Key financial considerations for people who live alone

Regardless of your age or relationship status, living alone has financial implications. Here are some important considerations for your solo financial life.

|
TONY AVELAR/SPECIAL TO THE CHRISTIAN SCIENCE MONITOR/FILE
Jessica Beard in her apartment in San Francisco.

By Kathryn Hauer, CFP, EA

Learn more about Kathryn on NerdWallet’s Ask An Advisor.

At some point in your life, you may find yourself living alone. It could be in your apartment when you get your first job after college. It could be after a divorce in midlife or in old age after the death of a spouse. Regardless of your age or relationship status, living alone carries unique financial circumstances. Following are some important considerations for your solo financial life.

Daily expenses

One benefit of living with another person is that you may save on rent or a mortgage, utilities, cable, food and other costs of living. When you live alone, all those expenses are yours to pay in full every month. If money is tight, it’s worth looking at ways to minimize those bills. Many websites and resources offer tips on how to save on your monthly bills and budget your spending so that you make sure you’re living within your means.

Emergency savings

Financial experts recommend having three to six months of expenses in a savings account for emergencies. When you are your sole support, you may want to have six to eight months saved up. You never know when you might lose your job, have an accident, face a legal issue or run into some other kind of trouble. Keep in mind that if you do need to use your emergency fund money, you want to replace it as soon as possible.

Life insurance

If no one else depends on you for support, you probably don’t needlife insurance, which is primarily used to help those who will suffer financially if you die. It’s worth taking a moment, however, to be forward-looking. Perhaps you have a parent, sibling or someone else in your life to whom you’d like to leave money. In that case, term life insurance is inexpensive for younger people and could provide a benefit for a loved one if you were to pass away while young. If you are older, you may find life insurance prohibitively expensive. But if you are still concerned about providing for a loved one, you might want to consider other estate planning strategies or the purchase of an annuity, which in some cases will pay a death benefit or continued payments to a beneficiary you designate.

Long-term care insurance

Long-term care insurance pays for your stay in a care facility after you aren’t able to take care of yourself alone. It kicks in when your doctor certifies that you need help with more than two activities of daily living, which include basic things like eating, dressing and using the bathroom. Not everyone needs long-term care insurance. Wealthy individuals may be able to cover these costs on their own. People with lower net worth and few assets, and even some middle-class consumers, could find it difficult to pay the high premiums this insurance requires. Additionally, long-term care insurance premiums can go up substantially between renewal periods. Be sure to do your research before you buy.

Keep in mind that even though after age 65 you will have Medicare, government-sponsored health insurance for the elderly, it pays only for medical care. It doesn’t pay for you to live in a nursing home or to have paid help for your daily activities of life. Once your assets have dwindled to certain levels, you will qualify for Medicaid, which covers custodial care in a nursing home.

A will

You might think you don’t need a will if you have no spouse or dependents, but if you have family members, a will would be very helpful to them. The state in which you reside decides how to dispense the assets of those who die without a will. This is the probate process and can take a long time. It may also result in dispensations you would not have wanted. Creating and signing a will can help your next of kin immensely. You can hire a lawyer to make a will or do one yourself with forms you buy online. If you have no relatives or friends you wish to leave your assets to, you can leave them to a charity, college, organization or any other entity you choose. Contact the charity or organization to find out how to make this happen.

Illness or incapacity

What happens if you have an accident or become too ill to manage your finances and bills? You might want to create a notebook of passwords, bills you pay, credit card numbers and other pertinent information so someone can step in and take over if you are temporarily incapacitated. Just make sure it’s kept in a safe place. You can offer a trusted person an extra key, and show him or her where you keep the notebook in case something happens to you. This may be sufficient for short-term illnesses. However, if you become permanently incapacitated, you’ll want to have a legal document, known as a power of attorney, in place. This gives someone else the right to manage your finances on your behalf. You can work with an estate-planning attorney to set this up.

Taxes

If you’re living alone, you probably file your taxes as “Single,” which offers fewer tax breaks and results in higher taxes than “Married Filing Jointly.” If you’re young or middle-aged, the best way to lower your taxes is to contribute the most you can (up to the limit) to 401(k) or IRA retirement plans. If you’re older, you want to be sure to check “yes” for the “over-65” higher standard deduction, which will help reduce your taxes.

Financial protection

It may be challenging to be on your own, especially if it follows years filled with family. It could also be pleasant to be able to keep your own schedule, eat what you want when you want, and spend your money on your wants rather than those of others. Knowing that you are protected financially will give you a sense of security that will enhance your general well-being.

Kathryn Hauer is a certified financial planner and fee-only investment advisor with Wilson David Investment Advisors in Aiken, South Carolina. She is the author of Financial Advice for Blue Collar America.

This article originally appeared on NerdWallet. This article also appears on Nasdaq.

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to Key financial considerations for people who live alone
Read this article in
https://www.csmonitor.com/Business/Saving-Money/2016/0922/Key-financial-considerations-for-people-who-live-alone
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe