There’s no question that divorce is expensive. The legal process of separating your lives and assets can be costly — especially if your divorce is acrimonious. It becomes even more frustrating if you get shortchanged in the final settlement or judgment. Then there are indirect costs that may come out of the whole experience, such as those for therapy, daycare, financial advisors, furnishing a new home, or trying to find better sources of income. Many people, who may not even have expected to get divorced a short time ago, find that the expenses and debts pile up until previously planned goals or dreams seem impossible to achieve. Will you be able to pay for your child’s education? Will you ever get your dream vacation in Europe? Can you buy that new car?
Although you’ve heard all the cliches about money not equaling happiness or solving all of your problems, you can’t deny that money has importance in our society. We need it for basic necessities such as food, shelter, clothing, and hygiene; we also need it for entertainment and some of the simplest pleasures. But getting the most out of life through money has far less to do with having more of it than with managing it carefully. Knowing your priorities, making sacrifices, and taking advantage of opportunities are important keys to getting by — and reaching your long-term goals.
We’re not offering any get-rich-quick schemes here, but we can show you realistic ways to find (or create) extra money in your life. There are many methods of cutting your expenses — during your divorce and afterwards — that are very effective in the long run. Some of them involve creative thinking, and some are just common sense. Whether you’re trying to make ends meet, supporting children (or helping them learn to support themselves), saving for a long-term goal, or just looking to get a new luxury in exchange for a few small ones, this article is for you.
What’s important to you? What are your needs, as opposed to your wants? What do you want desperately — and what can you do without? These are the questions you need to ask yourself in order to set your financial priorities. Your answers will help you establish the goals you need to reach; they’ll help you narrow down what you can sacrifice to attain your goals. You can achieve them; whether you do depends on your commitment, belief, and patience.
Cutting Divorce Costs
First of all, you may be able to find ways to come out of your divorce with less financial damage. There are usually less costly alternatives — on your emotions as well as on your pocketbook — to the traditional courtroom battle-to-the-finish route. But you must be willing to cooperate directly with your soon-to-be-ex, no matter how angry you may feel towards him or her. You must also be willing to take control of your own situation rather than depend upon others who may charge you for their help. Making your divorce less expensive involves some responsibility on your part to take charge of your situation rather than letting it spiral out of hand.
Esther M. Berger, CFP, a Beverly Hills financial planner, suggests three methods of saving money on your divorce — if the issues aren’t overly complicated — in her book MoneySmart Divorce (Simon & Schuster, 1996). There’s do-it-yourself divorce, which only works if your divorce involves very few assets and/or debts; finding a local “legal clinic” where trained paralegals can handle your issues and paperwork; and mediation.
When it works, mediation is one of the most effective and economic means to settling your divorce. Assuming that you and your spouse can put aside your differences and work together for several brief sessions, you can save a lot of money this way. It also usually uses up less time, which means less total money spent. Whereas court battles can drag on with no end in sight (and therefore an uncertain end to legal debts), mediation works toward an agreeable compromise for everyone. But Berger warns that “Mediation only works if you know the value of your assets and you know how to locate them. If you suspect that there’s more to your joint finances than meets the eye, hire someone who can find out for sure.”
There might also be possible alternatives to dealing with your emotional divorce. If you can’t afford therapy, joining a support group or meeting with your spiritual counselor can be very helpful. Anything that will truly help you get past the negative emotions and cloudy thought-process engendered by divorce is a good investment. We’ve heard of one couple who spent more than $20,000 in legal bills fighting over inconsequential items such as towels; spending money on a good therapist could have saved them thousands of dollars and years of bitter battles.
After your divorce is complete, don’t forget to check if your new status entitles you to new tax deductions. If you can’t afford to hire a CPA (or, in Canada, a CA or CGA) to do your taxes, at least consult with a financial pro to discover what credits and deductions you’re eligible for.
However, hiring an accountant or CFP (Certified Financial Planner) may well be worth the cost over the long run. He or she will create a detailed plan for you to save, invest, and make money for your goals or just for yourself. For information on finding a CDFA™ (Certified Divorce Financial Analyst®) in your area, Go to Institute for Divorce Financial Analysts.
Tighten the Belt
A penny saved is a penny earned, and there are many ways to save cash in your daily life that involve willpower and shrewd planning rather than extra work. Take a look at your lifestyle, and then consider a slightly simpler lifestyle that would be enough to keep you content. In our mass-market society, we waste a lot of money on products and services we don’t need or fully appreciate. Do you really need that expensive sweater — bought at full retail prices? Aren’t those weekly lottery tickets costing you more money than you have a realistic chance of winning? Are you buying more toys for your kids than they really need to be happy?
“Do a monthly tracking of where your money is being spent,” suggests Barbara O’Neill, Ph.D., CFP, a New Jersey financial planner and the author of Saving on a Shoestring: How to Cut Expenses, Reduce Debt, Stash More Cash (Dearborn Financial Publishing, 1995). “Many people really don’t know how much they’re spending; they’re aware of the big expenses, like their mortgages, but they don’t have a handle on all the little things.” And the little things do add up — sometimes enough to become more of a burden than the big costs. So you must decide which minor expenses to let go. Set yourself a proper monthly budget on your spending: allot yourself certain portions of your income for bills, food, clothing, child and/or pet care, personal spending…and saving.
Changing a few of your regular practices can add up to surprising savings. For example, if you eat out a lot, consider making your own dinners at home with food bought at the supermarket. Another benefit is that it will be more of a treat when you do eat out — and being able to cook for yourself provides a lot of personal satisfaction.
In the same way, some people spend a lot of money on their work lunch hours going out and getting fast food, when they could easily take a moment the night before to pack a lunch. Brown-bagging it just three times a week could translate to a savings of $15-$20 a week — or $750-$1,000 a year.
For smokers, buying cigarettes can be an enormous expense; why not cut down on smoking and improve health as well as savings? Sally, a single mother of two who had been smoking since her teens, was finally able to quit the habit when she saw the tangible results of her efforts. Every week, she invested the money she would normally spend on cigarettes in a savings account; at the end of the year, she had enough money in the account for a down-payment on a modest house. Seeing that bank account grow, paired with how much better she was starting to feel, gave Sally the incentive she needed in order to butt out for good.
Entertaining yourself and your children or friends can be just as much fun (if not more) if done in a simpler way. Instead of shelling out at the wildly overpriced megaplexes, rent a movie. Borrow books from the library or reread your older books instead of buying new ones. Or just “hang out” with your friends — make use of the art of conversation at the coffee shop. You don’t need to spend a lot of money to have a good time. Sometimes all you need are friends or family — or your own imagination.
Then again, you may not have to sacrifice all of your little pleasures or necessities if you can find more inexpensive ways of enjoying them. That’s where you have to brush up on your bargain-hunting skills. “Redeem coupons, shop at sales, and put away what you save,” says Ginita Wall, a San Diego-based CFP and author of several practical financial self-help books including The Way to Save (Henry Holt, 1994). “When you use coupons, most stores now print a line on the receipt that gives your total savings. So you can put away those amounts that you would have otherwise spent on groceries.” However, don’t be seduced into buying extra things you don’t need just because you have coupons or they’re on sale. “Cut back on non-essentials and resist impulse purchases,” Wall says.
“Another little strategy that I’ve done myself,” suggests O’Neill, “is to get a cell-phone savings plan that provides so many minutes, or take advantage of a long distance phone plan with cheaper rates. Some people have the mentality that cell phones are only for use on the road, but there are plans in which long-distance calls are sent to the cell phone for a cheaper rate.”
And Dixie Allen — a senior financial advisor and vice-president with Assante Capital Management in Toronto, and author of Happy New Millennium: Financial Food for Thought for the Year 2000 and Beyond (Turnerbooks, 1999) — says, “Monitor all expenditures by setting up fixed cost plans for cell phones, cable TV, long distance plans, etc. It’s possible to create more cash flow by simply paying attention to exactly where the money is going, then prioritizing. Fix budgets for certain expenses. You can also re-negotiate deals such as lines of credit, car loans, and mortgages.”
Tightening the belt doesn’t have to mean living in a mud hut, dressing in rags, or eating nothing but macaroni and cheese. Just take full inventory of your spending habits and look for what you can do without and where you can economize. You may find that it pays more than you expected it to.
Get A(nother) Job
It’s not always possible for divorcees to find extra work on the side; many are raising children on their own or are already busy enough putting their lives back together. For some, admittedly, it can be hard enough just dealing with one main full-time job. But if you do have the spare time and energy, and you need the extra dough badly enough, you might want to consider finding an additional job.
It doesn’t have to take up a lot of your time; it could even be something you can do at home, giving you the ability to keep a corner of your eye on local domestic responsibilities at the same time. It could a weekend or evening part-time job with a good number of hours; it could just be occasional freelance work — say, if you are a writer or artist; it could also be contract work that you can do on your own time. There’s the benefit of being somewhat freer to choose your extra work, as you’re already dependent on your day job for most of your basic support. But another benefit is that your mind can be focused on something constructive rather than on money worries or divorce-related anger or guilt. If it’s work that you genuinely like or that makes use of some special interest or talent you have, that’s a bonus.
If you’re not in a position to get another job, there are still other ways you can make more money. Do you have old, unwanted items taking up space in your attic? Don’t throw or give them away — try to sell them. Hold a garage sale in the spring; take your old records, CDs, and books to “used” stores that will pay you for them.
Instead of throwing your wedding rings into the nearest body of water, you can sell or pawn them — ditto for wedding gifts you never really liked anyway. According to Tom Jackels, a graduate gemologist in Beverly Hills CA, people often don’t realize how valuable their jewelry is — particularly if they received it through gift or inheritance. “Although your diamond ring may not mean much to you, someone else might love it,” he says.
Take advantage of whatever money-collecting opportunities you can find, even if it’s just a small amount here and there. Every little bit helps.
Invest for Success
If you don’t have the time or energy for extra work, or you just don’t trust your own willpower to save and not spend, there are still other methods of both gaining extra money and preventing yourself from wasting what you have too easily. You can invest in mutual funds, bonds, a retirement plan, or some other security that will hold your money and perhaps even increase its value over time. Don’t blow all your cash on the stock market — especially if you have no experience with it — but make constructive use of your money in areas where you will definitely be able to keep it. Whether your income is high or low, you can still reserve a portion of it for investment.
A simple, obvious place to start is the bank. Open a savings account in addition to — or to replace — your checking account. “Tithe to yourself,” says Wall. “Set aside a small portion of every paycheck to go into a savings account.” However, bank savings accounts usually have much lower rates of return than mutual funds and retirement plans.
You’d be surprised at how compound interest can pile up if you can invest a little bit of your income at a time. In his popular book The Wealthy Barber (Prima Publishing, 1997), David Chilton, president of consulting firm The Financial Awareness Corporation, suggests investing 10% out of every paycheck into a tax-deferred investment account; you could retire very well-off this way.
Chilton’s book also offers the following scenario: Suppose you saved $30 a month from ages 18 to 65, in a mutual fund or another plan that averaged a 12% annual return. By the time you reached retirement age, you would be a millionaire! (Of course, by that time, a million bucks probably wouldn’t be worth as much as it was when you started — but still a lot more than the mere $17,000 you would have put into it.) Nowadays, you’re lucky to find a security that will offer a rate more than 5-10%, but the math is clear: compound interest really pays off in the long run. It’s not too late to start; the sooner you do, and the longer you save, the more the interest will add up.
Wall suggests several places you can deposit or invest your money. “You could possibly buy savings bonds,” she says. “They’re safe, have a decent rate of interest, and you can cash them whenever you need to. Or put your money into mutual funds; have your mutual fund draft money from your checking account.” You can even take further advantage of avenues you already use but may not have considered, such as income deductions. “Ask your employer to increase withholding — to get a bigger tax refund at the end of the year,” says Wall. “You can also stash money in your retirement savings plan. That way, you won’t have it, and therefore won’t be tempted to spend it.” If you have kids, consider investing in a tax-sheltered savings plan for their college education.
If you’re worried about how the September 11 terrorist attacks might affect the economy and any investment you might make, Dixie Allen advises not to be overly concerned. “After every major crisis in world history, from wars to assassinations, markets have positively recovered within one year,” she says. “Investors working with qualified advisors are aware of this and for the most part, nothing has changed; there was little panic selling.
“The best time to invest is when you have the money,” she continues. “Essentially, nothing much has really changed, except this: people are now more focused on their overall financial plan, not just on their investments. And that’s a good thing!”
Ask a professional accountant or financial planner for advice specific to your situation on how to invest your money wisely and securely.
Passing Down the Buck
If you’re raising children by yourself, it may be considerably more difficult to save money for yourself or to get an extra job. But what you can do is take a bit of time to teach your children how to handle their own money, rather than handling it for them, once they’re old enough. This will not only prepare them for financial responsibility when they grow up, it will also take much of the burden off you.
“When parents separate or divorce, it’s much more difficult to teach your kids about money,” writes British Columbia financial planner Paul Lermitte in Allowances Dollars and Sense: A Proven System for Teaching Your Kids about Money (McGraw-Hill Ryerson, 1999). “Your ex-spouse may have a totally different way of dealing with money.” Regardless of the possible contradictory examples that your children might get from split parents, you should make an effort to help them understand the benefits of being responsible about their own money — in ways that make them less dependent upon you.
Do you give your children an allowance for their leisure? Still buy all their clothes and food for them? These might remain necessary to some extent, but when children reach a certain age, they should be learning how to take care of themselves — and this includes moving towards financial independence from you. For example, if they’re old enough to handle a newspaper route, babysitting, or dog-walking, they should start finding such opportunities. When they’re in their mid-teens, encourage them to find a part-time job for weekends and some evenings (homework permitting). This will not only make them less dependent on their allowance (and therefore enable you to save more money), but also teach them valuable lessons about responsibility and self-sufficiency.
Make sure that your kids are saving some of their earnings, too. Together, create a goal that they can save towards — such as a new bike, computer, electronic equipment, etc. Saving enough of their “own” money to be able to buy a coveted item will demonstrate the rewards of both work and patience. And don’t forget that children — indeed, adults too — learn better by example than by lectures. If your kids see that you’re managing your money well, they will learn to do the same.
You don’t have to be wealthy to be able to live a happy, fulfilled life, and you don’t need a financial degree to know the basics of money management. What really matters is some basic common sense about how you use your money: being able to distinguish your needs from your wants; making a number of small sacrifices and, if necessary, a few larger ones; and taking advantage of small opportunities available to increase your income (or to limit your own ability to spend). Remember, a little bit can go a long way. If you follow some of these strategies, you may be able to “find” a little bit of extra money every day — which can really pay off over time.
Expert tips on finding money
“Look for those times in life when there are newly reduced expenses, or when certain expenses end — for example, when your children get older and you no longer need child care, or when your car payments are finished or a loan is finally paid off. It’s an opportunity to reposition your money to make a payment or increase your savings.”
— Barbara O’Neill, Ph.D., CFP, New Jersey financial planner, professor, and author
“Use what I call the three-account system. One account will have the money you set aside for emergencies — sickness, house repairs, or job loss. The second will take into account expenses that won’t occur every single month, such as vacations. The third account will be for day-to-day operating expenses. With this system, you won’t go to your bank card so much, you can account for your money better, you have a better understanding of what you spend it on, and you can control your budget. Some people find money that they didn’t even know they had this way.”
— Lee Slater, MBA, CDFA, president of the Association of Divorce Financial Planners in New York
“The most common-sense advice is just to save. Set up some kind of savings vehicle, whether that’s a savings account or a retirement plan. Out of every paycheck, put some money away. People need to get into the habit of saving on a regular basis.”
— Nancy Liebman, CLU, Chicago-area financial advisor
“Next time you get a raise, don’t tell your checkbook! Put the extra amount in your retirement or savings account. Also save your bonuses. And when your car’s paid for, keep making the car payments — to yourself, maybe even to save for the next car.”
— Ginita Wall, CPA, CFP, San Diego financial planner, author, and co-founder of WIFE
“Live on an expense budget for six months, either by listing a fixed amount of cash per month and saving receipts, or limiting your credit cards to the same dollar figure each month.”
— Dixie Allen, PFP, PDO, CSC, OPD, Toronto financial consultant and radio host