Five Steps to Financial Security for Single Moms

When two people choose to have a baby, their worlds change forever. But what if you're on your own? How does a single person plan for a child when there's no second income to fall back on, no partner to back you up when the baby's sick, and no double array of benefits to choose from?

Single parents don't have it easy. They have to plan more carefully, put together a tighter safety net and develop a stronger support system than couples do. Yet, by chance or by choice, more and more single women are becoming mothers. According to New Families, New Finances, an estimated 5.7 million families are headed by a never-married single parent. And that number is growing.

So if you're a single mom, whether you've never married or are recently divorced, you're not alone in facing huge emotional and lifestyle changes. And as the sole caretaker of your kids, one of the biggest challenges you face is your financial stability. Here are five ways to get ready.

Review your insurance safety net.
A parent should have three types of insurance in place: health, disability and life. Make sure you have health insurance that covers pregnancy and well-baby checkups as well as at least 80 percent of delivery charges. If you have coverage through an HMO or preferred provider network (PPO), check to see whether your obstetrician and pediatrician are on the list. And don't forget to add your new baby to the policy right away.

Disability insurance is crucial for single parents because there's no second income to rely on if you can't work. If your employer doesn't provide this insurance, get a policy on your own that will pay at least two-thirds of your monthly income through age 65. These policies are pricey but well worth it.

Finally, you'll need life insurance to replace your income stream if something were to happen to you. Buy level-term life insurance -- experts recommend about eight times your annual salary. Stay away from more expensive whole-life, variable and universal products. They typically cost eight times more than term insurance for the same coverage. Currently, a $250,000 25-year level term life insurance policy (the premiums stay the same for that period) for a non-smoking 35-year old woman costs about $225 a year. Skip the life insurance on your child -- unless she's the new Gerber baby, she isn't producing an income that needs to be replaced.

Plan your maternity or adoption leave.
Review your employer's leave policy carefully. If you are eligible for coverage under the Family and Medical Leave Act, you may take up to 12 weeks off with continued health coverage in connection with the birth or adoption of a child. Your employer is not required to pay you while you're on leave, but you may be able to use accumulated sick and vacation leave. Check the Q&A section of the FMLA Advisor for additional details. Even if you are able to save up some leave days, you will probably have a period of leave without pay. Save the equivalent of six weeks' pay to cover your absence from work.

Find good, affordable child care.
For working parents, child care is often the most stressful part of returning to the job. For a single parent, it's even more so: You must find a primary care provider as well as backup care. That way, when your primary care provider cancels on you, or your child is sick and can't leave the house, or you're too sick to get the child to day care, you have someone to turn to for help.

Nannies can be terrific care providers -- they are usually trained, dedicated to taking care of your child and work in your home. Of course few of us can afford the $500 to $800 a week (plus benefits) they cost.

An au pair can cost less ($400 to $600 a week), and benefits are usually covered by the au pair's agency. The challenge is that there are rules about time off and vacation. Also, there may be some language problems, and au pairs usually only stay for one year.

Baby-sitters and day-care centers are often less expensive than nannies or au pairs. For guidelines on choosing a caregiver, call the National Association for the Education of Young Children (800-424-2460) or the National PTA (312-951-6782). Check with your employer and local hospitals for backup care when your child is ill.

Update your estate plan.
Make sure you have the four basic estate planning documents in place: A will that names a guardian for your child and a trustee for your child's inheritance
A durable power of attorney -- someone who can handle your affairs if you are mentally or physically unable to do so
A living will that specifies your wishes regarding health care in the event that you are unable to communicate yourself
A durable power of attorney for health care

In addition, many experts recommend creating a living trust because assets will go directly to the beneficiaries and avoid probate. Additionally, living trusts are rarely contested, and at least in some states, the child's trustee will not have to file annual reports with the court.

Create an After-Baby Budget
There's nothing like a new baby to wreak havoc on your money situation. Sit down and put together a detailed after-baby budget, including the costs of formula, diapers, insurance co-payments and day care. Then build in a cushion in case you have to take additional leave without pay or have unexpected medical expenses. This is a good time to take a hard look at your spending and squeeze out some excess.

Don't forget to budget for baby furniture and clothes. You can save by buying gently used car seats, strollers and other items as long as they meet current safety standards.

Check out Neale Godfrey's From Cradle to College for several baby-budgeting checklists

If you plan to adopt or have a baby through artificial insemination, your expenses can easily top $20,000 before you even hold your baby in your arms.

Adoption fees:
Private agencies: $10,000+
Foreign adoptions: $5,000-20,000
Independent agencies (doctors, lawyers): $20,000+

Doctor and hospital fees:
$8,000+ (check with your health insurance provider to determine your shares of the costs)

Day care:
Nanny: $500-800 a week plus benefits (including car allowance)
Au pair: $400-600 a week
Baby-sitters or day-care centers: $200+ a week

Baby equipment:
Stroller: $50-350
Changing table: $80-100
Car seat, etc.: $75-200

That money should be saved and set aside. Raiding your retirement plan or running up a large home equity loan can deal a heavy blow to your long-term financial solidity.

Another option You may wish to consider a more radical approach to single parenting, such as sharing a house with another single parent. In addition to splitting expenses, you could share child-care costs. The stronger your support system of friends and families, the easier it will be for you, mentally, physically and financially.


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