Lauren Heller, 49, of Pennsylvania is a single mother with two sons, ages 14 and 10. She is a full-time graphic artist and has been with her current employer for six years.
Lauren is a homeowner and has lived in her home for 10 years. She has no credit card debt, a paid-off car, a small emergency savings account and recently took out a home equity line of credit for some home remodeling.
She wonders if she should start a college savings account for her sons and worries if she is putting enough away for retirement.
Lauren’s situation is a very common one. As a single parent, it’s difficult enough simply to provide for your family, and the challenge of saving for retirement or future college educations can seem very daunting. She wonders how much she needs to be putting away for these goals.
Although she has an idea of how much money goes toward various expenses, she does not follow a budget and does not track expenses.
Lauren is doing a number of things right. She has no credit card debt, her automobile is paid for, and she controls household expenses by spending wisely. In fact, Lauren uses a debit card which forces her to be disciplined about her spending. In her words, she won’t make a purchase if she doesn’t have the money. Way to go, Lauren!
On top of that, Lauren contributes 6 percent of her gross pay to her employer-sponsored retirement plan, pays an extra $100 each month on her mortgage and still manages to put $150 per month into savings. As many people know, savings can be a struggle especially when unplanned expenses come along and quickly devour months’ worth of diligent saving. Lauren knows this feeling also, as her savings account balance has fallen to $600.
Recently divorced, she is also incurring some costs for home improvements that are being financed with a home equity line of credit. To this point, she has incurred approximately one-third of what she estimates will total $15,000 in home improvement expenses.
- Has an idea of where the money goes, but no budget.
- Emergency savings fund reduced to $600.
- Contributes to retirement plan but not an IRA.
- No money earmarked for college savings.
- In the midst of home improvements using a HELOC.
She has an IRA valued at approximately $40,000 — rolled over from a previous employer’s retirement plan. Currently, she’s not contributing to this IRA. She has no money specifically earmarked for college expenses for her two children but acknowledges that since she was recently divorced it is unknown exactly what burden will fall to her.
Lauren has health insurance coverage for her and her sons. In addition, she has both short-term and long-term disability insurance purchased through her employer through payroll deductions. This is absolutely vital to wage earners of all ages and incomes. Good job, Lauren.
Life insurance is a necessity for anyone with dependents. Lauren has a policy purchased through her employer via payroll deduction. The life insurance policy would provide an amount equal to three times her annual salary in the event of her death. Between the life insurance policy and Social Security survivor benefits for her children, enough money would be provided that an annual sum nearly the same as her current take-home pay could be withdrawn by the guardians until the youngest child reaches age 18.
Lauren has made smart decisions regarding her sons’ financial well-being and is wisely avoiding expensive debt. But she is worried about the future. Do her concerns match up with our financial adviser’s outlook on her finances?
This report was prepared by Bankrate Senior Financial Analyst, Greg McBride, CFA.
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