Life after divorce can be liberating – but it can also be scary. And for couples who divorce and still need to raise children together, there is so much that may be out of your sole control for a long time. What you can control, however, is your personal financial health after divorce. Divorce can be financially devastating, often leaving people with merely half of what they’ve saved over their lives, and in many cases, forced to start over. Take heart in knowing that with knowledge and time, you can rebuild your wealth, if you are proactive and savvy. Below are 5 basic yet critically important steps you can take to get your finances in order after your divorce.
1) Take Inventory
You will not know what you need to do if you do not first know where you are. List out all your assets and your debts, as well as your monthly incomings and outgoings. Note who your biggest creditors are and make a list of people who may owe you money. There are plenty of templates online to help you organize, and it is helpful to keep a small notebook or binder with bank statements, monthly bills, and correspondence with creditors so all your financial information is one place. Finally, check your credit score. You are entitled to a free annual check from various companies. Always use a reliable source that uses the FICO system. Monitoring your credit score can impact your future ability to invest and take out loans. Keep your scores in your binder.
2) Make a Budget
Now that you've gotten everything organized and you can see a snapshot of your financial health, make a budget. It is okay if you realize right after the divorce that your monthly expenses exceed your income. Do not beat yourself up about it – take action instead. Take a critical look at where you can cut back. Eat at home more often. Take up jogging outdoors or work out from home using YouTube videos instead of paying for a gym membership. If any of your contracts with utilities are about to expire, shop around for the best deal. See if you can switch car insurers. If you're having a hard time figuring out where you can save, then get help from a financial planner to guide you. Once you've got a good idea of your budget, build in small, achievable goals. It will help you to save and work towards a goal, which will build your confidence when you've achieved it. Things, like paying off a credit card, or saving up for a short trip with your best friend, are all great things to focus on when rebuilding your finances.
3) Get Professional Advice
Of course, getting a financial planner might be a key step for you to take. But on top of that information, get advice wherever else you can. Seek out tax experts. Speak to the HR or pension source at your company to examine your retirement options. Take this information to a third party retirement expert who can give you objective advice. Consider hiring a company to invest in mutual funds on your behalf. The more support you have, the better and more confident you’ll feel – but this advice comes with a caveat. At the end of the day, it is YOUR money. If the experts you have hired do not take the time to speak with you, or explain what they are doing with your money, then move on. There are hundreds of companies that offer financial services. Find someone you trust.
Look into getting adequate life insurance, if you do not already have it. If you can afford it, whole life insurance policies are ideal; however, getting term life insurance is still a good option if your budget does not allow for a whole life policy. If you do have life insurance, then make sure you change the beneficiary if your spouse was previously listed as beneficiary, unless language in your divorce order prevents you from doing so.
Umbrella insurance is another good option – it is basically extra liability insurance and will cover any claims that exceed the limits of your homeowner's and auto insurance policies. This will kick in if your underlying policies are exhausted. Disability insurance is something else you should get, particularly because you will be relying solely on your own paycheck for the time being. Talk to your boss to see if the company offers disability insurance for a low price that can be deducted from your paycheck automatically each pay period.
Build up a good savings cushion for emergencies- most experts advise saving up to 6 months of living expenses in cash. Start with twenty percent of your earnings. This might sound like a lot, but remember it will only be for a short period of time. Finally, check to see if important legal documents, such as; your Will, Health Care Proxy or Durable Power of Attorney need to be amended. If, in your Will you left anything to your spouse, make sure you consult an attorney specializing in Wills to help you change this to someone else you trust, or perhaps draft an entirely new Will. If you did not have any of these documents, now is a good time to get all your paperwork in order, particularly if you have children.
Interpret this broadly. You can invest in yourself. Look into earning new qualifications or a higher education to build higher earning power through the years. Invest in the stock market. This is certainly one of the quickest ways to build your fortune, but it is not without risk. Take a course on basic advice, or hire an expert to guide you (or invest on your behalf). The takeaway here is, once you have the ability to do so, invest, period. Perhaps you received some liquidity from the divorce. Look into buying a property to rent out for a few years and build up a steady side income. Understand that with investment always comes risk. When in doubt, go back to step 3 and get as much advice as you can before you put your money into an investment.
Be realistic every step of the way. Understand that rebuilding your finances after a divorce takes time. Don’t invest in anything too risky. Remember that if it seems too good to be true, it probably is. A financial planner can help you come up with realistic goals and craft a realistic budget if you feel overwhelmed. And finally, take your financial health seriously, much like your own health. Monitor it regularly, and go see a professional for an annual ‘check-up.’
For trusted, professional advice on any of these steps after a divorce, contact Jonathan Blinken at Strategies for Wealth at 212-249-9200, firstname.lastname@example.org
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