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Top 10 financial priorities for single mothers

Finding a balance between investing for retirement, saving for their child’s education, and meeting the financial challenges of the present weighs heavily on the minds of single moms.

While it goes without saying that every single mom’s financial circumstances are uniquely different, in our experience single mothers face very similar challenges when it comes to their finances. Shouldering a heavy workload while raising children on their own, multi-tasking is a necessity, time is scarce, and money is tight.

Many single moms attest to being fearful for their financial futures, unsure of who to trust when it comes to financial advice and overcome by guilt at not being able to meet their children’s every need. Finding a balance between investing for retirement, saving for their child’s education, and meeting the financial challenges of the present weighs heavily on their minds, and simply finding time in their busy schedules to process it all can be something of a challenge.

In this article, we’ve used our experience of working with single moms to help structure a set of financial priorities:

1. Income protection: Those running a dual-income household will appreciate the comfort of knowing that there’s a second income to fall back on if things go awry. With many industries still in the throes of economic recovery following the pandemic, job security is at an all-time low, placing additional stress on those running single-income households. If you’re fortunate enough to be employed or generate a regular income through your business, insuring your income through a comprehensive income protector should be a top priority for you. While an income protection benefit does not cover you in the event of job loss or retrenchment, it is designed to replace your income if you are rendered unable to work as a result of disease or disability, be it temporarily or permanently.

Note: If you have an income protection policy in place, double-check the waiting period that you have selected on your policy. There is generally a three-month waiting period from the date of disability to the date that your claim becomes payable, meaning that you will need to have sufficient emergency cash set aside to tide you through the waiting period, although it is possible for you to select a shorter waiting period – although this would naturally result in a higher premium.

2. Medical aid and gap cover: There’s no getting away from the fact that medical aid is expensive, and with premium increases outstripping consumer inflation year-on-year, healthcare costs invariably take up more and more of one’s expenditure as the years go by. That said, not having medical aid for you and your children means placing yourselves at the mercy of state healthcare which is certainly not ideal. Coverage for a basic hospital plan through a reputable open medical scheme costs around R2 000 per month for the main member and around R800 to R1 000 per child, while gap cover ranges from around R250 per family per month upwards for basic cover. Not only will membership of a hospital plan ensure that you and your children have immediate access to high-quality healthcare if any of you require hospitalisation, but it will also mean not having to spend days waiting for care in a government facility – something that most single mothers simply don’t have the luxury of.

Note: If your ex-spouse is responsible for the payment of your children’s medical aid premiums as part of the divorce settlement, be sure to check that these premiums remain up to date to avoid a lapse in membership. If you or any of your children suffer from a chronic condition such as asthma or diabetes, it may be more cost-effective to upgrade plan options to one that provides a chronic condition benefit.

3. Budget: As most single mothers already know a budget is one of the most effective management tools available as it allows you to direct the flow of your money to achieve a set of pre-determined goals. While budgeting for a single-income household may be simpler, it’s also a lot more stressful – especially if you’re shouldering all the costs of child-rearing without financial support from the other parent. While some may be tempted to bury their heads in the sand, surviving from month to month is not a strategy. Finding wiggle room in your budget may appear an insurmountable task and setting time aside to undertake a careful budgeting exercise is likely a reality check most would want to avoid. But budgeting can be incredibly powerful in providing peace of mind that monthly living costs can be met and that concrete plans are in place to manage and track expenditure.

Note: If you have school-going children, establish whether their school offers discounts for the upfront payment of school fees. Many schools offer as much as a 10% discount if school fees are paid annually upfront. Double-check your online subscriptions to online sites especially if you have older children who are able to transact online. Inadvertently subscribing to an online channel or forgetting to cancel a one-month free trial is very easy, so make sure that you’re not paying for unwanted services.

4. Reduce tax burden: One of the easiest ways to reduce your tax burden is by contributing to a retirement annuity as this allows you to claim back the tax on your premiums, up to 27.5% of your taxable income. However, there are a number of other ways to reduce your tax liability so make time to check with your tax practitioner that you are using all available options. For instance, if you earn a travel allowance, you can claim the tax back on your work-related travel expenses, although this will require that you keep an accurate logbook. If you are a commission earner and your commission makes up more than 50% of your total remuneration, you may be able to deduct your commission-related expenses such as stationery and phone costs against your income. Further, if you are self-employed, you may be able to deduct your business-related expenditure against your business income, but once again this will involve keeping accurate records for e-filing purposes. Naturally, if you work from home and have a portion of your home dedicated to this purpose, you may be able to claim a tax deduction from Sars.

Note: If you have group retirement funding benefits in place, find out what percentage of your taxable earnings is being contributed towards the fund, as this will likely provide you with the opportunity to top up your retirement funding in your personal capacity while benefiting from a tax perspective. If you’re contemplating saving in a tax-free savings account (TFSA), keep in mind that there is no deduction on TFSA premiums.

5. Providing for your children: Making financial provision for one’s minor children is likely to be top-of-mind for most single mothers. While you are still in the process of building your wealth, life insurance is a cost-effective way of ensuring that your children will have access to funds in the event of your death, but it is important to make sure that your life cover is appropriately structured from an estate planning perspective. If your child’s other parent is financially secure and you trust him to take on the responsibility, then you may have a reduced need for life cover. But, if you’re the sole provider, then life cover may be your best option.

The first step is to determine to what extent you would like to provide for your children if you were no longer around and then to capitalise that need into a lump sum for insurance purposes. Remember, if you nominate your estate as the beneficiary of this policy, the proceeds will be paid directly into your estate in the event of your passing. This means that the funds will be estate dutiable and subject to the winding-up process, meaning that your heirs will need to wait until your estate is executed before they can access the capital.

On the other hand, nominating your minor child as the beneficiary of the policy could result in unintended consequences which may not be ideal. This is because, in terms of our law, children under the age of 18 do not have contractual capacity and cannot inherit funds directly. Any proceeds under a life policy may therefore be transferred to the state-run Guardian’s Fund where they will be administered until your child reaches age 18. As such, nominating a testamentary trust to house assets intended for your minor children (see point 6 below) is an estate planning solution worth contemplating to ensure that your child has access to her inheritance and that their assets are protected.

Note: When performing your annual financial review, always check the beneficiary nominations on your various policies and retirement funds, keeping in mind changes to your personal circumstances over the past 12 months.

6. Drafting a will: The legal and administrative complexities of dying without a will cannot be overstated. As a single parent, ensuring that you have a valid will in place should be an absolute priority. If the child’s other parent is still alive, that parent will, generally speaking, be the surviving guardian to your child in the event of your passing. However, if your child has no other surviving parent, then it is important that you nominate a legal guardian in terms of your will.

Then, to ensure that any funds or assets intended for your minor children are not transferred to the Guardian’s Fund for administration, you can use your will to set up a testamentary trust. This type of trust is automatically founded on your death and will be administered by the trustees you nominate in your will, with your minor children as the beneficiaries of the trust. You can use your will to set out the trustees’ mandate and how you would like the assets to be administered on behalf of your children when you are no longer around. You can also direct how your children should receive income from the trust, at what age the trust assets should vest in your children, and when the trust should be dissolved. Most importantly, ensure that someone close to you knows of the existence of your will and where an original copy of the document can be found as this will help to reduce delays in estate administration.

Note: If you’ve recently been divorced, make sure that you have a new will drafted to ensure that your ex-spouse does not inadvertently inherit from your estate. Make sure that your new will expressly revokes all previous wills, and that it is clearly dated.

7. Retirement plan: Saving for retirement with only one income is no doubt challenging but should be a major priority for a single mother as there is effectively no ‘plan B’. Being solely responsible for financing your retirement means it’s important to take steps early on to allow your investments to benefit from compounding over a longer time horizon. As mentioned above, investing in a retirement fund is an effective way of reducing your tax liability while building your wealth. Still, more importantly, it means taking proactive steps to ensure that you will not be a financial burden on your children when you are older. While your children may not understand the financial sacrifices you need to make now in order to save for your retirement, it is something they will most certainly appreciate later on.

Note: Get your financial advisor to prepare a comprehensive retirement plan so that you have a clear picture of how much you need to save. Remember, your affordability is not cast in stone and will evolve over time, so don’t become despondent. Start with what you can and work towards increasing your contributions as circumstances allow.

8. Emergency fund: Once again, not having a spouse or partner’s income to fall back on makes an emergency fund even more critical. How much you need to set aside as a cash cushion will largely depend on your personal circumstances such as how many children you have, how secure your job or income is, the size and number of your properties, whether you have pets, or if you or the children partake in high-cost sports or hobbies. Naturally, the risk of something going wrong increases with life’s complexities so keep this in mind when calculating the size of your emergency fund.

Note: If your child’s maintenance payer is unreliable or irregular, be sure to factor this into your emergency cushion so that you don’t lose the ability to cover your living expenses in the event of default payment.

9. Trusted advice: Making decisions alone can be stressful, lonely and overwhelming – especially when it involves major financial decisions such as buying a property, cashing in an investment, or purchasing a new car. One of the best things you can do is to find yourself a trusted financial advisor – one who is completely independent, not financially incentivised to sell products, and who genuinely has your best interests at heart. Ideally, look for someone who is accessible, objective, and experienced – and who is willing to partner with you over the long term.

Note: An experienced financial advisor should be able to provide advice on the full suite of financial planning services including estate planning, tax, insurance, retirement funding and medical aid. It’s much easier and more cost-effective to find someone who can take a holistic view of your personal finances rather than hiring different people to advise you on different aspects of your portfolio.

10. Education funding: While saving up for your child’s tertiary education may be a priority, do not do this to the detriment of your retirement. Remember, you can borrow money for your child’s education, but you cannot borrow money to pay for your retirement. Once you are sure you’re on a solid path towards saving for your retirement, start considering different funding options for your child’s tertiary fees. Go easy on yourself and keep in mind that very few parents – even those in dual-income households – can afford to pay cash for their children’s tertiary education, and many have to consider alternatives such as student loans, scholarships, part-time studies, internships or apprentices, and state funding.

Note: The range of options available to those wanting to study further is so much broader and more accessible than what was available even five years ago. Our children now have more choice than ever before when it comes to tertiary studies and, with remote studying being almost normalised as a result of the pandemic, children now have access to qualifications from almost anywhere in the world.

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Craig Torr

Crue Invest (Pty) Ltd

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