The single-minded approach to money
Flying solo means you might need help to keep you grounded.
Being single brings a different set of financial challenges to those faced by couples, yet it is a state that is often ignored in financial literature. For older women, in particular, financial strategies for living alone are important, as women still outlive men by some years.
With young people now delaying marriage or long-term partnership and with high rates of separation and divorce, chances are that a big percentage of the adult population will spend at least some time single.
The cost of living for someone living alone is often higher than the cost per person for a couple.
That means it is much harder for single people to save. Sticking to a budget is important for everybody, but is particularly important for singles. Being single means you are free to spend your money on whatever you want, but therein lies a problem. Couples can be a good foil for each other to keep spending in check and hold each other accountable. Being a good money manager as a single requires discipline. Having a money mentor is one way to bring some accountability into the picture if you find it hard to stick to your budget.
On the other hand, being single may be better than being a partner of someone who is reckless with money.
Single-parenthood adds another layer of issues. It’s stressful bringing up kids on your own. There’s always the temptation to spend money on things that make life easier, such as takeaway meals and babysitters, or to spend more money on the kids because you feel guilty about them growing up with separated parents. Emotional and financial stress are inextricably linked and can feed off each other. A good support network can help keep stress at bay.
Being single demands selfsufficiency. It means having enough money on hand to cover a crisis – whether it’s an unexpected car repair bill or a period of time off work because of illness.
The biggest financial risk for a single person is the loss of income through redundancy or illness. This risk can be reduced by building up an emergency fund and by taking out insurance to cover loss of earnings through critical illness. However, getting these things in place ironically adds to financial pressures. It’s a catch-22.
For those who become single later in life after a long-term relationship, the key issue is rebuilding wealth quickly. A major review of financial goals and strategies is needed when assets are split in half and along with this goes a probable change in living standards and increased financial stress. Strategies for growing wealth quickly usually come with a high level of risk, yet a newly single person who has just lost half his or her assets is not in a good position to take on more risk, especially late in life.
Failure to adjust to a new way of life can lead to even further loss of wealth. This is a time when good personalised financial advice is a necessity.
Wealth protection is just as important as wealth creation and for single people there is increased risk of loss through future relationships that don’t last. Setting up a family trust or a property agreement can help protect existing wealth when going into a new relationship. It is also important to get a will done.
Later in life, singles often worry about who will look after them when they need care in the final stages. Through enduring powers of attorney, close friends or relatives can be appointed to take care of your financial affairs and personal welfare in the event you become mentally incapacitated. Long-term planning is needed for living arrangements. Retirement villages are a popular option but often have long waiting lists. Living close to extended family members doesn’t always work as a solution because people often move. The last resort is to pay someone to provide care, and this means setting aside funds for the last stage in life. So, single people may need larger investment portfolios for retirement.
Managing investments as a single person requires a good level of knowledge and confidence.
It is much more difficult to make major decisions about finances when there is no-one else to talk to, and most people are reluctant to discuss their affairs with others. Find someone who is knowledgeable and trustworthy to act as a sounding board.
Being single offers more freedom and independence, even if it not by choice, but has financial challenges and higher costs.
It is much more difficult to make major decisions about finances when there is no-one else to talk to.
Liz Koh is an authorised financial adviser and author of Your Money Personality; Unlock the Secret to a Rich and Happy Life, Awa Press. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.