It’s just as important for a single adult to set themselves up for financial success, as it is for married couples and families.
The following are some areas for single adults to be concerned with:
- Estate Planning: Single adults need a basic will, a living will, and powers of attorney for finances and a proxy for health care. You want to make some decisions and legally represent them on paper before/if you become incapacitated and cannot make decisions for yourself. Check the beneficiaries on your retirement plans, such as your 401k or IRA(s), to make sure the funds are going to who you want them to go to. You don’t want the state making these decisions for you.
- Emergency Fund: Everyone should have an emergency fund, but it may be more important for single adults whose only income stream may come from their own wages. Having the equivalent of six months’ normal expenses in a liquid savings account should be enough.
- Credit Score: It’s important to establish credit in order to have a credit score and then to treat it well. Besides being used by institutions you wish to obtain credit from, your credit score is used by employers, insurers, utilities, and others as part of their evaluation to determine how trustworthy and responsible you are. I am a big fan of a young person getting a credit card and establishing credit, once they are paying for some expenses themselves. It may be as simple as putting gas in the family car. It is a good time for parents to instill in their young adult the importance of paying off their credit card every month. You don’t want to pay interest on your every day expenses. More and more credit cards, such as Discover, Citibank, and American Express are showing their customers their credit scores as part of their service. I believe this trend will continue and paying to see your credit score will no longer be necessary.
- Disability Insurance: Disability insurance can usually provide up to two-thirds of your income should you become unable to work and earn an income. According to the Council for Disability Awareness, just over 1 in 4 of today’s 20 year-olds will become disabled before they retire. The council also reports that accidents are NOT usually the culprit. Back injuries, cancer, heart disease and other illnesses cause the majority of long-term absences. Check to see what coverage your employer provides for you. You should have short- and long-term disability insurance. For whatever your employer doesn’t provide, you should consider purchasing a policy yourself for the coverage you’ll need.
- Retirement Saving: Think 401ks and IRAs. The following advice applies to anyone regardless of their marital status. First, take advantage of any contribution match your employer offers for your 401k. (If it’s available select the Roth 401k.) Next, if your income allows, fund a Roth IRA for the year. Once you’ve contributed the yearly allowed maximum to your Roth IRA ($5,500 annually, $6,500 if you’re 50 or older), go back to your 401(k) and attempt to contribute the maximum ($18,000 annually, $24,000 if you age 50 or more). An IRA and a 401k can provide important keys to a comfortable retirement if you invest early, often, and wisely.