There are a lot of things to consider when you’ve just come through a divorce. After the stress of paying for lawyers, finding a new place to live, getting into a new routine of things as a single person; it’s easy to find yourself financially overwhelmed. By focusing on these four financial goals, it will help to bring a sense of calm and clarity to your new life.
1. Make a Personal Budget
Getting divorced can feel like pushing a reset button. Suddenly there’s a greater focus on “me” as opposed to “us”. You’re no longer sharing household expenses, and costs just increased dramatically. How can you afford this new life? Breath, then start working on a plan.
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This plan takes into consideration everything that comes into your account and everything that goes out. Some call it a financial plan, while others call it a budget.
A budget, or financial plan, takes everything that comes into your account, everything that goes out, and documents those number on paper. If you manage your finances according to a tailored budget, you’ll spend less, save more, be far less likely to get into (more) debt, and be able to sleep better at night knowing you’re on top of your monthly expenses.
2. Get Out of Debt
Getting out of debt cannot occur without taking the step listed above. Your personal budget should take into consideration debt repayment, interest payments and a realistic indication when you’ll be in the black. The beautiful thing about being clear of owing debt is, once repaid, that entire line item in your budget gets transferred over to savings.
3. Save for a Milestone Purchase
Now that you’ve set your monthly budget and paid down your debt, you can start thinking about those milestone purchases. Maybe you’re dreaming of a new house, cottage or car.
Working towards a big milestone is exciting, but it can take time. That’s why it’s important to have small milestone goals as well. Something like a trip, a new outfit or even a fun night on the town can be included. Use the SMART financial goal setting methodology to ensure you’re successful.
4. Save for Retirement
As much as the three previous financial goals seem to follow a chronological order, retirement planning should be included in your budget from the beginning. It’s okay to start small – or take advantage of payroll deduction opportunities so that the money automatically goes towards your retirement. By starting early and contributing often, you’re able to take advantage of the compounding effects of investing which can have a significant accumulation effect in your retirement years.
Note that as your debts become smaller and/or your income increases, your retirement contributions should scale accordingly. Although there is no specific rule about how much you should contribute, Elizabeth Warren offers a good guideline in “All Your Worth: The Ultimate Lifetime Money Plan.” Coined the 50/30/20 budget rule, aim to spend 50% of your net income on monthly expenses (car, food, household expenses), 30% on things you want (vacations, clothes, luxury items) and 20% on savings (retirement, emergency reserves). The more you make, the more you’re able to put into savings because you’re able to pay down your expenses.