I recently saw part of a skit on Saturday Night Live titled “Don’t Buy Things You Can’t Afford” with Steve Martin where a married couple were absolutely perplexed about the idea of saving for a purchase rather than making a purchase with a credit card. Another actor kept stating over and over in an infomercial type voice “Don’t buy things you can’t afford” to which Steve Martin would respond “Oh, so buy it on my credit card now so I can have it?” It was a hilarious look into American society’s buying habits.
One of my goals this year is to learn more about financial literacy. For more on that term please see my previous blog about the book “Rich Dad Poor Dad.” One of the most important things I can do now for my financial future is try to live within my means and not rack up the credit card or other debt. This is easier said than done in a one income household. I do use credit cards and love getting my reward points, but I try to pay the card off each month to avoid the interest charges. Credit cards can help increase your credit rating, and do come in handy when emergencies arise like the time my car blew a head gasket and I did not have the cash on hand to make the necessary repair. I don’t use my credit cards for items that I want, only the items that I need.
The next step to a healthy financial future is saving whether it is through a traditional savings account, your employers 401K, CD’s or money markets. Traditional savings accounts pay lower interest, but are easily accessible when emergencies arise.
According to an article at Kiplingers.com “Single women, by far the majority of single-parent households, earn an average of $26,500 a year. When you’re the breadwinner, you have all the more reason to protect your income against disaster. Most experts recommend carrying life insurance equal to six to ten times your salary. A healthy man or woman at age 45 can pick up $500,000 in term-life insurance for as little as $450 to $600 a year. “That provides an awful lot of security for you and your kids,” says Garrett. (I think he meant to say surviving beneficiaries because well, you have to die to collect life insurance.)
For families with similar constraints, a budget becomes “hugely important,” says Mehler. He encourages single parents to track expenses on a spreadsheet and to allocate the first spare dollars to an emergency stash. Retirement savings is the next priority, Mehler says — “Mom or Dad should be looking out for Mom or Dad” — and college savings comes in a distant third. That’s because single parents with modest incomes and no other support can probably expect financial aid for their kids’ education. Or they can work and save to go to college. Parents who file as head of household, for instance, usually pay a lower tax rate and are entitled to a higher standard deduction than single taxpayers and married couples filing separately. Parents may also be able to take a $3,200 exemption for each qualifying child, plus a $1,000 tax credit for each child younger than 17 at the end of the year. (For more on the tax issues of divorced parents, see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.)”
As single parents often our budgets are stretched to the max and saving can be extremely difficult. But, if you skip just two cups of java at Starbucks each week, you can sock away five dollars per week, or $20 per month. If you do that consistently over 10 years you will have saved $2,400. If you choose to save with a bank, their small amount of interest can easily add a few more dollars to the account. It is worth it to have some type of savings plan for emergencies and your future.