Money management for single parents
Being a parent and raising a child is one of the most joyous things in life. Although it is the most rewarding affair, it is also one of the hardest tasks you will ever engage yourself in. Most parents would agree to that. Raising a child is easier when you have someone, namely a spouse, to depend on and delegate at least half of the work involved. The 2009 statistics published by the US Census Bureau shows that there are nearly 14 million single parents raising 21.8 million children in America.
The cost of raising a child is not meager in itself. It takes about $226,920 to raise a child till adulthood according to the 2010 report by the Department of Agriculture. Most single parents struggle to come to terms with raising a child alone and there are good reasons for it.
Adjusting work schedules, daycare and childcare, schooling and education and the idea of you being the sole breadwinner and caregiver for your child and your household are just a few of the challenges faced regularly by single parents. Lets discuss some solutions to make life as a single parent easier.
Setting up an appropriate budget
Single parents have it tough. Costs are going up on a monthly basis but the paychecks hardly ever seem to catch up with the expenses. You need to set your priorities first and as a single parent, you child should be among the top 3 on the list. If you sit down and analyze your items of expenditure, you will be able to clearly group them into 3 major categories.
Fixed expenses like rent or mortgage, cable, internet, insurance and utilities are entirely unavoidable and you should do your very best to allot them top priority. Annual expenses would include taxes and holiday season spending. You can cut your cost in this sector by playing it smart. Itemize your tax filing to derive the maximum benefits out of deductions and you can shop around for holiday gifts during events like Black Friday to take advantage of heavy discounts.
Variable expenses are something which usually takes some effort to manage. The items of expenditure include things like groceries, dining out, travel and vacations. The trick is to match your income and your expenditures and cut corners wherever you see fit. For single parents, there are a few extra items to consider in their budget, like daycare, education and transport. These new costs can be partially, if not fully offset if you factor in other sources of income like child support and alimony.
Setting up a tax plan
There are some valuable tax credits and deductions which single parents can get access to, especially if their annual income is low. Here are some of the tax advantages you can get as a single parent:
- Child Tax Credit (CTC) allows for $1000 in tax credit per child per year for children less than 17 years of age. Unless there are any legislative changes, the CTC would be reverted to the original $500 per child limit.
- Income from child support is non-taxable although money received as alimony payment does count as taxable income. On the other hand, if you are the one paying the alimony, you can include it in your tax file as a deduction.
- Having a dependent child also makes you eligible for additional tax exemptions and that detail must be included in your annual tax file.
- Single parents (as well as families) earning less than $15,000 annually can claim tax credits of up to 35 percent (capped at $3000) of qualified expenses under the Child and Dependant Care Tax Credit. If the household income is more than $43,000 yearly, you can still avail a 20 percent tax credit for qualifying expenses.
- Households earning less than $36,920 annually are eligible for Earned Income Credit given that there is at least one qualifying child in the family. EIC offers tax advantages in the form of deductions in lieu of tuition and fees while earning education related tax credits.
Being a single parent is no easy task. The everyday challenges of raising a child by yourself requires you to be fully prepared, both mentally and financially. Along the way, you will end up learning a lot more about managing money more efficiently, useful knowledge which you will then be able to pass on to your child when the time comes.