When you live alone, you need to manage everything, including your finances. For some, this means having greater freedom to make decisions for themselves. However, it also means facing unique financial challenges, from budgeting and retirement planning to insurance and tax and estate planning. Below are a few examples.
Financial emergencies, such as a job loss, are riskier. Couples with two incomes have a partner to provide financial support, whereas a single person lacks that safety net.
Meeting the cost of living can be more challenging. Consider mortgage payments, household expenses and car payments. These are all major expenses that are easier to manage with two incomes.
Certain tax-saving opportunities are unavailable. For example, you can’t make a spousal loan, contribute to a spousal RRSP or take advantage of other income-splitting opportunities.
Let’s look at three people who manage their finances solo and how they deal with their personal challenges.
Adam Diaz, never married
Adam Diaz is a successful, self-employed IT consultant with several national companies as clients. To Adam, financial planning is all about managing his investments. He also provides financial support to his mother.
Right now, Adam is not working because he injured his back from a hiking accident. Since he had no disability insurance, the accident became a wake-up call to review his financial plan. He met with his advisor and purchased both disability and critical illness insurance so he can keep afloat if an illness or injury prevents him from working.
Adam always thought insurance and estate planning were for couples and families. He didn’t even have a will. He makes one now, naming his nephew, two nieces and a favourite charity as beneficiaries. He also takes out life insurance to protect the support he provides for his mother.
When Adam resumes working, life will be different. He will have protected his income as well as decided on his legacy.
Randall Brown, divorced
Randall Brown has just gone through a divorce. Proceedings were amicable, but it has still been stressful for him. Randall agreed that his two teens would be better off living with their mother while seeing him on weekends.
As a busy director of business development, Randall simply doesn’t have the time or energy to tackle financial planning. His advisor helps out by first identifying and assisting with the essentials: selling some fixed-income investments to make the equalization payment to his ex-spouse, updating his will, and purchasing life and disability insurance to protect child support and alimony payments.
His advisor then assists with the next phase: budgeting and investments. Together, they revise his budget to reflect his new circumstances, which include living on one income and making child and spousal support payments. His advisor also helps him rebalance his portfolio.
With the help of his advisor, Randall manages to smoothly transition to his new life.
Marie Leblanc, recently widowed
Marie Leblanc’s husband passed away a month ago. During the entire marriage, her husband took care of all the finances, from banking to investments. Now, it’s all up to her. Not only is Marie grieving, but she is also overwhelmed by the daunting task of managing finances. How should she manage the retirement funds? Where should she invest the insurance proceeds? How should she answer the questions from the executor?
Her late husband’s advisor guides Marie through the process and puts her at ease. They determine her risk tolerance, then help her reallocate investments to reflect her more conservative investment personality. With Marie’s portfolio customized, they work together on a longer-term plan that will generate the monthly income she needs, minimize taxes and help preserve her assets for her children.
Use the investor profile calculator to get an idea of your investment objectives and personality.
A partner in your financial journey
You don’t have to handle your finances completely alone. Talk to an advisor if you ever need guidance in your decisions. They will partner with you to find the right plan for your future.