Being a mom and an entrepreneur are two separate jobs in and of themselves, and in addition, adjusting to a single-income lifestyle can be a challenge. Whether you are a newly single mom or a newly single business owner—or both!—you need to get your finances in order so you can protect your family in case of an emergency and keep your business financially secure.
Both in their professional life and their personal life, single mompreneurs will need to take a few different steps to set themselves up for financial success. In their personal life, this may include starting a budget or finding cheap life insurance coverage. In their professional life, this may include starting a business emergency fund or adding business insurance. While getting your financial life in order may seem a bit overwhelming, this guide should help you get started so you can feel confident to support your family and your business in a time of emergency. Here are some helpful tips to start emergency financial planning for single mompreneurs.
Financially securing your family
It’s important to take steps to protect your family. Take these financial steps to ensure that you are prepared to take care of your family in an emergency.
1. Create a budget and stick to it
The foundation of any financial plan is a manageable budget. Finances are important when adjusting to a single income or when getting your business off the ground. A budget will make it so much easier to keep your finances in order and prioritize spending to reach your financial goals.
How to create a budget
The best way to budget as a single mom is to keep it as simple as possible. In addition, keep your priorities at the forefront of your plan. Creating a budget that works for you can be done in a few simple steps.
I. Figure out your monthly income
First, figure out your monthly income. As a small business owner, it can be challenging to determine a steady monthly income when starting. Keep detailed notes about any contracts or payments from your business monthly so you can get a better idea of how much you are making monthly.
If you receive child support, you have to determine if you include that into your monthly budget—whether it be a portion or all of it. Keep in mind that the monthly income you use in your budget should be after-tax income where possible.
II. Determine your goals and values
Next, you must determine your goals and values. Setting financial goals, both short-term and long-term, is a crucial part of the budgeting process. One of your short-term goals could be to put $100 per month into your emergency fund until you have a certain amount saved. A long-term goal could be to save up money to help your child pay for college or pay off large debts, like a mortgage or personal loan. Keep your goals realistic so you are better equipped to stick with them.
III. List your monthly expenses
When creating a budget, try listing your monthly expenses. To get a better idea of where your money is going, track your expenses from the past few months and list out any expenses you know you will have each month. Look at your bank statements and categorize your purchases. You will also need to list all of your fixed and variable expenses. Fixed expenses are regular monthly payments, like housing costs, car payments, utilities, etc. Variable expenses are your expenses that are expected to change from month to month, like groceries. You can find an average monthly cost for your expenses by reviewing your previous monthly bank statements.
IV. Make a monthly plan
Next, make a monthly plan. With your goals and your current expenses in mind, come up with a plan that works for you. Subtract your necessary monthly expenses and figure out how much is left to devote to your other goals or wants. This is where you may need to make a plan to cut back on your monthly expenses and adjust your monthly spending habits. You may want to consider cutting back on unnecessary monthly expenses and subscriptions. Set a realistic monthly limit for yourself on how much you are allowed to spend on different categories of expenses so you can prioritize your needs and your wants.
V. Review and adjust your budget
Finally, make sure to review and adjust your budget regularly and as needed. It’s normal for your financial situation to change from time to time. Whether you’ve paid off a big debt and no longer have a monthly payment or you’re bringing in more money from your business, it’s a good idea to revisit your monthly budget to update it to reflect your new needs. Beyond big changes, it’s still important to regularly review your budget to keep your spending on track.
Finance pros recommend a monthly 50/30/20 budget. This plan devotes 50% of your after-tax income toward your needs. Then, 30% goes toward your wants and 20% goes toward your savings and debt. Now, depending on your financial situation, the latter 50% may need to be tweaked to fit your needs.
2. Start an emergency fund
As a single mom, your finances might feel overwhelming. Often when living in a single-income household, saving for your emergency fund can feel impossible. An emergency fund can help support your family in case you hit a financial rough patch with your business, you or your children get sick, or whatever else may put you in a financial bind. As a single parent, strengthening your emergency fund should be a priority for you.
In general, it’s recommended that you have at least three months of your monthly expenses saved up in your emergency fund. But, as a single parent, you may want to consider saving up to six months of your expenses—especially if you are the only person providing for your children.
Figure out how much you would like to save up and what you will classify as an emergency worthy of tapping into your savings. Your goals should be realistic and broken down into several smaller goals to make them easier. Choose the amount you want to commit to saving from your monthly income, whether that is monthly, bi-weekly, or weekly. Open up a high-yield savings account, and consider automating your regular contributions so you can set it and forget it.
While it may seem tempting to over-save, saving only the amount you need is enough for your emergency savings. Realistically, you want to avoid any excuses to touch these savings unless you absolutely need it. Once you’ve reached your savings goal, put that money toward something else you need to save up for.
3. Prepare for the unexpected with a life insurance policy
While it’s devastating to think about, you need to have a plan in place to support your children should you pass away prematurely. Investing in a life insurance policy is a great way to help financially support your loved ones in the case of this emergency. Especially if you are young and healthy, it’s easier than you may think to find cheap life insurance coverage.
There are two types of life insurance that most people consider: term and whole. Both of these options have their benefits, and one may work better for you than the other.
Term life insurance is a policy that covers a certain amount of money for a specified period. Term life insurance policies typically come in 10, 15, 20, and 30-year terms. For example, with a 20-year, $200,000 policy, if you were to pass away within that 20-year timeframe, your insurance carrier will payout your policy to your beneficiary. Term life insurance policies tend to be way more affordable than whole life insurance policies.
Whole life insurance policies are a little different from term life insurance policies. Instead of getting coverage for a specified period, whole life insurance covers you for your entire life. Whole life insurance carries a cash value, which can be borrowed later down the line. While whole life insurance does cover you for your entire life, these policies tend to be more expensive than a term life insurance policy.
No matter which route you go, a life insurance policy can give you peace of mind that your family will be taken care of in case of an untimely death. For a more affordable route, you will want to consider term life insurance. For a longer period of coverage, whole life insurance may be the better option for you.
4. Update your will
Just like with a life insurance policy, having an up-to-date will give you peace of mind should you pass away prematurely. Whether you already have a will or need to create one, do this asap to ensure that your children have the proper arrangements in place after your death.
Creating a will can be done with the help of a lawyer or online service. In your will, make the following arrangements:
- Designate an executor – The executor will be responsible for handling your estate. Let this person know that you are designating them as an executor and get permission. It’s a good idea to let them know where important documents and passwords are.
- Record your assets and liabilities – Make a comprehensive list of all of your properties and debts. These can be any actual properties, like your house, or personal properties, like your bank account or family heirlooms. Any debt that you have that will carry onto your beneficiaries should be listed as well, like your mortgage and loans.
- Designate beneficiaries – Your beneficiaries will inherit your assets and liabilities.
- Plan childcare – Designate proper guardianship for your children if they are under the age of 18. It’s a good idea to list a second choice of guardianship as well in case your first choice cannot care for your child.
When validating your will, check with your state to understand the guidelines. In most cases, your will must be signed in front of a witness, and the qualifications of the witness differ from state to state.
If you have to make minor changes to your will, you can add a codicil, or a precise modification, with your signature and your witness’s signature. For any major changes to your will, you may want to consider writing an entirely new will to avoid any confusion.
Financially securing your business
Similarly, it’s important to take financial measures to ensure your business is financially sound in times of emergency. This can help you and your business survive through hard times. Here are some steps to financially secure your business.
1. Start your business emergency fund
Just like in your personal life, an emergency fund is crucial for any business. In the case of an emergency with your business, avoid borrowing from your personal money as much as possible. In case of an emergency with your own life, you want to ensure your business has a financial cushion in case you cannot run it for a certain amount of time.
Again, similar to your personal emergency fund, you need to decide how much money to set aside in your business emergency fund and what constitutes an emergency. Start by determining how much money you would need to keep your business afloat if you were unable to open for a month or two.
Next, you’ll want to set up an account to hold your fund. You may want to open up a new account at the bank you use for your business so there’s a clear separation between your regular account and your savings account. As you grow your emergency fund, you may want to look into putting some of your business savings into an account that will give you a larger return rate compared to a savings account, like a money market account. Keep in mind, though, you want to have enough money in an accessible account so you can access it when you need it.
2. Get insurance for your business
While planning for emergencies in your professional life, having some type of business insurance is crucial. Depending on your business, you may be legally required to purchase some types of business insurance. Beyond what’s required, though, there are a couple of different types that you may want to consider as well:
- General liability insurance – Best for any type of business, this helps financially protect your business from medical expenses, bodily injury, or property damage caused by your services.
- Product liability insurance – For retail, wholesale, or manufacturing businesses, this insurance financially supports you in the event of a defective product.
- Commercial property insurance – Most beneficial for businesses with lots of property and physical assets, this insurance protects against loss or damage to your properties.
- Home-based business insurance – If you run your business from your home, this insurance couples with your homeowner’s insurance to protect business equipment.
- Business owner’s policy – Best for small business owners, this type of insurance bundles typical coverage into one policy.
- Professional liability insurance – For businesses that provide a service, this insurance protects your business in the case of malpractice or errors in service.
With the right business insurance in place, you will be prepared to handle many different types of emergencies that may come your way.
3. Know what resources are available
In times when your emergency business savings and your insurance just aren’t enough, there are resources available to small businesses to help you financially—no matter if your business is new or has been around for a while.
Through the Small Business Administration and other federal agencies, you may be able to get a federal loan or a grant. Banks and credit unions can provide you with a line of credit to help you get back on your feet. There’s help out there for you and your small business should you need it. All you have to do is search for the right option for you.
Start planning now
Emergencies are never wanted, and somehow they seem to come at the worst times. Single mompreneurs should take all the appropriate measures to prepare for emergencies later so they can support their family and business. There are additional online resources and successful blogs that can teach you more about personal and business finance. No matter if you start with an emergency fund, affordable life insurance coverage, or an easy-to-follow budget, you can start taking steps to give you peace of mind for the unpredictable.
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Alaine Meier is a blogger at LadyBossBlogger. She graduated from the College of the Holy Cross with a BA in Economics and a minor in Environmental Studies.
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