Not sure where to start when it comes to taking the reins of your finances after a divorce? This Finance 101 article was written exclusively for you! The truth is- divorce is a major life change no matter the circumstances. Very few people feel like they are mentally or financially prepared even at the best of times. An especially jarring scenario is finding out how little you knew about your family’s financial position. Especially at a time when crucial decisions affecting your long- term financial health need to be made. The good news is now that the ink has dried on your divorce, you can turn the page and start taking control of your financial future. Read on for Smart Money Moves you can make to build your financial confidence after a divorce.
Smart Money Move Number 1: Do the Math and Create a Sustainable Spending Plan.
Now that the divorced is finalized: what is the income you will have to work with? How much will be going out your lifestyle expenses? Put pen to paper and write down the income you have coming in. Also write down the expenses you normally spend money on. Income may include employment income, child/spousal support, as well as child benefits. To figure out what you will spend your money on in your post-divorce life, consider the three F’s: Fixed, Fun and Future.
Smart Money Move #2: Figure Out Your Fixed Costs.
What are common fixed expenses? Fixed costs normally stay the same month to month. These can include mortgage and property taxes, utilities, rent, condo fees, car lease payments and insurance and bank fees. Some other fixed costs can also include, groceries, medication or health costs, and clothing expenses. An important thing to remember about fixed expenses: they normally average around the same amount in terms of your overall costs for the category each month.
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Smart Money Move #3: Determine What You Will Spend On The Fun Category
What are common expenses in the “Fun” category? Dining out versus buying groceries. Splurging each month on clothing for yourself and your children. Coffee runs, holiday spending such as gifts or entertaining, local and international getaways, are just a few of the most common. You will want to keep a close eye on your spending in these areas after a divorce.
Keep in mind: “Fun” expenses may not recur each month. Deciding what you will spend on this category and keeping track of how well you stick to your spending plan will be the key to building a solid foundation for your future.
Perhaps you are someone who recently divorced. You found out you could no longer afford the lifestyle you maintained while you were married. The reality of your new financial situation means that doing the math on the state of your finances- incoming funds minus outgoing cash is essential to your financial well- being. Keep in mind, if you don’t have a plan for your money- your money will have a plan for you…
Smart Money Move Number 3: Now is The Time to Think About Your Future Self
It may seem impossible to start making contributions toward a savings plan for your future, but the truth is, the future happens sooner than you think. Doing the math on expenses associated with your new life will provide you with some clarity on your priorities. Do you have an emergency fund should you miss a child or spousal support payment? Or if a large expense such as a car repair comes out of nowhere? A good rule of thumb is to have at least 3 months of expenses saved as a back- up. After you sort out the fixed and fun expenses, the money left over can be socked away for the future that you want to build for yourself. This includes an emergency fund or putting funds towards your retirement. If you need additional support, check out my last article Top Budgeting Apps For Your Post Divorce Financial Goals.
Smart Money Move Number 4: Zero in Debt and Pay Off High interest Debt ASAP
If you are learning about finances later in life, an important financial concept to grasp is the rule of 72. The Golden Rule of 72 explains interest this way. Divide any interest rate by 72 and it will tell you how long it will take for the debt to double if you only make minimum payments. For easy math let’s use 10 percent. Making minimum payments with a 10 percent interest means it will take 7.2 years for the debt you owe to double. However, if we take a credit card that charges 20 percent interest it will only take 2.7 years for this debt to double. The golden rule: zero in on the amount of interest you are paying. Aim to pay as little interest as possible to maintain your long -term financial security.
Smart Money Move number 5: Protect Your Lifestyle By insuring Spousal and Child Support
Does your lifestyle rely heavily on your child and spousal support? Ask yourself, are these payments insured by your former spouse? What happens if your former spouse passes away unexpectedly and your main source of income stops? How would you continue to live? A common procedure in the courts is to have your former spouse set up a life insurance to guarantee support payments for a period time that corresponds to the divorce decree. The additional cost of the insurance premiums can also be included in the support payment.
Build your Financial confidence by implementing these Smart Money Moves after your divorce! If you still feel you need help don’t hesitate to reach out to our team to build your financial IQ one conversation at a time!