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    Single Parent Entrepreneurship

    Ashley DonohoeBy 9 Mins Read
    single_mom_child

    Being an entrepreneur as a single parent has its advantages over being a traditional employee. Schedule flexibility is a major one that might let you spend more time with your kids, work when they’re at school or asleep, and attend their activities without asking your boss for time off. 

    However, it often makes your finances more challenging. You and your children rely on your fluctuating income, and any financial setbacks are on you to fix. Then, you’ve got to figure out childcare, which anybody can find unaffordable. In the end, planning and protecting yourself financially is even more important than for a full-time employee.

    While there are tons of areas we could cover, here are some of the most important financial steps you should take as a single-parent entrepreneur.

    Smartly Budget Your Fluctuating Income

    Any self-employed person, including me, has dealt with this. You can have the highest-earning month ever and then make just half your goal the next month. Sure, it might all average out over the year. But that doesn’t mean the fluctuations won’t stress your finances. 

    Ultimately, you need to learn to budget differently from the average employee who reliably knows how much they’re making that month. You can approach this in a couple of different ways, which I’ve experimented with over the years:

    1. Use an average income based on what you’ve made over the past six months to one year (this is what I’ve stuck with).
    2. Be conservative and use the lowest monthly income amount over that same time period (this can be much harder if you have high expenses).

    After you’ve decided which income to use, you can move on to expenses. Look through all your finances to see what you usually spend on yourself and your children. You need dollar amounts here, which again, you might need to average if they’re irregular. Here are some example items:

    • Housing, including your utility bills, mortgage/rent, insurance, maintenance, and others
    • Food, including groceries, delivery, restaurants, and school meal plans
    • Transportation, such as your vehicle payment, gas, oil changes, and car insurance
    • Health, including insurance, medicines, over-the-counter items, and doctor copays
    • Child expenses, such as school supplies, daycare, summer camps, and clothes
    • Other debt payments for credit cards, medical bills, student loans, and personal loans
    • Goals, like monthly investment and savings contributions

    Note that you shouldn’t include business expenses in your personal budget. As the FDIC says, keeping business and personal finances separate avoids a lot of confusion and tax headaches.

    Next, I recommend subtracting all those expenses from your self-employed income. You want to get zero or a positive number. If not, go back and see which expenses you can cut. Also, put excess money toward something important, like your savings or business purposes.

    Track your spending to see if you’re staying in line with the numbers. Each month, make adjustments based on what you’ve learned. Also, remember to add any new expenses or update the income used if there’s a notable change.

    Navigate Affordable Childcare Options

    The nice thing about entrepreneurship is flexibility that’s great for many people who have kids. Single parents working traditional jobs might need a regular babysitter. You, on the other hand, may just need help when you need to meet with clients or your accountant. Also, if your kids are in school, you might simply structure your work around their schedule most of the year.

    When you do need help, though, finding affordable childcare can require creativity. Here are some good options I’ve come across from other entrepreneurs with kids:

    • Family and friends. In my experience, this option can be very affordable and flexible, though it can also strain relationships. But if you have family members or friends who are available and willing, you can try working out a childcare agreement. That said, I recommend either offering some payment or returning the favor by watching their kids. I’ve heard from several parents who experienced drama when they didn’t compensate.
    • Fellow parent entrepreneurs. Many other entrepreneurs are in the same tricky position as you. Look for co-op groups where you can exchange childcare services and save money. I think this is more realistic for occasional care, though.
    • Government programs. While this might be out of reach if you’re a high earner, state programs offer vouchers or subsidies that you can use at certain child care centers. If you qualify, this is probably your best bet for regular care during business hours. It can really lower your costs, which can especially run high for babies.
    • Drop-in care services. This is ideal if you occasionally need care at short notice. Some day care centers let you pay an hourly rate to drop your children off while you have a meeting, work with a client, or do something else. There’s usually no long-term contract.
    • Extended care at schools. Once your kids are in school, this might be a budget-friendly option. I’ve seen public and private schools offer extended care an hour or two before school and sometimes up to three hours after. But you might need to sign up when school starts and agree to a contract. Others allow occasional drop-in care, so check.
    • Nanny sharing. If you know another parent who has a nanny, this could be a good option for long-term childcare. You could bring your kids over to that person’s home and split the cost between families.

    I always recommend having a backup plan in case your default care option doesn’t work out. An entrepreneur friend ran into issues when her long-term babysitter got sick. She ended up losing income for a few days since she couldn’t find someone else she trusted to watch her daughter.

    Prioritize an Emergency Fund

    Many people, regardless of work and family status, don’t have enough savings to cover them when life happens. And when you’re earning a nontraditional income and raising a child, you’re at an even higher risk of unexpected expenses upsetting your finances. 

    Your child breaking their leg, your family car breaking down, a client suddenly dropping you, and other disruptions can quickly send you into panic. That could cause you to charge a major expense to your credit card and pay years of interest, or scramble to cut expenses and find a new client to survive. This is why having enough emergency savings is a must. 

    The median emergency fund is just $600, according to Empower, and many experts set three to six months’ worth of expenses as the rule of thumb. But I advise closer to one year’s expenses for single-parent entrepreneurs since your financial responsibility is much higher. This is also the amount I personally saved as a self-employed person.

    To save this money, make it part of your budget. Going slowly is OK, but it’s smart to save more in your highest-earning times of the year. Still save in the less fruitful months, even if you need to cut expenses temporarily.

    My advice is to use automatic transfers to a high-yield savings account. You can earn a much higher return that way, which is important since a 12-month emergency fund will likely run many thousands of dollars.

    Further Build Your Safety Net

    Insurance can get tricky and expensive for single-parent entrepreneurs. But you’ll be glad to have something to protect your income and your family’s finances in case a lawsuit, health problem, accident, or disability arises. 

    The big one is comprehensive health insurance for yourself and the kids, with reasonable premiums and out-of-pocket costs. If you don’t get business coverage, look at options like the healthcare exchange or income-based Medicaid coverage if you have financial hardship. Plus, it’s worth looking into vision and dental insurance, which are often relatively inexpensive. 

    Other insurances I recommend considering are:

    • Disability insurance for short- and long-term issues
    • Life insurance worth at least 10 times your income
    • Car insurance above your state’s minimums
    • Homeowners or renters coverage in generous amounts
    • Adequate business coverage for your line of work
    • Umbrella insurance for a high net worth ($500,000+)

    These might not be all you need, so consider your family and business situation. A financial advisor can help you figure that out, as well as suggest other ways to protect your finances.

    Besides getting properly insured, a final tip is to diversify your income. If you only do one type of work or rely too much on one client, that’s a recipe for higher risk for entrepreneurs. Learning to offer new services or adding passive income options, which is basically like creating a “portfolio” income, can help.

    Frequently Asked Questions

    Which major money challenges do single-parent entrepreneurs face?

    Inconsistent income and emergency expenses, including child-related ones, are common. Plus, despite potentially having more flexibility than employees, many also find that childcare costs eat into their budgets.

    How can single-parent entrepreneurs save on taxes?

    Depending on their income, single-parent entrepreneurs may have more opportunities. They might take advantage of child-related tax benefits that allow them to deduct certain care costs and claim the Child Tax Credit. Then they can write off business expenses and claim other tax breaks for entrepreneurs.

    How can a single-parent entrepreneur manage slower periods?

    Knowing your business’s ebbs and flows and having savings that get you through those times will help. It’s also useful to have an extra income stream or two that are more stable year-round.

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    Sources:

    Ashley Donohoe is a personal finance educator with over 15 years of writing and editing experience. Whether she’s covering complicated tax laws or investment strategies, Ashley is skilled at breaking down complex topics with practical examples. Ashley holds multiple financial education certifications, including the Certified Financial Literacy Professional℠ (CFLP®) and Certified Financial Education Instructor (CFEI®) from the National Financial Educators Council. She also earned the Financial Planning & Wealth Management Professional℠ (FPWMP®) credential She’s an IRS Annual Filing Season Participant and holds the Uniform Tax Certification. Her work has appeared on major websites, such as The Independent, CNN Underscored, MarketWatch, FinanceBuzz, Car and Driver, GoBankingRates, and Money.com. Ashley’s holds a B.S. in Multidisciplinary Studies and a B.S. in Accounting and Data analysis from Liberty University, and an M.B.A. from Western Governors University.

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