I'm a single mom at age 23. My income is less than 30K. Which way should I go?

Question

After a long 2 year struggle, I finally can say I have no debt. Thank goodness.
Now I need to focus on step 2. But what IS step 2?

Saving for retirement, a downpayment on a house, a reliable car; or Life Insurance?

I've learned that my daughter's college fund should not go before any of these, so what's the right choice?

Answer 1

Your number one priority is getting life insurance. God forbids if something happens to you, how would your family survive without your income? I suggest getting a 30 year term insurance.

Your second priority is saving for retirement. Would you rather retire broke or retire with lots of wealth? You should open a Roth IRA and invest in large growth and aggressive growth mutual funds. If you don't know what a Roth IRA is, go check the IRS website for publication 590. In the past 25 years, mutual funds has an average rate of return of 12%. If you invest $300/month for the next 30 years, you would have about $1,058,974. Of course, there is no guarantee you will get 12%, but it is possible if you remain a disciplined investor and diversify your risks.

If you had a million dollars in your retirement 30 years from now, do you think you would still need life insurance?

Third priority is up to you. If you want to save money to buy a home, I would figure out when you plan to buy a home. If you are buying a home within 10 years, I would put money away into a money market fund.

If you want to save money for your kids education, I suggest opening a 529 Plan. I would check out your state's 529 plan first before looking at other states. Personally, I like Colorado's Scholars Choice Plan. It is one of the top 5 best rated 529 plans in the country. One of the companies that makes up the plan is Legg Mason, which manages approximately one trillion dollars.

I know one company that can do all of this for you in one or two appointments and that's Primerica Financial Services. They have great reviews from many financial publications and many clients love what this company did for them. Of course, being a well known company has its critics.

Answer 2

These answers are all good but the real answer depends entirely on you. What are your personal goals and what would you like it to be like when your child is older? For instance, if you have a means of transportation and are not desperate for a new car right now, that might not be the right choice. If you would like to own a home rather than renting when your child is growing up, save for a home. Life insurance is probably not the most important thing on your plate right now because you are at a very young age still. I'm not saying it isn't important, but you have to consider your situation and determine which means the most to you and is the most attainable on your salary. Also, you could save for several of these things at once. I suggest you figure out your monthly income and expenses by category such as food, utilities, rent, and so on. Then calculate extra expenses you have such as magazines, entertainment, cigarettes...things you maybe can cut back on somewhat. Finally, with whatever is left, split between several areas. Put a percentage in a savings account for a car, put an amount in a money market or similar account to save for a down payment on your home, buy life insurance if you want (it won't be very much per month at your age), and put a percentage into an IRA of 401K or other retirement investment vehicle.

P.S. All this is general information just to give you an idea, if you are serious about it I suggest you spend a few hundred dollars speaking with a Certified Financial Planner about your best options. Good luck.

Answer 3

Well done. Living debt free is the best way to live.

1. Term Life insurance - don't get any of that other crap that costs too mush and pays out very little.

2 Accumulate an emergency fund of three to six months expenses. This way is something happens you won't have to go back in debt.

3. A reliable car. Pay cash. Cars only go down in value so get yourself a good used car.

4. College (daughter and you). You are your best investment. You don't want to be making 30k in five years.

5 A down payment on a house. Total cost no more than 25 or 30 percent of your income.

6. Retirement. 10 percent of you income in a roth ira.

Answer 4

At 23, life insurance is probably the last thing that should be on your list. For retirement, can you participate in your company's 401K if they have it? If so, that would be one of the things I'd do. It's not taxed to you until you withdrawal from it, so at your age, that's a good thing. You don't have to contribute a lot either. And you can't get to work without a reliable car, so I'd definitely put that before a house. You're still young and have plenty of time to buy that house. A lot of banks don't even require downpayments anymore. So buying a reliable car and contributing to a retirement fund are my two choices.

Answer 5

A reliable car first. This way you'll have good transportation to get you to your job.
A house is great but think of all the costs. Lawn maintenance, exterminator from time to time, homeowner's insurance, property taxes, etc. etc. If the stove breaks, there ain't no landlord to call. You have to shell out the bucks yourself.
I'd get me a good car and the nicest apartment you can afford. I'd work hard for the next several years, build my resume with on the job experience, save some money and then buy a house in say 5 years.

Answer 6

The answer would all depend on what you are planning to do in the future. Since you are 23, you can start thinking of investing for yourself. But, for your second step, I would suggest that you build a "safety cushion" or "emergency fund". Normally people tend to say about 3-6 months of expeditures. It all depends on you and how your job situation is. Seeing from your question, I would have to say that these are the next few steps:

2. emergency fund
3. if you have a car, keep it if it is good; else purchase a reliable car
4. life insurance is a must! not only for your well being but for your daughters as well
5. save for retirement via an IRA
6. save for daughters college via a 529 plan or Coverdell account

If you have any more questions, just let me know

Answer 7

Single mom:

Pay yourself first. You know that there are grants, scholarships and loans for your child. You just need to know where to find them.

Step 2 is to generate enough so you buy a home. Talk to your banks there are programs that help you with closing cost. Just ask for programs for first time home buyers (these programs normally require you buy a house in 1 or 2 years after starting the programs to qualify for free money)

Step 3 is to understand that in todays world 30K is not going to amount to much. If you finished your bachelors get your masters. Studies show more people have higher paying jobs with the title just select something you think you will be good at. My wife is a nurse who recenly started to teach nursing. She is making a masters in Guidance counseling and because of this is now seeing a possible position as the program coordinator when she finishes because she will be the only teacher with a masters.

Hope this helps

Answer 8

A car should be the least of your concerns; as a car has no return. Whatever you put into a car, is deemed a loss. Your vehicle is a luxury (albeit generally a required one), not an investment. If it works and doesn't need repairs other than basic maintenance, your car has probably done what you require of it.

Life Insurance would depend on your situation; you usually want to make sure any children you have would have enough money to get by until they come of age and can fend for themselves; if their guardians/godparents would not have problems raising your children without financial assistance in case of an accident than its not too important.

In regards to retirement or a downpayment on a house; that depends on your financial ability to invest; if you can make more money investing your money than you would lose due to interest by not paying off more of your mortgage, than do so. If not than the mortgage would be a better way to go for you.

Answer 9

Dear Rosita,

Congratulations to you! It sounds like you are making great progress and living within your means. I think your best bet on step 2 would be to concentrate on improving your financial situation. This means getting an education that would support a higher paying job. How about saving for your own schooling or to pay for child care while you go to school?

There are numerous part-time programs that would allow a working mother to gain an education and work, but it will not be easy. Find a stable environment for your daughter, depending on age, she may or may not need daycare. Get your education and get on the road to financial independence. If you have to take on debt to fund education, it is worth it. You will be able to pay back the debt when you get the better job. Alternatively, look to scholarships and grants as a way to fund your education. It will pay off for you.

Best Wishes,
Docmase

Answer 10

a good running economical car or maybe a downpayment on a hybrid to help you save in the long run then a home, and medical insurance if you dont have any i think those should be the most important at this point in ur life
ur still young so you got time