How to adjust financially as a single parent

Canada Life - Feb 01, 2024
Becoming a single parent requires a lot of adjustment, especially when it comes to finances, but there are ways you can budget, save and provide for the future.
A mother with glasses sits with her baby on her lap while she looks at a laptop

Adjusting to being a single-income household can be difficult even if you receive financial support from your former partner. You may be worried about what will happen if you’re unable to work or how you’ll afford additional costs like childcare.

Of all the families surveyed in according to the 2021 census, 16.4% of families in Canada were one-parent families.

There are ways you can budget, maximize savings and government benefits, and plan for the future to help you financially navigate this next chapter or your life.

Creating a budget

One of the first steps is to review your new financial state, taking into consideration all forms of monthly income including child support and any government benefits you may be able to claim.

Budgeting for fixed expenses

First, you’ll need an idea of what your monthly expenses are. Fixed expenses are those that occur on a fixed date each month, and are usually essential bills and utilities such as:

  • Rent or mortgage payments
  • Insurance
  • Car payments or transit costs
  • Any increase to childcare costs
  • Internet and phone bills
  • Credit card and loan repayments
  • Subscription payments

Budgeting for variable expenses

Once you know when your fixed payments are due, you’ll need to work out how to cover your variable payments.

The money left over from your paycheque once you’ve accounted for essential bills is known as disposable or discretionary income. This is used to cover expenses that aren’t bills or payments, but still add to your overall cost of living, such as:

  • Groceries
  • Entertainment
  • Eating out
  • Gas
  • Clothing
  • Toiletries and personal care
  • Beauty and haircare

Bill payments and expenses aren’t the only things you’ll need to factor in. Saving and ensuring you have a safety net are also important to help you cover unexpected costs in the short-term, as well as to plan for your long-term financial future.

Managing saving

Even if you have difficulty managing money as you adjust to single parenthood, it’s still important to set some aside each month as savings, even if it’s only a small amount.

For example, you should have an emergency fund to cover large issues that could impact your income, such as job loss or illness.

You could also set up a rainy day fund which may only have $500 - $1,000 saved to cover smaller, one-time purchases like car or home repairs.

How much should you save each month?

The amount you should save each month depends on how much money you have left over after you’ve covered your fixed bills and living expenses.

You may have heard of the 50-30-20 rule. It means you allocate 50% of your take-home pay to your needs or fixed expenses, 30% to your wants (your variable expenses), and 20% to savings.

While it’s a popular method, it normally works best when budgeting monthly, so it may not apply if you budget by paycheque.

Instead, you can set up a system where you contribute based on how much you’d like to save in total over the year rather than by a set amount per month. Or you could set up a recurring payment to transfer money from each paycheque to your savings account as you’re paid, treating it as almost another expense.

However you choose to do it, saving a little is better than nothing. There are many benefits to starting to save early, including taking advantage of compound growth.

Maximize government benefits

Your change in circumstances could mean you may now qualify to receive money from the government or can claim certain expenses on your tax return.

If you’re single with a child or children, you automatically qualify to receive the:

  • Canada Child Benefit (CCB)
  • GST/HST credit
  • Climate Action incentive payment
  • Other provincial and territorial benefits

Depending on your income and other factors, you could also qualify to receive benefits such as the:

  • Child disability benefit (CDB)
  • Canada workers benefit
  • Children’s special allowances

If your change in circumstances has lowered your household income, you may qualify for additional government support available to low-income families, too.

Make sure you stay up to date with new and changing government benefits that t could help. For example, to help with the high cost of living in Canada in 2023, the government has introduced a one-time Grocery Rebate for eligible individuals and families to help with the rising cost of food.

The CRA child and family benefits calculator can help you determine how much you might be able to receive in total through government benefits.

Explore increasing your income

If your expenses have increased drastically, you may want to explore ways to earn extra money to help you cope.

For example, you might explore taking on a side hustle in addition to your current job, such as:

  • Freelance, contract or gig work
  • Delivery work such as Uber or food delivery
  • Services such as dog-walking or catering
  • Selling something you made or reselling something you bought previously
  • Teaching or tutoring

Prepare for the future

Set financial goals

As you embark on your new beginning, it’s a great time to take stock of your goals and priorities. This also includes evaluating the role your finances will play in achieving these goals.

For example, do you plan to pay down debt? Do you plan to move to a new home following your separation? Do you want to start or increase your savings for your child’s education? Thinking about how your goals may change and evolve in this new phase of your life can help you save and invest to achieve them.

Ensure you’re insured

If you’re a parent, it’s important to have coverage in place to help your children in the event something should happen to you, especially if they’re at the age where they depend on you financially.

If you already have insurance, make sure to review your coverage levels and update your beneficiaries. If you don’t already have coverage, now’s the time to look at available options to see what best suits your needs.

There are different types of insurance available, such as:

  • Life insurance – Following a death, a lump sum is paid to the policy holder’s beneficiary. This money can help your family with funeral costs, outstanding debts or loss of crucial income.
  • Critical illness insurance –This lump sum is paid out following a life-altering diagnosis of a covered condition and can reduce the financial burden of fighting a serious illness.
  • Accident insurance – Accident insurance can be paid out as a lump-sum following catastrophic injuries, or to help a beneficiary financially following the accidental death of the policy holder.

On top of life insurance, it’s important to consider whether you have enough in the way of health and dental benefits. If you had coverage through your spouse’s plan, you’ll likely lose this coverage once you separate. It’s important to check whether their coverage will still extend to cover eligible children, too.

If you don’t have health and dental benefits beyond what’s covered by the government, you may end up paying for some medical expenses for you and your children yourself. This could cost you thousands of dollars a year, which could put a strain on you financially.

If you have coverage through your employer, it may extend to cover eligible children, so it’s a good idea to check the details of your plan to ensure your children are named on your plan and the levels of coverage suit your family. You may also want to see if there’s any change to coordinating benefits for eligible children between you and your spouse.

If you need coverage, I can help you explore health and dental plans to see how they can be tailored to your needs and budget.

Save for retirement

On top of savings to help you out now, it’s important to make sure you’re saving for your future as well.

Products like a tax-free savings account (TFSA) or a registered retirement savings plan (RRSP) are ways to help you save for the longer term.

You could explore options like segregated funds or mutual funds which are invested for you by a portfolio manager. This means you don’t have to worry about committing time to manage your investments but can still have an opportunity to grow your wealth over the long-term.

Women typically retire with less money than men, especially if they’re the sole financial provider which can make it harder to contribute to retirement savings. Even contributing a small amount of money each month can add up over the long term to help you afford to retire and enjoy your dream retirement.

Make plans for your estate

If you haven’t done so already as part of your separation, you should think about estate planning to make sure your instructions are clear for what will happen to your assets after you’re gone.

Estate planning is arranging your affairs so that when you die, your money and belongings are distributed the way you want. Some things to think about include:

  • Making or update your will – Dying without a will can cause many issues, the main one being you have no say over how your estate is managed and distributed once you’re gone. It can also result in more stress, money and time involved with wrapping up your affairs.
  • Choosing an executor – An executor (also called a liquidator in Quebec) is a person who administers and distributes your estate.
  • Updating your financial arrangements – This includes your insurance and investment beneficiaries, property ownership documents and finances related to your business.
  • Signing a power of attorney – You can sign a power of attorney for property and for health and personal care, and you may also consider creating a living will, which outlines your wishes for medical care and end-of-life under certain circumstances.
  • Reviewing your beneficiaries on your workplace insurance and savings – Some plans have legislation governing who the beneficiary will be, but for others, you’re able to update it yourself.

What's next?

While managing your finances, it’s also important to prioritize your mental health and your relationship with money. While it may feel overwhelming, there are ways to help you manage your anxiety.

If you have insurance and/or benefits through your workplace, check your coverage to make sure everything is up to date.

According to a recent Canada Life survey, women who worked with an advisor felt more positive about the time it would take to reach their financial goals after a divorce than women who didn’t. If you need help navigating this new chapter of your life financially, let’s set up a time to talk.