Many think that financial planning is not as important for singles because they only have to worry about themselves. There is no spouse or children to consider. But in fact, it’s the absence of immediate family that makes it even more important for singles to make sure their financial life is in order. After all, singles must face every financial issue alone.
First, let me clarify how I define a single person: You do not have children, you are not married, and you live on your own.
Here are my Financial Planning Tips for Singles:
1.) YOU DON'T GET TO BLOW ALL YOUR MONEY!: Many singles are spenders, not savers. They don’t feel the same need to save as those who are married with children. But singles will need to retire one day, just like their married counterparts. That means even if you’re single, you must save some money!
- Save some cash for the unexpected. (Examples: pay your health insurance deductible, repair your vehicle, or for living expenses in case you lose your job etc.)
- Contribute to your 401k up to your employer's match.
- Max out a Roth IRA. It is one of the most magnificent retirement tools available. $5,000 is the limit in 2012 if you are under age 50.
2.) PROTECT YOUR BIGGEST ASSET! Unless you are financially independent, like you have won the lottery or have a trust fund for example, you need disability insurance. Your income is your biggest asset! Why do I say that? Nothing you own is more valuable than your income. What is the value of your income? Let's say you earn $50,000 per year and you plan on working the next 20 years. Your income is worth more 1 million dollars to you (50k x 20 years), and you must protect it with Disability Insurance.
There is about a 20-30% chance you will get disabled before you retire. If you lose your income, your financial plan is worthless. Your income drives everything in your financial plan!
- Buy Disability Insurance through your employer first. Disability insurance offered through your job, usually provides you with 60% of your income if you become disabled and unable to work.
- If you would not be able to live off of 60% of your income OR your employer doesn't offer it, you need to buy a private policy. Typically, you can insure up to 75-85% of your income!
3.) YOU MAY DIE ALONE, BUT DON'T DIE BROKE AND ALONE! If you are in your 40’s or 50’s, it’s time to start thinking about buying Long Term Care Insurance. Approximately 70% of those Americans who live age 65 will need Long-Term care services at some point in their lives.
- The average cost of a nursing home is $60,000-80,000 per year. This will smash your nest egg!
- Buy Long Term Care Insurance by age 50! Waiting to buy it will likely cost you a lot more. And the longer you wait, the more likely you will have health issues that affect your insure-ability. One very popular radio show pundit tells his listeners not to buy LTC insurance till age 55+. Well, I don’t live in some radio, financial baby steps wonder land! I live in the real world, with real people! I let math tell the story, and math doesn’t lie. I’ve ran the numbers on real life cases, waiting till your over age 55 will likely cost you way more than buying it when you are younger.
4.) YOU MAY NEED LIFE INSURANCE: Some guru's say that single people don’t need life insurance because there is no one left behind who depends on them. Well, I have some breaking news for them! Single people can become married people, and it is possible for single people to have children. Unless you are certain you aren’t ever going to get married or have children, then I would recommend you own life insurance. Term life insurance is cheap and easy to get when you are young, but when you get old, not so much. Buying life insurance in anticipation of future life changes is smart financial planning in my opinion
5.) YES, YOU NEED AN ESTATE PLAN EVEN IF YOU'RE SINGLE: Lastly, you need to decide who gets your stuff when you die. Unless you would prefer your state government to do that for you. And you also need to name someone to make health care and financial decisions for you if you were to become incapacitated.
- Get a Will
- Get a Living Will
- Get a Health Care Proxy or Directive
- Get a Durable Power of Attorney
Singles need planning too, but you don’t have to go it alone. Hire a trusted advisor, a Fee-Only Financial Planner like me to help. Call to set up a free initial consultation today. 615-878-2134 or go to www.jasonwqualls.com