Savings and the single Mom

Question: I will be 44 years old on the 27th of this month, am the mother of three young boys and am about to be a divorcee. As I start over, my first concern is establishing a household budget and good financial footing. I have a 403B with approximately $80,000, small 529's for each of my kids. I will have some stock and no debt.

Most of the cash I have will go towards the purchase of a home, and any appliances, etc.

I am the director of a small nonprofit organization. Going forward, what are the basics of saving for short and long term? What percentage of my income should go towards retirement vs. an accessible savings account at a bank for home repairs, etc? What are basic rules for savings' goals? Where shall I start? Thank you! Ellen, Zionsville, IN

Answer: You start out safe and steady with your savings. I would make as much of your savings automatic as possible. For example, in your 403(b) the money is automatically taken out of every paycheck. You can do the same thing with your checking account, setting it up so that some sum of money goes into savings every month. The money may not look like much at first, but it will grow over time.

There are several rules of thumb when it comes to saving. For instance, a common recommendation is that should set aside at least 10% of your income toward retirement. You'll also want to have enough money in emergency savings to cover your living expenses for 6 months and a year.

Problem is, these can be daunting goals at a stressful point in your life. In my experience, the most important savings for single parents is their safe savings, the so-called emergency savings. The reason is that you need a big cushion against a job loss, a momentary disability, perhaps the need to take some time off.

So, I would put a priority on emergency savings in a federally insured savings account at a bank or credit union. I would continue participating in the retirement plan at least up to the nonprofits match. For now, I would hold off on adding to the 529s. You can always adjust your savings later on, say, to start adding to the 529s again or increase contributions into the 403(b).

I a worried about sinking so much of your money into a home. I understand the desire to provide a stable environment for your family. But the single biggest source of financial stress for divorced women with children is a home. It's expensive to own and operate. So, please make sure that the numbers work.

A good resource for you is Think Single: The Woman's Guide to Financial Security at Every Stage of Life by Janet Bodnar. She is the editor of Kiplinger's, the personal finance magazine, and she knows her stuff. My book, The New Frugality, also offers a perspective on savings over time.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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