Financial planning for singles

Financial Planning

More people than ever live in one-person households. Living independently offers you freedom, flexibility and the opportunity to take full responsibility for your own finances.

This may require some additional planning for life’s milestones — and for the inevitable bumps in the road.

Build your emergency fund

Living on a single income can make it easier for an emergency to knock your finances off course. You don’t have the additional support of someone else’s income or share the cost of big-budget items. That means having readily accessible funds in case of a job loss, illness or major unexpected expense is even more important.

A typical recommendation is for households to have the equivalent of three to six months of living expenses saved in an easily accessible account. However, you might want to consider increasing your emergency fund to nine to twelve months of expenses.

Set aside money each month until you reach your target. Consider where you might reduce expenses to increase your savings rate.

Prepare to buy a home

Nearly 40 percent of single adults own their own homes.1 If you’re contemplating buying a home, consider working with a mortgage loan officer. They can help you determine the best home loan option for your budget. Different mortgage loans have different interest rates and recommendations for how much you should contribute to a down payment.

To make sure you can manage ongoing expenses, buy a home with mortgage payments that fit into your existing budget. It’s important to take emergencies into account when setting your budget. If an unexpected cost comes up, you want to have enough to cover it so as not to go into debt. You might consider home warranties as a way to prepare for the usual wear and tear that comes with owning a home. Another possible strategy is to find a roommate who can help with rent, split household bills and lend you additional financial stability.

If you’ve separated from or lost a partner, it can be smart to postpone any major financial decisions, such as buying a new home, for at least six months. You can use this time to take inventory of your accounts, determine how much cash you need to cover your expenses and, when you are ready, begin making plans for how to move forward.

Plan for retirement

Preparing early for retirement matters for everyone, but it becomes particularly important when you have to rely on a single income to support your retirement needs.

Here are some considerations:

  • Retirement accounts. If you have a 401(k) account through your job, contribute at least enough to receive your employer match. If possible, contribute up to the maximum amount allowed per year. When you are age 50 or older, you’re able to add more to your 401(k) account through catch-up contributions. A Roth IRA also offers a good opportunity for savings because the investment gains in the account are generally not taxed.

    Make sure to track how much you will have saved by the time you stop working and what you will expect to spend in retirement. You may decide to increase your contributions to your retirement accounts or to wait longer to retire. These decisions can help you build up a larger financial cushion.
  • Insurance. Investing for your future also means protecting your assets. Pay specific attention to long-term disability insurance coverage, as your employer is unlikely to cover an extended time away from work. Purchasing your own policy has many benefits, including keeping your coverage if or when you change jobs and collecting benefits tax-free if you become disabled.

    As part of your healthcare planning, you also may want to consider buying long-term care insurance. This kind of insurance policy helps to cover expenses if you need in-home care or to move into an assisted-living facility or nursing home.
  • Social Security. If you were previously married and your marriage lasted 10 years or longer, under certain conditions, you can receive Social Security benefits based on your ex-spouse’s earnings record. If you’re widowed, you may also be eligible to receive monthly Social Security benefits.

Name your beneficiaries

Preparing an estate plan and choosing who will make financial and medical decisions for you can be less clear-cut. If you don’t write a will, and you don’t have a spouse or children, the inheritance laws in your state will determine which family members, such as your parents or siblings, will receive your assets.

If you prefer to name your own beneficiaries, which could include people or charities, you’ll need to specify in writing who you want to inherit your estate. You may want to enlist help from an estate planning attorney to make these plans.

Once you have an estate plan, regularly revisit your will and the names of the designated beneficiaries for specific assets, such as your life insurance policy and employer-sponsored retirement account. You may find that you designated a parent who has since died, or that you named a friend who is no longer closely involved in your life.

When you’re designating your beneficiaries, also determine who you want to have as your power of attorney. This person can make financial decisions on your behalf, such as investment choices and signing your tax returns, should you not be able to. Also, consider designating a healthcare power of attorney to make decisions about your medical treatment if you’re unable to. Finally, you may want to create a written healthcare plan, known as an advance directive or living will, with clear instructions about your wishes for medical treatment.

Living single is often rewarding and empowering. By considering these suggestions for long-term planning, you can prepare for unexpected challenges, build your assets and create a strong financial future.

Long-term financial planning often starts with identifying your goals — and the reasons behind them. Learn how to set financial goals in 5 steps