In Australia the most recent census found a quarter of the population was single, with the Australian Bureau of Statistics forecasting a 65% increase in single households by 2036. The increase in singledom is being seen throughout the world. In Norway and Sweden half of all households are now singles.
When it comes to finances, singles can easily feel that the world is against them. Politicians constantly talk of the need to help “working families”. Yet what about those who through choice or the fall of the cards don’t fit that mould?
Housing affordability is tougher for singles. Bills like insurance and council rates don’t get any lower with only one person in the house. And there’s no-one to back you up through a period of financial adversity like redundancy or illness.
Singledom however does offer some benefits – removing the need to compromise being at the top of the pyramid.
When it comes to financial planning for singles, there’s 5 aspects you should consider:
- Savings and wealth creation
- Estate Planning
Let’s explore how you might solve each of these:
A huge financial challenge for singles is the lack of a back-up income should you lose your job or become unable to work due to illness. Resiliency in a financial sense must be a high priority.
Begin with having a budget strategy that works for you. There are couples where one person is the spender and the other is the saver and in combination, they make things work. But as a single, there’s no one to bail you out when you overspend and rack up a credit card debt.
There are numerous strategies for managing your money, and what suits one person might not suit another. Find the approach that works for you and stick with it. You need a way to spend less than you earn, and build up savings.
Our online short course Cash Flow Mastery provides an easy to use self-assessment tool to help you find the money management strategy that’s right for you. Check it out here.
Once you have regular savings, you need to build up an emergency fund. Aim to have at least 3 months of normal income in this account, and better still 6 months. If you have a mortgage this might sit in an offset account.
With your emergency fund in place, you have the confidence of knowing that if your wages stopped, you could still cover all your bills and not starve.
The next piece of your resiliency strategy is appropriate personal insurance. Income Protection is essential, and Trauma cover (sometimes called Critical Illness), comes a close second. Income Protection will replace up to 75% of your normal income if you can’t work due to illness or injury. It doesn’t cover for unemployment, which is why your emergency fund is important.
Trauma cover pays a lump sum if you are diagnosed with a serious medical condition, most commonly a malignant cancer.
These covers require you to undergo a medical assessment at application. Once you have the cover though, there is no re-assessment provided you continue to pay the premiums. The earlier you get this cover, the easier you tend to get through the health assessment. And then once in place, it doesn’t matter what unfolds, your coverage is unchanged. I often see people delay obtaining insurance until their 40’s or 50’s, and by then there is almost always some health issues, a back problem, abnormal blood pressure, something, that means either the insurance provided excludes those issues – often the very issues most likely to arise for you – or they simply can’t obtain cover at all.
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Savings & Wealth Creation
Okay, you’ve got your financial safety net in place, now let’s move forward to building wealth and gaining you choice in life.
The first thing is to establish your goals. You can’t build a strategy if there’s no clarity on where you’re trying to get to. A key advantage you have as a single person is that you can determine your goals without compromise.
Most people will have multiple goals, so don’t feel you have to choose only one. Buying a home, paying off the mortgage, an overseas trip, or undertaking some study are all common examples. You will need to prioritise, as the achievement of one goal might limit progress on another. But it is possible to walk and chew gum at the same time. For instance, you could be paying an extra $500 per month off your mortgage, whilst at the same time socking some money aside in a separate account for an overseas trip.
With your goals set the next thing to do, which is often overlooked, is to establish some milestones.
When a pilot prepares to fly from city A to city B, they will set way-points along their journey. At those points, they should have a certain fuel load, and a time they should arrive, to check that they are on track to reach their destination on time and without running out of fuel.
Sometimes they strike bad weather along the journey and have to alter course missing one of their way-points. That’s okay though because they can then track back to the next one, view their status – time and fuel – and recalibrate to still reach their goal of arriving at their destination on time and with fuel to spare.
This is the approach you need when working towards your financial goal. If your goal is a 4 week trip to Italy costing $15,000, then your first milestone might be to have saved $5,000 by the end of March. Your next milestone is to have reached $10,000 by November (at which time you book the flights), and then have the full $15,000 saved by the time of your trip the following April.
By having milestones you can make progress towards your goal, and adjust as required. Milestones are also hugely useful for the positive reinforcement they provide. Being able to pat yourself on the back as you reach each milestone provides the fuel for you to keep going.
For short term goals like saving for a trip, accumulating savings in a bank account is likely to be the best approach. But where your goals are longer term – 3 years or more – you want to be converting those cash savings into assets that grow in value and throw off income. We’re talking here of course about shares and property.
Your financial plan should ideally include an automated investment program. If you’re an employee then this is already happening for you via the superannuation system. If you have goals around building wealth, then you should have something similar outside of superannuation – something you can access well before retirement age.
By accumulating investments that grow in value and throw off income, you are building financial strength and progressively gaining choice in life.
Before we move onto housing, one final consideration for singles when it comes to savings and wealth creation is the importance of career development.
Gaining extra qualifications and skills can translate into extra income and potentially also greater employability. Clearly, both of these outcomes will be hugely beneficial to your financial security and happiness. So give some thought to what opportunities exist for you to develop your skills and career. What would a Masters or PhD do for you? Or the ability to code or project manage?
When it comes to housing, singles are at a clear disadvantage. Single parents still need a full size family home, and even those without kids commonly need to devote more of their income to putting a roof over their head than their coupled up counterparts.
Building up a deposit to purchase is harder, meeting mortgage repayments or rent is tougher, and bills are often little different to a double income household.
These challenges serve to reinforce the importance of you having a robust budgeting strategy in place to ensure you’re making the most of every dollar earned.
We’ve worked with numerous single people over the years and as a rough rule of thumb we’ve found that if more than 30% of your after tax income is going towards housing, you will be under a degree of financial stress. This reference point can be helpful when looking for a suitable rental property. As lovely as that sparkly apartment or inner-city pad might be, if the rent will be more than 30% of your take home pay, you need to keep looking.
Just because you’re single, it doesn’t mean you have to live by yourself. Another solution to the housing problem could be to find a house mate. I’ve worked with singles who are determined to live solo, but who through circumstance end up sharing, only to find it actually suits them quite well.
If you’ve managed to amass a home deposit, a house mate in your first few years as a homeowner could be very helpful in getting the mortgage under control and you still being able to enjoy life.
Think broadly about house mate possibilities. Your initial thought is likely to be that it’s something only young people do, but actually I’ve come across many examples of single parents with kids, and older people finding housemate solutions that work for them.
Estate planning might not immediately jump out as an additional challenge for singles, but particularly for those without children, it is an issue requiring extra thought.
Superannuation is typically the first port of call given you will be asked to nominate beneficiaries. What is often not appreciated is that the only acceptable beneficiaries for superannuation are –
- children of any age
- anyone who is financially dependent on you
- your estate
So don’t put down nephews, nieces, parents, siblings, friends or charities. Your nomination will be deemed invalid. If these are where you would want your savings to go, you should instead nominate your estate as the beneficiary of your superannuation savings, and then have your Will make those provisions.
Which leads nicely into your broader estate planning, covered by your Will and Power of Attorney. Who will you nominate as your executor and attorney holder? Ideally someone younger than you, in whom you trust. If there is no-one that fits the bill, speak to your solicitor about options for professional trustees to take on the role.
The Power of Attorney is especially important for you as a single person. Who will pay your bills if you were incapacitated in hospital? A stroke could render you unable to sign documents. Or the severity of your ill health could simply leave you unable to manage your financial affairs. It is important you have a solution arranged well ahead of time. The last thing you’d want is to spend 6 months in hospital, only to be discharged and find the bank has foreclosed on your mortgage.
Of course you also need to think about who you want your wealth to go to in the event of your passing. Nieces, nephews, charities – all valid options, but if you pass without leaving clear instructions, your wishes are very unlikely to be realised.
There are two financial traps that I’ve seen commonly impact singles, and they come under the broad heading of trying to buy love. For many, the desire for companionship and connection makes them vulnerable to exploitation by those less scrupulous.
One version is the new partner, who is actually a financial leach. STD – sexually transmitted debt – is sadly a reality. I’ve come across many instances where a new relationship is formed, with one member of the new relationship coming in with credit card debts up to their eyeballs and nothing but a flash car or some nice clothes to show for it. The financially solvent member of this new couple then spends the next 3 or 4 years paying off the irresponsible persons mess.
When entering a new relationship, the sooner you have some frank money discussions, the better. If you’re both on the same page financially, there is a greater chance the relationship will stick.
The other version of financial difficulty brought about by love is experienced by parents following a relationship breakdown.
When the kids are young, this takes the form of showering them with gifts in an undignified competition with your former partner to convince the kids that you should be their favourite.
The more financially damaging though are when children are adults. I’ve seen people significantly compromise their own financial position to “help out” their kids with their mortgage, buy a new car, or some other crazy expense when the adult children should be perfectly capable of standing on their own two feet.
Of course, if you find yourself late in life with more savings than you will need, by all means distribute some of your wealth early – better to give with a warm hand than a cold one. But only give what is truly surplus, and don’t create the situation where your adult children come to rely on you to bail them out when their lifestyle exceeds their income generation. Such an outcome is harmful and destructive to all parties.
Being single certainly presents some additional financial challenges. But they are solvable through good planning. If you don’t already have a relationship with a financial planner, give some thought as to whether there might be value on having that sounding board.