Dear Dr. Don,
What are some good financial planning strategies for a single parent? What would you consider to be the best option: buying a whole life insurance policy, investing in a  401(k), contributing to our children’s college saving plan or buying a home?

My income is limited, so choosing everything is not an option. I need to refigure my whole life plan and need direction to make sound and wise decisions for a future. My children are all under 10. I also need to further my studies so I can get good solid career.
— Kellie Conundrum

Dear Kellie,
The need for life insurance should focus on your life and not the children’s. While whole life insurance policies look better today than they have in years, it’s mostly because of the low interest rate environment currently available to savers. In trying to stretch your income to accomplish different financial goals, you’re likely to be better off with a term insurance policy on your life.

Bankrate’s insurance calculators can help you decide on whether a term policy suits you best, and how much insurance you should have.

Your need for education savings should focus on your education, not the children’s. You’re looking to invest in your education so you can have a career instead of a job. The children will be the long-run beneficiaries of you getting a better job.

The decision about whether to be a homeowner is difficult. If you’re looking at a home as shelter and not as an investment, you are comparing whether it’s less expensive to rent or buy. The Bankrate mortgage calculator “Buy or rent your next home” can help you with that decision.

Living within your means is important. The best way to prepare financially for the future is to spend less than you make and invest for that future. Try to avoid living paycheck to paycheck, build a financial cushion and maintain some financial flexibility.

A 401(k) plan is the place to start investing if your employer matches all or part of your contributions. If not, I like Series I savings bonds for an investment that keeps pace with inflation, and the flexibility to choose later whether or not to redeem them for your children’s education.

If you meet the requirements for the education tax exclusion, the interest earnings will be tax-free when the proceeds are used for qualified education expenses. Otherwise, the bonds have a minimum one-year holding period and an interest penalty for early redemption during years two to five. So at least initially, they aren’t useful as an emergency fund. See the TreasuryDirect Web site for more details.

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