Last Updated on April 24, 2023
Parents work hard to ensure their kids have a better life than they did. You want to know that your kids will be happy and prosperous even after you die. One significant way to accomplish this is by making the decision to build generational wealth. For a single mother, this can be considerably more challenging.
*Post may contain affiliate links. Full disclosure can be viewed here.
According to the U.S. Census, single mothers are one of the most disadvantaged populations in the country, with about 30 percent of their families living below the poverty line.
Women often have to make more effort than males to generate the same income. In addition to typically being paid less than males, women are frequently penalized for quitting the workforce to assume caregiving obligations.
And due to a longer average lifespan, their salaries must go further. Therefore, as a single mother, you should prioritize earning additional income and investing in tax-advantaged accounts.
Tips to Build Generational Wealth
Here are some suggestions for all courageous single mothers out there:
1. Participate in the gig economy
The gig economy offers numerous alternatives if you are a single mom new to the workforce and want to make some additional money quickly. 17% of American women have performed freelance work at some point in their lives, which has a significant financial impact on those that do.
Gig work can be an excellent source of income for single mothers in transition or to supplement their income by a few hundred dollars per week while they strive to stable their career or business or save money. How can gig employment help you?
Gig work can be a simple option for a single mother to earn extra without committing to a full-time position. Frequently, you can choose your hours, work only a few hours, work intermittently, or work at odd hours of the day.
It is also an excellent method to gain skills in a new field while earning extra money without a long-term commitment. However, gig labor is frequently less reliable than traditional employment, making it challenging to budget around it. It takes time to figure out, and you must convert it into extra revenue. Additionally, you need to receive the advantages of full-time employment, such as health insurance or paid vacation days, which can be essential for single mothers. Invest a portion of each paycheck in an account that offers a high rate of return.
2. Keep funds in custodial Accounts.
Parents can open and manage savings and investment accounts for their children. Invest in your children from a young age. Over time, the interest accrued on these accounts will accumulate a substantial nest fund for them to receive at age 18.
3. Invest your money to grow
Invest your money in several different ways. Diversification is the most effective method for ensuring consistent financial development over time.
If you put all of your eggs in one basket, things will go differently than planned, and you will have no alternative options to make a difference.
4. Start a business
Today, it is easier than ever to establish your own business. You could also have a business if you possess a skill, talent, or original concept. These are fantastic assets to pass on to children since you may involve them in the industry in minor ways early on and gradually hand over more duties and control over time or when you decide to retire.
5. Spend money on your children’s education
The cost of higher education is increasing over time. When the time comes for your children to pursue additional education that could help them establish themselves professionally and increase their expected pay, consider setting up education savings account for them. At the same time, they are still young, so they will be prepared.
For a chosen beneficiary, you may select a 529 plan, a tax-advantaged investment account, which allows you to save for qualified education expenses, such as K-12 tuition, apprenticeship programs, and student loan payments.
6. Purchase life insurance
Life insurance is one option to protect your children from financial hardship in the event of your death. You can choose term life insurance, which provides tax-free death payments if you die within 20 to 30 years.
Alternatively, you can invest in permanent life insurance. In either case, prioritizing the monthly premium payment now can assist in ensuring your children’s financial security after your death.
7. Consider the Real estate business as a passive income.
If you can rent out a place in your home, such as a mother-in-law suite or a basement apartment, you can generate a large amount of money with minimum effort. Also, consider owning a second property for rental purposes. First, acknowledging and paying off your property is preferable if you can.
You can accomplish this by contributing even more to your monthly mortgage payments. This will shorten the time required to pay off your mortgage and reduce the overall interest costs.
Invest any additional money in principal mortgage reduction until you are mortgage-free. After you’ve paid off your mortgage, you can invest the money you were paying on your home in another property. Owning a home entirely and other properties are excellent methods for passing on wealth to future generations.
8. Keep your debt low.
Managing your debt is an integral part of any plan for your money. You might have to take out loans to pay your bills when you’re a single parent. Having debt isn’t always bad as long as you can pay it back on time.
So, you can build a good credit score, get money when needed, and avoid getting into too much debt, which could hurt your child’s financial future. If your debt is less than 40% of your income, you can handle it.
This is especially true if you can stick to your budget. If you have a massive debt load that you can’t manage, you can consider free debt counseling to choose the right debt repayment option. Only borrow money if you’re sure you can pay it all back on time.
If you pay back the loan at any point, it could help your credit score.
Keep your debt-to-income ratio below 40% to avoid getting stuck in debt traps.
9. Maximize investing
Putting money away is great, but investing is where it’s at. After all, if you put all your savings in a checking or low-interest savings account at your local bank, which is what most people do these days, your hard-earned money will stay the same year after year.
The cost of keeping yourself and your children alive goes up by 2–4% yearly because of inflation. Over the past 100 years, the average return on the stock market has been 10%. In other words, you lose money if you don’t invest and grow your money.
10. Establish financial goals.
Set long-term money goals like paying off debt, saving for a house, and retiring. Set short-term financial goals like paying off small debt, making a budget, refinancing larger loans, and buying a home repair or vacation.
Plan how you will pay for these goals. Start your investment account or ask your employer what they offer. Employer-sponsored plans are retirement funds or savings accounts for health care that your employer pays for.
Accounts that self-employed people set up and settle into on their own, like a 401k, a cash balance pension fund, or an IRA.
It is possible for you to build generational wealth, and it is equally important that you protect that wealth for your children.
Create a will if you wish your child to be cared for after you pass on. If you have yet to write it down, it could defeat the purpose of securing your child’s future and wealth creation.
Single parents must make a Will for their child/children to ensure that their wealth and assets are handed to the child/children or any trusted family member in the manner they desire and to safeguard their inheritance.
Your child’s life and your vision for them must be described in a letter of intent. In your absence, future guardians and trustees can refer to this contract to safeguard your child’s rights and financial future.