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Sandra Thompson, 50, is part of a growing trend: she is a single mother by choice—not by circumstance. In 1995, Thompson decided she was financially secure enough to care for a child on her own. She adopted then 3-year-old James through the One Church, One Child organization in Los Angeles. “I always hoped to be married and have children, but then I realized that I was getting older,” she says with a smile.
Thompson, who is adopted, earns $48,000 as a music professor at the University of Central Oklahoma. Each month, she allocates $200 directly to her 403(b) account and places $150 in a teachers’ retirement fund that is matched by the university. Currently, she has about $100,000 saved for retirement. Thompson owns a home and pays $1,000 each month—double what is required—to pay off her $80,000 mortgage (at 5% interest) before age 65. The rest of her household expenses average about $400 a month.
One of Thompson’s main concerns is debt. When her mother died in 1991, she began spending money on vacations to get away from home. When she adopted James four years later, she says, “He didn’t come with much, and I wanted to spoil him.” She charged more than $22,000 on gifts but has been able to eliminate most of that debt using money earned from summer jobs. She still has about $4,300 on three credit cards with interest rates ranging from 21% to 24%.
Thompson says her goal is to get rid of the remaining debt so that she can concentrate on saving for James’ college education. At present, he has about $500 from birthday and Christmas gifts in a savings account. His godfather also invested an unknown amount of money for him.
Like most single mothers, Thompson’s challenge is to use her modest income to pay her daily expenses, save for retirement, and invest for her son’s education. According to the Women’s Institute for a Secure Retirement (WISER), two out of three working women earn less than $30,000 a year. With such limited resources, financial advisor Cheryl Creuzot says it is imperative for single mothers to put certain basic elements in place:
ESTABLISH A STRONG FOUNDATION
“Single mothers need to lay a solid foundation before they think about long-term investments and asset allocation,” says Creuzot. “Their primary goals should beto create an adequate emergency fund, establish a budget, live within the confines of that budget, and eliminate debt.”
Financial planner Kathy Williams, Thompson’s advisor of three years, says Thompson should use the extra $500 that she’s putting toward her mortgage to pay off her high interest credit cards. Once that debt is paid off, the $500 should go toward establishing an emergency fund, says Williams.
Most financial planners advise having at least six months of living expenses put away, but Williams suggests that single mothers aim for at least three months, as they may not have the resources to do more. Having an emergency fund is critical for a single mother because she may not have anyone to rely on if