SPENDING & SAVINGS: STRATEGIES FOR SINGLES
Lori Z. Bahnmueller
Michigan Credit Union League - Your Money Matters
Is it better to be single or married? I ask this question neither to start a huge debate on the benefits of being a bachelor/bachelorette, nor to start fights between husbands and wives. Rather, I pose the question to remind us that there are pros and cons to being single and to being married that go far beyond the companionship issue. For those who choose to stay single also choose to go it alone financially.
For us married folks, spending at will without answering to anyone sounds pretty inviting. However, when it comes down to making ends meet on one income, the idea loses some of its thrill. In fact, according to Census Bureau data, the average single earns $28,000 per year, while the average married couple earns nearly $49,000. Although two-people households may have larger food bills and perhaps two car payments, it is generally true that two can live more cheaply than one.
The Census Bureau also notes that singles save less than married couples. Singles, on average, only stash away $1,300 each year, while married couples manage to set aside $3,521. Married couples typically focus more on the future, as plans for home buying and children become more predominant. Often it is too late when singles recognize that they have been neglecting their future financial plans and realize that they need to start saving for the future. They begin to take financial planning seriously only after they are deep into debt or suffer a loss in income. Of course, singles aren't the only ones guilty of inadequate financial planning. A survey released by the Certified Financial Planner Board of Standards found that almost 37% of all consumers wait until they have a money crisis before they begin financial planning.
Singles and married couples alike should start with a budget--a nice simple budget. It doesn't have to involve spread sheets full of complex data; it does need to list your income and expenditures. The income part is usually straightforward and the easiest to grasp. Expenses typically are not. To get a clear picture of how much is going out each month begin by listing the basics: rent or mortgage; utilities; food (don't forget to include meals out); transportation (car payments, fuel, maintenance, parking); and insurance (homeowners/renters, car, medical and dental).
Then there's one additional expense category -- personal expenses. This category includes pocket money, clothing, education, gifts, entertainment, etc. It is the area where significant amounts of money seem to disappear without much notice. Singles should look at this area carefully. It's amazing at how fast the dollars can go. To keep an accurate record of what's going out, keep a list for one month of every penny you spend. List it all, from the cup of coffee you buy on the way to work to your rent payment. After a week, you'll start becoming much more conscious of little purchases can add up. After a month, you'll know where to cut your spending in the least painful way.
When it comes to saving, many singles think it's just not necessary right now. Others find it disheartening when they can only put away small amounts at a time. The time to save is now! Married or single, the number one rule in financial planning is pay yourself first. Before you pay any bills, put away a planned amount into savings. If your company offers a retirement or 401(k) plan, look into it. If not, shop around for an interest-bearing savings account. Your local credit union or bank can get you started but be sure to compare rates and fees. You want low or no-cost service on your accounts. If you're starting small, keep in mind that some mutual fund companies will allow you to invest for as little as $50 each month with an automatic paycheck or checking withdrawal.
Housing for singles is also a tricky subject. It can be extremely difficult for even the most frugal savers to come up with a down payment while years of rent consume a major portion of anyone's income. Furthermore, lower income and higher relative spending doesn't make it any easier. Yet, home ownership has its advantages. For example, the tax breaks associated with owning a home are always a bonus for singles who usually don't have many deductions; a home's equity potential is something a rental could never offer. Again, planning, budgeting and a diligent savings plan are all option for younger singles who may not be planning to buy for a few years. For singles who are ready to buy now yet lack the funds to do so, the answer may lie with mortgage companies that offer no-money down programs. Be prepared, however, you'll need a spotless credit report and will probably have to pay higher-than-average interest rates with these programs.
What else should singles keep in mind when planning for their financial future? Emergency funds and insurance. It is strongly recommended that everyone have three to six months worth of living expenses in an easily accessible account, in case of a sudden loss of income. For singles, who may have no one else to turn to during such crisis, disability insurance is also a good idea. Check with your employer and see if you are covered by a group disability policy. If so, figure out how much you will qualify for and for how long--adjust your emergency savings plan around this amount. If you are not, or perhaps you don't have enough coverage, you can buy additional coverage on your own. Figure roughly that the policy will cost about 2% of your income.
I suppose the debate surrounding staying single or being married will be around forever. The good news is regardless of your marital status, everyone can achieve financial success.