If marriage is an institution, being single isn’t far behind. Almost half of American adults – 45 percent – are single. That includes folks who have not married, people who are divorced, and those that are widowed.
Being completely responsible for covering all living costs and building long-term savings can be a challenge for those managing single-income budgets. A survey from TD Ameritrade found that single households tend to be more financially stressed than married couples. Among people at least 37 years old, less than 30 percent of singles described themselves as very financially secure, compared to 43 percent of married individuals. An average income that is 17 percent less than married individuals goes a long way in explaining that gap.
For singles eager to build more financial security, figuring out and following a budget is the centerpiece of your strategy:
Step 1: You need to know where it’s all going. For real.
There are several online tools that sync with your bank and credit card accounts that help you visualize your spending via pie charts and other types of graphs. If you prefer to keep it private, you can download free spreadsheets and plug in your monthly spending across a few key expenses.
Start with Housing, Utilities, Groceries, Dining Out, Insurance (car, health, home/renters), Emergency Savings Fund, Loan Payments (ex: car, student loan) and Vacations. You can slice those into more specific categories if you want, but those are typically the most common expenses someone might come across. It’s best to total up your spending across multiple months to capture seasonal or one-off events, such as weddings or holiday spending, into your budget.
Step 2: See how close you are to 50-30-20.
There is no “one way” to budget. Everyone has their own priorities and is willing to make different tradeoffs. If you have no idea where to begin, a good starting point would be to earmark 50 percent of your after-tax pay for things you need (housing, utilities, grocers), 30 percent for things you want (dining out, vacations, entertainment) and 20 percent for savings. Yes, 20 percent.
If your spending is out of line with 50-30-20, this is where the actual budgeting comes into play. Spending way more than 50 percent on things you need? Maybe it’s time to consider downsizing. If that’s not practical, time to borrow some of that budget from your wants category. If you are spending 60 percent on needs, then you should consider tamping down wants to 20 percent.
Tempted to let the saving slide? Seriously bad move. For singles, nailing the 20 percent saving is doubly important because you only have yourself to rely on for financial needs in the future.
Step 3: Commit to an Emergency Fund ASAP.
Layoffs happen. Illness happens. At the risk of stating the obvious, when you are single you don’t have another person (income) to help keep paying the bills if you are unable to. An emergency fund is a must-have. Ideally, you want to have at least three months of living costs tucked into a bank or credit union savings account. More is even better.
Saving money never gets easier, so make it automatic: set up a savings account at an online bank (they pay a lot more interest than brick-and-mortar banks) and then have automated weekly or monthly deposits zapped over from your checking account. Depending on the services you choose, this should be a free service on both ends. How much you want to save is up to you, but the faster you can get the fund up to at least three months of living costs, the faster you are going to feel more secure and in control.
Step 4: Don’t drag your feet on retirement savings.
Saving as much as you can, as early as you can is the secret sauce to landing in retirement in good shape. Aim to save 15 percent of your annual income for retirement; if you have a workplace plan that tosses in a matching contribution, your all-in should be 15 percent. If you are getting a later start —say in your late 30s or 40s—try to stretch to save even more. That will likely require a careful study of your budget to find more places to squeeze spending.
One potential big-ticket win: keep your car for a long time. No trading in every few years. And no new cars; used are a much better financial move. Your goal should be to pay off a loan ASAP so you have years of payment-free driving where you can use the money that was going toward the car loan to build up your emergency fund or retirement savings.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.