Raising children is one of the hardest jobs on the planet, and more than 13 million American parents do it solo, according to 2006 census data. Raising a child to adulthood costs $226,920 on average, according to figures released by the Department of Agriculture in 2010. So what can you expect and plan for if you and your significant other part ways and you are tasked with raising your child alone? For many, some of the biggest adjustments include going back to work, securing an effective childcare plan and being the sole breadwinner of the household. However, there are some other challenges as well.
As a single parent, one of the first items on your checklist should be budgeting. You'll need to sit down and make a monthly budget that consists of fixed costs, variable costs and one-time annual costs, and then compare this budget to your projected income. Fixed costs could include monthly bills for TV, cable, Internet, utilities and insurance. Variable costs may include expenditures such as groceries and money spent dining out and traveling. One-time annual costs include real estate taxes, registration renewals, holiday presents and other items that tend to pop up once a year. Fixed costs are set and usually unavoidable. However, some annual and variable costs can be trimmed down if the budget calls for it.
Newly single parents should also factor in expenses such as childcare, transportation for their children, costs of maintaining a home, rent/mortgage and education. Child support payments and alimony might be additional income sources that help to cover some of these unexpected new expenses.
If your expenses outweigh your available income, then you may have to consider going back to work or starting a new career. According to Raise the Nation, nearly 38% of single mothers live at or below the poverty level. Many college scholarships and grants have been created specifically to help single mothers afford a post-secondary education. Scholarship providers are making it possible for single mothers to create a more secure financial future for themselves and their children. Scholarships.com is an excellent website for information about educational scholarships and financial aid for single parents.
Special Tax Items
There are several tax credits and deductions that are available for lower-income parents with children. Tax credits are typically more valuable than a deduction, because a credit will offset your tax bill dollar-for-dollar, whereas a deduction will help reduce your taxable income. Here are some of the tax advantages available to single parents:
- The Child Tax Credit was extended throughout tax years 2011 and 2012, which allows all tax filers to claim a maximum $1,000 credit per child (single parent with MAGI under $75,000).
- Child Support payments are not taxable income to the recipient and are not deductible for the payer.
- Alimony counts as taxable income for the recipient and as a tax deduction for the payer.
- One parent can claim the child as a dependent and receive the additional exemption on his or her tax return.
- The Child and Dependent Care Tax credit offers up to $1,050 back. Families that earn less than $15,000 can claim a credit for 35% of qualifying expenses up to $3,000 for one child and up to $6,000 for two or more children. If your earned income is more than $43,000, you are still are allowed 20% of eligible costs.
- Lower income earners, those under $36,920 for 2012 with one qualifying child, can qualify for the Earned Income Credit (EIC). It offers higher education related tax credits and deductions for tuition and fees.
Update and Review Your Financials
Life-changing events such as divorce, childbirth, marriage and loss of a loved one all call for a review of your financials. You should start with your estate documents by ensuring that you have updated your will to reflect your exact wishes for your belongings. Next, follow your state-specific requirements for naming guardians for your children. Life insurance is an essential need for both parents, and most attorneys will include this as part of the divorce decree.
Next, you'll want to review your existing retirement plans, annuities and other accounts for which you can name a beneficiary. If you plan to go on vacations without your children or you use the services of a caregiver, then you'll want to provide him or her with all the pertinent medical and legal documents (authorizing the caregiver to make medical decisions) so he or she can ensure that your child receives the best care in the event of an emergency.
Future Planning for Children
Since it will take some time to get used to being a single parent, it's often wise to establish an emergency fund, which typically includes enough liquid cash to cover six to nine months of expenses.
If you want to teach your children about the importance of money, you can have them help with the chores around the household as a way for them to earn their weekly allowance and lunch money for school. You can also set up a 529 college savings plan for them and make a matching contribution similar to that of their allowance.
Be a Smart Shopper
Don't be ashamed to accept hand-me-downs or shop on the Internet for used items that you know your children will outgrow, such as strollers, swing sets, cribs and bikes. Websites such as eBay.com and Craigslist.com offer plenty of household and children's items at bargain prices.
Make shopping lists to avoid frivolous spending or buying things out of haste. Don't forget to use coupons when you go shopping. By planning your day to handle several errands on the same trip, you can hit all the spots at once and save on gas and time.
The Bottom Line
Single parenthood offers many challenges, most of which you may not be fully prepared for. By planning and budgeting wisely, you can not only raise your children more comfortably but also help them develop positive, life-lasting spending habits as well.