Welcome to the latest series here at the wildly popular JosephSangl.com – “Managing Money As A Single Parent”!
Part Five Establish automatic long-term investments – then monitor
In the midst of the busyness and chaos of being a single parent, retirement and college expenses are approaching – one day at a time. It is vitally important to prepare for them.
While investing can seem very intimidating and potentially overwhelming, it certainly doesn’t have to be! If you have a Retirement Savings Plan (RSP) available via your employer, begin with contributions to that account, particularly if a company matching contribution is available. The ultimate goal is to contribute at least 15% of your gross income (before tax pay) to your retirement account. If you can’t start there, begin with an amount that enables you to receive the entire employer matching contribution.
Retirement and college expenses are approaching – one day at a time.
As you receive pay raises, use half of the raise to increase your retirement contribution until you achieve the 15% level. For example, suppose you are contributing 3% of your pay to the company 401(k) in order to receive their matching contribution of 3%. You receive a pay raise of 3%. Immediately adjust your investment contribution from 3% to 4.5% (half of your raise). This way, you will still receive some of your raise in your paycheck while also securing your future retirement. It is important to fund your retirement account prior to your children’s college fund. Usually money only flows from parent to child – not child to parent!
As your financial situation improves, you can begin contributing to a 529 College Savings Plan for each of your children. One great approach is to establish a 529 College Savings Plan account for each child and ask their grandparents to reduce their Christmas/Birthday/Special Day spending on “stuff” by half and send the other half to each child’s college account! Grandparents love it, and we all know that children like the boxes their toys come in better than the toys themselves!
PRACTICAL STEPS TO TAKE:
- Ensure you are contributing enough to your employer’s retirement savings plan to receive the full matching employer contribution
- As you receive raises, use half to increase your retirement investments until they reach 15%
- Establish a 529 College Savings Plan for each of your children
- Invite your children’s grandparents to contribute to the accounts as part of their gifts to the children on their special days – Christmas, Birthday, other Special Days