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CREDIT, COLLEGE, TAXES AND REAL ESTATE
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Secure your income
Wherever you end up living, you're well advised to concentrate on your biggest asset: earning potential. "With no backup, your ability to make money is that much more critical," says financial planner Sheryl Garrett, of the Garrett Planning Network. "If hiring a babysitter and taking an extra class enables you to earn an extra $5,000 a year over the course of your career, that one evening a week is definitely a worthwhile investment."
When you're the breadwinner, you have all the more reason to protect your income against disaster. Most experts recommend carrying life insurance equal to six to ten times your salary. A healthy man or woman at age 45 can pick up $500,000 in term-life insurance for as little as $450 to $600 a year. "That provides an awful lot of security for you and your kids," says Garrett.
As for anticipating the disaster that doesn't kill you, no matter how much disability insurance you've got through your employer, you will likely need more, says Garrett. "The goal is to replace as much income as you can." Employer-paid disability coverage typically replaces 60% to 70% of pretax income; you may be able to pick up an individual policy that replaces another 20% and is tax-free. For instance, a 45-year-old professional man earning $60,000 a year might replace $2,250 a month after taxes through his employer. Then he could pick up another $1,000 a month (nontaxable), with a 90-day waiting period before payments begin, for about $850 a year. Individual premiums are usually higher for women, who tend to live longer. A 45-year-old woman in the same circumstances would pay $1,250 a year for the extra coverage.
Parcel out your pay
Engel, who teaches immersion English to young immigrants at Amphitheater High School, enjoys her job as usher to a new culture. But with a salary of $40,000 a year, she doesn't expect to get rich from it. She boosts her income by taking in-service training and by tutoring students preparing for the state competency test. Partly as a lark, she also spent a few weekends as a "mystery shopper," checking out local business services and wares for $7 an hour.
Even with all that scrambling, her income is mostly spent on the basics -- mortgage payments, groceries, utility bills and out-of-pocket medical expenses. Engel's health insurance, which includes vision and dental benefits, costs $230 a month and carries an annual deductible of $4,000 a head (up to a total of $8,000). She contributes pretax dollars to an employer-sponsored flexible spending account, which reimburses her for some of her health-care expenses.
For families with similar constraints, a budget becomes "hugely important," says Mehler. He encourages single parents to track expenses on a spreadsheet and to allocate the first spare dollars to an emergency stash. Retirement savings is the next priority, Mehler says -- "Mom or Dad should be looking out for Mom or Dad" -- and college savings comes in a distant third. That's because single parents with modest incomes and no other support can probably expect financial aid for their kids' education. Engel hopes Anya will attend the University of Arizona, from which the high school junior has secured free tuition for the first year by surpassing state competency standards.
In the meantime, Engel isn't afraid to enlist the kids as contributors to the common good. She pays the insurance on both cars but lets Anya, who works part-time at Hallmark, buy gas for the Saturn. The girls use cell phones on Mom's dime -- "I needed to have a way to stay in contact," she says -- but they make do with the car radio rather than iPods. Engel buys the essential clothing; Anya handles the fashion upgrades. Anastasia, known as Nastya, is the rare teenager who forgoes the mall altogether. "Shopping is not my favorite thing," she says.
Absent from this family's budget ledger? Big credit-card bills. "I get mad at myself if I have debt," says Engel, who uses plastic but avoids carrying a balance. Better yet, says Garrett, stick with cash. She recommends the cash-in-envelopes system for keeping a budget honest. "The end of that cash is the ultimate stopping point," she says. "Credit cards, and even checks, don't have that tangible feel."
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