, which will likely be more if you formerly split bills with a partner. This process is essential and often eye opening, especially if you’re dealing with extra costs like lawyers or adoptions. Don’t be surprised by a negative cash flow, but do get in the the mindset that it’s only temporary.
To keep from getting overwhelmed and giving up, focus first on the immediate needs like bills, debts, and groceries. While you shouldn’t completely ignore savings or retirement accounts, those can come into play once you have a clear understanding of your day-to-day finances.
One of the keys to successful budgeting is to make sure you keep track of all of your bills, including occasional expenses like oil changes or dance recital costumes. Take an inventory of every month for a year, noting which events happen in what months and how much they might cost.
A good way to set aside money for those needs is to estimate your variable utility bills based on their most expensive months. If you have a month where the bill is lower, put the difference toward those other needs without putting a dent in your budget.
Step 2: Start Looking for Money
If you do find yourself in the red, it’s time to start looking for ways to save money and cut back on expenses. This step might be a little painful, especially if you’ve been used to a comfortable, dual income lifestyle, but living within your means is essential to getting ahead.
Start with your most expensive bills and look for ways to lower them. Consider turning up your air-conditioner a few degrees to save on energy bills. You may not even notice the temperature difference, but it could save you quite a bit of money during hotter months.
Next, take a look at your cell phone bill. Analyze your data usage and see if you can manage with a smaller plan. And, as painful as this advice might be, resist the urge to upgrade to the latest and greatest phone every time one comes out. Stick to the old adage “If it ain’t broke, don’t fix it,” especially if the latest changes are only cosmetic. Instead, treat yourself to a new case.
Another great option for cutting way back on a monthly bill is to join the 5 million Americans who are cutting their cable cord in 2018 and utilizing much cheaper streaming services. If watching TV is extremely important to your family, consider putting some of the money you save toward upgrading your home internet speed so you can stream without buffering.
Outside of monthly bills, look for expenses you can cut back on or eliminate completely—like that morning coffee shop habit. Is there a less expensive way to buy your groceries, clothes, and other necessities? Consider shopping at a consignment boutique for your clothing, and make coupons and circulars your friend. Cut back on eating out, and—if going to restaurants is a special treat for your family—check out sites like Groupon and Gilt City for deals.
There are a thousand other ways to cut back, and where you choose to make changes is entirely personal. The key to making the sacrifice worth it is to take your newfound money and put it straight into paying off debt and creating (or recreating) a nest egg. Once you’re back in the black, that money goes straight into your pocket.
Step 3: Open an Interest-Bearing Account
Even for single parents, setting money aside for unexpected expenses, retirement, or a rainy-day fund is possible. The key is to make your money work for you. SoFi Money®, our cash management account, where you can earn, save, and spend all in one. Combine that with no account fees (subject to change) and a free debit card.
Step 4: Take Advantage of Tax Credits
How you file your taxes as a single parent can unlock several ways to help reduce your taxable income, and a refund is valuable found money that can make a big dent in high-interest debts, grow savings, or give you a little fun money.
However, the recent tax reform has brought about some significant changes in credits , deductions, and tax brackets that could impact how you file. Consider using up-to-date tax software, a tax service, or a tax accountant or attorney to help you navigate the changes—especially if you’re a new single parent this year.
Step 5: Stay on Top of Your Bills
This step is essential to maintaining a healthy budget, because late fees, especially on high-interest credit card payments and overdraft protections, can quickly find you with more debt instead of less. In addition, electric or utility reconnection fees not only add to your expenses, but also affect your credit score.
The easiest way to never miss a bill payment is to sign up for autopay and have it automatically deducted from your checking account. But if you need to shuffle money around each month to make ends meet, automatic drafts can be a detriment and lead to overdraft fees.
To help keep track of what’s due when, take advantage of smartphone notifications and set monthly repeating reminders for four days before a bill is due (to account for weekends and holidays). When that notification pops up, pay it immediately. If it’s an auto-draft reminder, take a quick peek at your account to make sure it has enough funds.
Step 6: Pay Off Your Credit Cards
Eliminating even one high-interest debt can make a significant change in your monthly cash flow. When you’re creating your budget, leave room for payments that are higher than the minimum, and check your card’s options to see if you can split the payment between minimum and extra principal. Then, avoid using your credit cards for new payments as much as possible.
If you’re dealing with multiple, high-interest credit cards, consider consolidating them into one monthly payment with a personal loan. You might get a much lower interest rate than your credit cards offer, and you’ll only have to set one bill payment reminder. In addition, if you take out a personal loan with SoFi, you’ll get access to the member community, where you can connect with other single parents with similar financial challenges and goals.
There’s also the option to transfer all of your existing balances onto one, 0% credit card. However, that has drawbacks, namely balance transfer fees, the return to a high interest rate once the promotional period is over, and the temptation to keep spending. If you choose this option, read the fine print carefully and note details like annual fees, the final month of 0% interest, and what the interest will be after the promotional period is over.
For a number of reasons, being a single parent is difficult—and the impact is more than financial, especially if it’s not what you’re used to, and is related to some kind of loss. But with your finances on more solid ground, it allows you to spend that time and energy you’d be worried about finances more meaningfully with your children—which, at the end of the day, is the most important use of your time.
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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC . Neither SoFi nor its affiliates is a bank.