When I asked readers recently for suggestions for money-related topics, one reader asked what do you do when there simply isn’t enough?
She’s tired of hearing the standard advice on cutting back on expenses – she already tracks her expenses and she knows where her money is going. The lattes went long ago. She’s working full-time in a decent paying job but she is the sole provider for her two school-aged children. Every month there seems to be some unforeseen, unavoidable expenses. Some months there simply isn’t enough money to make ends meet.
She got me thinking about how the standard money life cycle model just doesn’t work for many single-parents. Conventional wisdom puts young adults in the asset accumulation phase – it’s about building a career, starting to save for retirement, building the emergency fund, and frequently buying a house while paying off planned and controlled debts like student loans and mortgage. Somewhere in all that usually comes marriage and children. Some models then talk about an asset preservation phase – I’m not sure exactly what this means but it precedes retirement when typically you stop working and start living off all those hard-earned assets.
Divorce will do a number on this model and will inevitably slow down the asset accumulation if for no other reason than housing costs are more expensive for a single person. It really falls apart though when there simply isn’t enough money and I’m not aware of an alternative model for this situation.
While it’s OK to take on debt for college, a mortgage for a house or a loan for a car, there’s no guidance about taking on debt for being a single parent. I’m not talking about the debt that is driven by lack of money management skills, material desire, impulsive purchases or addictions. I’m talking about controlled, planned, mindful debt.
My sense of our society right now is that having debt is BAD and if you have it, you better be working to pay it off, and fast. Worse than that, if you can’t make ends meet then you must be doing something wrong, failing. But if debt is accepted for college, for a house, for a car why not for parenting our most valuable assets?
What if some enlightened banker said, divorce happens and it’s OK to borrow money to get through the next X years. We believe that parenting is important, we’d rather you be actively involved in child’s life than work a second job. We’ll loan you the money you need at a reasonable rate of interest and allow you to pay it back over fifteen, twenty years. Call it a personal equity line of credit – it would work like a home equity line of credit but without the home as security. You would be the security.
Sure you could use a credit card but I have an intrinsic dislike of credit card debt … it’s the slippery slope. Sure, you can get a personal loan from a bank or credit union today but the loan amounts are small and the payback periods are short. So this would be different.
You’d figure out your expenses (from your records), know your income and know what the gap was each year. Ideally, you’d come up with a projection for what you would need until your children are through high school. The bank would give you a line of credit for that amount and you’d draw on it as needed. If you didn’t need it, you wouldn’t have to use it. When it comes to money, I’ve always found the more you know, the better it is so I would want an online repayment calculator that would allow me to test out different scenarios – what if borrowed more money sooner, what if I borrowed less money, what if I made this repayment now?
I can see that there might be a few underwriting challenges with this but I’m sure they could be overcome or is part of the challenge the stigma of divorce and a view that more single mothers would be bad for our society?
What do you think? If someone told you it was OK to borrow money like this, would it ease your stress and worry? Would you sign on for a loan like this?
If you’re a financial blogger and have an opinion on this or have the answer to what to do when there simply isn’t enough, please contact me about guest posting.
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I have commented recently on some budgeting blogs that there is a real disconnect with the current budgeting standard (mostly Ramsey). It would take me literally 8.5 years to build up a “fully funded emergency fund” according to his standards. The truth is that is unrealistic, and who knows how many “emergency” repairs, doctor bills, etc. we would face between now and then.
For me, I can survive on my part time income, plus child support. The extras like wardrobe, vacations, extra-curricular activities must be suppletmented with increased income. I do this by selling on ebay, working extra hours, really scrimping elsewhere (like groceries). If I can set aside the cash in advance, I feel good about participating in what is causing me the increased money. But like your reader’s question, there is only so much that can be cut, most single partens are already living an d a very lean budget.
I look forward to hearing more on this subject! I have not discovered a lot of information out there.
Missy June – I haven’t seen very much about this either – I suspect because no one has good answers.
It’s an interesting idea. I am not sure it is attractive from a lending position, but I can understand how the concept is attractive. I wonder if it would encourage divorce or make for an easy way out mentality. I’m not really an anti-divorce advocate of any kind, but I wonder if the availability of such funding wouldn’t actually entice people who don’t even want to get married do so only so as to then get a divorce and become eligible for this type of loan. Then they declare bankruptcy and never pay it back. It would be tricky.
It’s an interesting idea. I am not sure it is attractive from a lending position, but I can understand how the concept is attractive. I wonder if it would encourage divorce or make for an easy way out mentality. I’m not really an anti-divorce advocate of any kind, but I wonder if the availability of such funding wouldn’t actually entice people who don’t even want to get married do so only so as to then get a divorce and become eligible for this type of loan. Then they declare bankruptcy and never pay it back. It would be tricky.
You’re right, Jack – there are some downfalls. The longer term nature and lack of security would make this more challenging to underwrite. However, I think you could look at employment history, and how well a person was managing the money they had.
No one can express how extremely difficult it is to raise a child on your own, let alone manage your finances, or heaven forbid save money for your future.
There is no exact science to making it all work and for me it is always trial and error. I say this from experience as I am twice divorced as well as someone who eats, sleeps, and breathes finances everyday.
I have written many articles on budgeting, saving, and how to generate more income; but the best advice I can give can be summed up in two thoughts:
1. The formula never changes; you must spend less than you earn. (So if you are falling short you have 2 options; cut expenses or make more money)
2. Look at your budget in a whole new light, not a way to deny yourself what you want, but a way to GET it. (Use your budget as a tool to get what you went)
I’m not crazy about credit cards, either, but I do think we have to remain realistic. Just as there isn’t always enough, there aren’t likely to be single-parent-friendly lenders out there! Credit cards might be the only solution for some. There can be a huge difference in interest rates, though, depending on the financial institution. For a Chase credit card, I’m paying over 20% interest, which is outrageous (and I am focusing on paying that down). For my credit union credit card, I’m paying about 8%. While it still might be higher than a personal line of credit, it is the only realistic option I have for a credit line.
A credit card with an eight per cent interest rate actually doesn’t sound that unreasonable. It sounds like finding out if you’re eligible to belong to a credit union would be a good step.
P.S. – I have got read your latest post .. a fag hag??
I’ve been there as my debt load greatly increased after my divorce and it took a while to recover from that.
I would only advocate going into debt if it is to get a skill or degree that will earn you more money. That’s the only way to improve your standard of living == earn more money.
Kay Lynn – any thoughts on how to handle those unforeseen, unavoidable expenditures?
Why would anyone loan money to these obviously bad credit risks ?
Most are entirely parasitic on their ex-husbands, few have any EARNED money and clearly divorcees aren’t exactly reliable in their commitments.
Beyond that, loaning leeches money only encourages irresponsible profligate and pointless luxury purchases
Why would anyone lend money to irresponsible mooches?
These women make no money and have nothing because they’re essentially a parasitic organism. They function only to suck life from their husbands and children.
In addition it’s quite obvious how seriously these women take commitments : women commit most of the adultery, child abuse and initiate most divorces