February 2020

Smart (and Simple) Money Guide for Singles

Author: Kent Thune

You’re single. Whether this current status is by choice or not, facing your financial situation alone can be a challenge, if not frightening. You listen to your friends about saving and investing, you read articles on personal finance, and you listen to podcasts, radio talk shows, or whatever media source you prefer. But few, if any, of the tips seem to fit your financial situation, and most of them seem like advertisements to sell financial products and services. Making matters worse, the more information you hear, the more complex personal finance seems to get.

The one message you probably haven’t heard is that the best overriding philosophy regarding money is simplicity. Simple is the new smart. Personal finance need not be complex or frightening! So, in the spirit of keeping things simple, here are some smart (and simple) money guidelines for singles.

Saving and deposit accounts for the short term: You can make smarter decisions with saving and investing in a simple way by separating them into short-term goals and long-term goals. Short-term saving can be associated with deposit accounts at banks, such as checking, savings, and certificates of deposit (CDs). Because you’ll earn little or no interest in these accounts, don’t pile too much money into them. Checking accounts should be primarily used as a landing place for your earned income from work. Your money is allocated to its proper place from here (e.g. paying bills). Savings accounts are best used for short-term savings goals or for emergency funds. CDs will pay higher rates of interest than savings accounts but should not be used for objectives longer than three years. For long-term goals, it’s wise to find vehicles that can outpace the average rate of inflation, which is about 3 percent.

Retirement accounts and investing for the long term: The guidelines for smart retirement planning and investing for singles are no different than they are for couples. Put aside at least 10 percent of your gross income and invest as aggressively as your risk tolerance allows. This means allocating most or all of your long-term investment assets to stocks, as long as you are at least three years (but hopefully at least 10 years or more) from beginning withdrawals. If you have no long-term savings or investments in place, and you’re 30 years old or older, you may need to put aside more than 10 percent to reach your goals.

Set it and forget it with automation: Whenever possible, it’s smart to automate your finances. While you should maintain awareness of money coming in and money going out, paying bills and saving automatically keeps your worst enemy (you) out of the way. For example, if you’re investing for retirement, and you want to keep things simple, consider using a target date retirement mutual fund, commonly referred to as a lifecycle fund. These mutual funds set a target decade for retirement and invest appropriately for the timeframe until that decade. For a specific example, an investor in his or her 30s could allocate retirement assets to a target date or lifecycle 2050 fund. The manager of the fund will invest in a way that is appropriate for someone retiring between 2050 and 2060. The asset allocation for a fund like this would probably be around 80 percent stocks and 20 percent bonds today. As the retirement date approaches, the manager will shift increasingly away from stocks into bonds, which is what most investors should be doing as retirement draws closer. But instead of managing your investments yourself, the fund does all the work for you! Just set it and forget it with a lifecycle fund.

Establish a spending plan: Stop using The B Word! Why call it a budget when you can call it a spending plan instead? It’s like replacing the word diet with eating plan. It sounds so much better, and you’re more likely to implement and maintain something that’s a plan rather than something restrictive. Establishing a spending plan is especially important for you singles who are not the money types because it forces you to remain conscious of your spending, which is the foundation of financial success. You don’t need a financial savvy other half if you use a simple yet powerful budgeting app, such as Mint or PocketGuard.

Choose the right health insurance: Fortunately, health insurance is relatively cheap for singles, especially with employer-sponsored plans and if you have no dependents. If you are healthy, it’s generally best to choose the high-deductible plan and put aside money in a health savings account (HSA) to cover out-of-pocket expenses. If all you do is visit the doctor for an annual physical, plus maybe buy some medications when you get sick, the primary need for health insurance is to protect against catastrophic health emergencies that are unlikely to occur.

Do singles need life insurance? The short answer is no, but the long answer begins with two words: it depends. Generally, you don’t need life insurance unless someone will suffer financially without you in the world. For singles who are parents of minor children, life insurance is almost always a necessity. Avoid permanent life insurance policies that double as savings or investing vehicles, such as Whole Life or Variable Life. Monthly premiums can be 8-10 times higher with permanent policies than with Term Life policies. This why many financial gurus, such as Dave Ramsey, say “buy term and invest the difference.” For saving and investing, you’re better off doing this on your own outside of an insurance policy. Plus, you only need coverage when your beneficiaries would need it most in your absence. For example, a parent with young children may be served best by a 20-year term policy, which would benefit the kids should you pass away while they are not able to financially support themselves.

Advisor vs. do it yourself: If your finances are relatively simple, there’s probably no need to hire an advisor to help you with your taxes, insurance, investments, or planning. For completing and filing income taxes, try an online tax software app, such as TurboTax, which is either free or low-cost, depending on the complexity of your income sources. If you want to learn about life insurance and compare quotes, check out a helpful and simple online tool, such as PolicyGenius.com. If your investment needs consist only of a 401(k) plan sponsored by your employer, just be sure to contribute 10 percent or more (or at least enough to get the company match). Many 401(k) plans offer some type of advice or general guidance for planning and investing. If you decide to hire a financial professional, look for one who has a certification, such as CFP, CFA or ChFC, which assures experience and knowledge on multiple financial topics. Fee-based advisors can also be smart choices because they are paid only by you, the client, and not by selling products.

Kent Thune, CFP®, is the owner of a Hilton Head Island registered investment advisory firm, Atlantic Capital Investments. He is also a personal financial counselor to Marines and other service members on Parris Island. Thune’s financial guidance has been published at The Motley Fool, Yahoo Finance, Kiplinger.com, MarketWatch.com, Nasdaq.com, InvestorPlace.com, and his own blog at TheFinancialPhilosopher.com.

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