Money Considerations for Solo Households

More than a quarter of U.S. households meet the definition of “one-person” households, according to the U.S. Census Bureau.1 Living alone and having sole responsibility over your household bills can be an advantage: there’s no need to compromise on priorities. Yet against the backdrop of rising inflation and interest rates, managing life’s expenses on one income can come with challenges.

If you live alone, here are key considerations to help you balance funding your short- and long-term financial goals:

#1 – Be prepared for the “single tax” burden

Your basic living costs – food, shelter, utilities, transportation, and taxes – are your sole responsibility instead of being split with a partner or friend. Economists call this extra economic burden the “single tax.” In addition for paying more for the basics, single people have to account for losing their total income if they are laid off from a job or facing a prolonged illness. The loss of a job may also mean the loss of health and disability insurance benefits. If this is the case, take action right away to ensure you don’t experience a lapse in coverage.

#2 – Be cautious about sharing expenses

If you plan to save by splitting some costs with others make sure the rules of how usage and payments are clear and agreed to by all. Such arrangements carry risks for a relationship. Cost-sharing is a great budgeting tool, but good communication is vital for a positive outcome.

#3 – Recognize the importance of a fallback fund

It’s always smart to have money set aside for a rainy day – an emergency expense that suddenly arises, or an opportunity that requires extra money outside of your available monthly budget. A good rule of thumb is to park three-to-six months' worth of living expenses in an account with easy access to cash to cover such expenses. If you work independently or your job is subject to layoffs, it may be wise to set aside six-to-nine months’ worth of living expenses to be prepared for any extended downtime from work.

#4 – Don’t overlook your long-term goals

With the challenges of meeting day-to-day expenses, it’s easy to put future plans on the back burner. But you should try to set aside a portion of your income in a retirement plan. Start with a small percentage, then try to work it up to 10% or more. Take full advantage of your workplace retirement plan, particularly if your employer matches your contributions. Also consider contributions to a Roth IRA, which offers the potential for tax-free withdrawals in retirement.

Work with your advisor

Depending on your circumstances, your financial stability can be more tenuous and challenging if you live alone. A financial advisor can be a helpful partner, offering guidance and lending an ear as you discuss your key concerns and goals.

U.S. Census Bureau, “Home Alone: More Than A Quarter of All Households Have One Person,” June 8, 2023.

Michael D. Lanuto, CRPC®, AWMA® is a Financial Advisor with S.M. Miller & Associates, a private wealth advisory practice of Ameriprise Financial Services, LLC. in Albany, NY. He specializes in fee-based financial planning and asset management strategies and has been in practice for 8 years. To contact him: 518-949-2039; 4 Atrium Drive, Ste 200, Albany, NY, 12205; Michael.Lanuto@ampf.com; https://www.ameripriseadvisors.com/michael.lanuto/lp/request-contact/3/.