As our society’s preferences shift, more and more Americans are choosing to forego romantic relationships and marriage, and instead embrace their independence. In fact, more than 50% of adult Americans are currently single, compared to 22% in 1950, per the Bureau of Labor Statistics. Single people have some unique benefits and challenges in planning for their financial future. This is a discussion of those benefits and challenges, and ways to ensure financial security.
The Benefits Of Planning As A Single Person
A lot of people I work with have widely varying viewpoints and financial habits. In relationships, this can lead to serious conflicts, sacrifices, and even boundary violations. As a single person, there are no financial conflicts, no budgeting disputes, and no opposing views of acceptable portfolio risk or debt to endure or contend with. Once you decide on your goals and your course of action, you do not need to adjust them to accommodate someone else, but you do have flexibility to make changes if your own priorities shift.
The Challenges Of Planning As A Single Person
There are some unique challenges that can prevent you from being able to save for your future financial goals if not properly addressed. A few examples are discussed below.
Housing
Budgeting for housing is one of the biggest challenges that single people face, especially when it comes to things like paying to live alone. As U.S. News & World Report notes, you would need significantly higher income or savings than a person in a married couple to be able to secure the same amount of housing, whether you are renting or buying.
Housing costs getting in the way of financial planning for the future is not unique to single people. But living on a single income and being solely responsible for all of the related expenses can be a potential roadblock. If you want to ensure your financial goals are met, it is critical for you to stick to some key rules of thumb highlighted by Investopedia:
- Your total housing expenses should not exceed 28% of your gross monthly income. So, if you make $6,000 per month before taxes and deductions, your total housing expenses should not exceed $1,680 per month.
- Your total amount of debt payments should not exceed 36% of your gross monthly income. So, if you make $6,000 per month before taxes and deductions, your total debt servicing expenses should not exceed $2,160. If you have a mortgage, credit card debt, and student loans, the combined expenses should be lower than that number.
If you calculated these numbers for your own income and found the 28/36 rule to be entirely unrealistic for where you live, it may be time to consider making a change. Living with roommates, negotiating rent, moving to a more inexpensive neighborhood or city, requesting a raise, taking on a side hustle, or switching jobs are all adjustments you can make to move these numbers in your favor.
Extended Joblessness
As of March, 1.2 million people in the United States were experiencing long-term unemployment of at least 27 weeks, according to the Bureau of Labor Statistics. While it is incredibly difficult to be in this position, it is uncommon to see an unemployment period of six months or greater.
To reduce the risk of extended unemployment dismantling your life, I would encourage you to keep enough cash to cover at least six months’ worth of expenses as emergency reserves. For example, if your monthly expenses are $4,000 per month, you should have $24,000 in liquid assets as needed. This can be kept in cash, high-yield savings accounts, or money market funds, but I would discourage riskier investments and investments that require a holding period.
Healthcare
In the United States, healthcare is incredibly expensive. So again, this is not a unique problem to single people. But if health problems should happen, it is better to have systems in place to protect your financial picture.
Insurance is one of the best ways to plan for a sizable and unlikely financial event. Make sure your health insurance coverage makes sense for your current health and lifestyle, but also consider reviewing your long-term disability coverage and/or long-term care coverage.
The Social Security Administration’s definition of a disability is not generous, leading to a need for outside coverage. For instance, if you are a lawyer and get a brain tumor that isn’t deadly but inhibits your critical thinking ability, you could still conceivably work at a supermarket even if you can’t continue your duties as a lawyer. A private disability policy could cover this while the Social Security system would not.
Long-term care coverage is needed if you’re not able to perform basic activities of daily living without assistance, like walking, toileting, feeding yourself, and washing yourself. Expenses associated with long-term care are not covered by traditional health insurance or Medicare. These would only be covered if you demonstrated a significant financial need enough to qualify for Medicaid.
If you are enrolled in a high-deductible health insurance policy, you are likely to qualify for a Health Savings Account. I encourage those who qualify to save what they can in their HSAs. You gain tax deductions when you save, and benefits can be used tax-free for healthcare expenses. If you save automatically, the money can be there for you to cover unexpected costs.
You may also want to consider designating a trusted person as a Power of Attorney for financial or medical aspects of your life if you should become incapacitated. If you don’t make such an election, your fate may fall into the hands of the courts or someone you wouldn’t prefer to make decisions for you.
Conclusion
As a single person, you have greater control over your financial picture. You likely have more maneuverability and freedom than your married counterparts. Some challenges of planning as a single person are external factors that can cause financial strain, including housing costs for those who want to live alone, lapses in employment, and healthcare. These risks can all be overcome or reduced by budgeting properly, maintaining emergency reserves, and leveraging insurance.
This informational and educational article does not offer or constitute, and should not be relied upon as, tax or financial advice. Your unique needs, goals and circumstances require the individualized attention of your own tax and financial professionals whose advice and services will prevail over any information provided in this article. Equitable Advisors, LLC and its associates and affiliates do not provide tax or legal advice or services. Equitable Advisors, LLC (Equitable Financial Advisors in MI and TN) and its affiliates do not endorse, approve or make any representations as to the accuracy, completeness or appropriateness of any part of any content linked to from this article.
Cicely Jones (CA Insurance Lic. #: 0K81625) offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN) and offers annuity and insurance products through Equitable Network, LLC, which conducts business in California as Equitable Network Insurance Agency of California, LLC). Financial Professionals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified. Any compensation that Ms. Jones may receive for the publication of this article is earned separate from, and entirely outside of her capacities with, Equitable Advisors, LLC and Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC). AGE-6513497.1 (4/24)(Exp. 4/26)
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