Flying solo: A single gal’s guide to moneyFARGO - Nancy Kvamme started watching her spending after she’d been working awhile and didn’t have much to show for it. She was single, so her money was her responsibility.
By: Sherri Richards, INFORUM
FARGO - Nancy Kvamme started watching her spending after she’d been working awhile and didn’t have much to show for it. She was single, so her money was her responsibility.
“Without having kids or a spouse there is no one to blame for not having money,” says Kvamme, who is now a money coach through her business, In the Black.
More than 31 percent of North Dakotans and 28 percent of Minnesotans are householders living alone, according to Census data.
For these singles, personal finance is truly personal, and that comes with some unique challenges.
“You don’t have that other person to rely on, so if you suffer a job loss or a period of illness, there’s not that second party to help pick up the shortage,” says Tracy McFarlane, certified financial counselor with the Village Family Service Center in Fargo. The percentage of income going to housing and utilities is going to be higher than for a couple, she adds.
Even vacations end up being more costly per person, Kvamme points out, as hotel and cruise rates are based on double occupancy.
But there’s also more flexibility, as no one else is dependent on your income. Child-related expenses and college savings aren’t eating into the take-home pay. There’s no need to compromise on financial goals.
“You have flexibility to be selfish because you’re only focusing on yourself,” says Paul Jarvis, a portfolio manager with State Bank and Trust and Certified Financial Planner Board ambassador. “You can spend your money endlessly on cars and clothes. Or you can start building your budget around your cash flow.”
The first step to managing money solo is to track expenses and figure out if the money coming in is as much or more than the money going out, Jarvis, Kvamme and McFarlane all say.
A recent article on iStock Analyst listed common budgeting mistakes singles make, including living paycheck to paycheck, failing to track expenses and make a budget, and racking up credit card debt.
Overspending is a top regret among many people later in life, Jarvis says. Most look back and wish they would have saved more.
“Lots of people just spend beyond their means. People just don’t get a sense of their cash flow,” he says.
Single people may be less likely to think about the consequences, and plan for the future, he adds. Jarvis points to a University of Minnesota study that showed men were more likely to spend more recklessly when there were fewer women in their life.
There’s a temptation to live the high life, and keep up with the Joneses.
“They may spend more money for eating out and entertainment. The key would be to track your spending,” McFarlane says. “Too many of us underestimate how much we’re spending on groceries and eating out and entertainment.”
Cutting back 25 percent in some of those discretionary categories would free up money to save for financial goals such as a new car, a down payment or a vacation, she says.
Freezer cooking, cooking extra to eat later, and hosting potlucks with friends are ways to make cooking for one more cost-effective, Kvamme says.
SAVE AND PLAN
After tracking expenses, McFarlane says singles should set aside money for periodic expenses (like car insurance and Christmas gifts) and emergency savings, and then focus on retirement saving.
According to the January 2012 issue of Financial Planning magazine, one-third of pre-retirees between the ages of 55 and 64 are single. Single retirees can’t rely on a spouse’s pension and receive only one Social Security check.
Those just starting out should aim to save 5 to 10 percent of their income for retirement, McFarlane says. Jarvis recommends 10 percent, with 15 percent being a “better number.” An employer-sponsored plan, such as a 401k, is a good place to start saving.
McFarlane says it’s also important singles have adequate health insurance, and enough in savings to meet their deductible in the event of a hospital stay.
Most employer-sponsored short-term disability plans pay 66 percent of your income. McFarlane urges people to ask if they could survive that pay cut.
“If your expenses are that tight, you might want to consider shopping around for a disability plan,” she says, adding that this gap is reason alone why it’s important to have three to six months of expenses in an emergency fund.
The need for estate planning is higher when single, Jarvis says. A health care proxy and financial power of attorney designate a loved one to make decisions for you.
As no one else is dependent on your income, the need for life insurance isn’t as great.
“Most employers do offer a small life insurance policy that would most likely cover any burial costs,” McFarlane says, adding that employees without such coverage may want to take out a small term policy, which should cost less than $20 a month.
In the end, overcoming the challenges and maximizing the opportunities of managing money on your own come down to self-control and accountability.
“You’re not accountable to anybody but yourself. It’s so important to have a list of your financial goals so you structure your budget so you’re working toward those ultimate goals,” McFarlane says.
“Fun and vacations and entertainment need to be reasonably priced and fit within your budget at that time of your life,” she says.
For people who find themselves single after years in a relationship, all the same single-money challenges apply, often with the added expenses of a child.
Tracy McFarlane says when a couple divorces and moves on to two individual households, it’s almost always unaffordable for both parties to have the same standard of living. “The lifestyle can’t be duplicated,” she says.
Balancing the budget may be more difficult, as often a second job creates more day care expenses, McFarlane says.
People in this position may want to consider swapping child care services, McFarlane says. Having a roommate or renting out a room can be another way to increase income.
Often, one party hasn’t been involved in the finances at all, and suddenly needs to take control of their finances, Paul Jarvis says, which is an added strain during a difficult time.
He suggests finding a trusted financial adviser to walk through the details.
Readers can reach Forum reporter Sherri Richards at (701) 241-5556