When it comes to your finances after divorce, take it one step at a time
If you’ve gone through a divorce, finances are often a leading cause of stress. For some people the main worry is the loss of a second household income and the need to tighten up the purse strings to get through a financially difficult time. Others find they are struggling because their partner was always the one to deal with household finances or investments. Follow these 12 tips to help get a handle on your finances after divorce.
- Track your Spending
Knowing what you are spending is key to getting your finances under control. Set up a spreadsheet or even use a note on your phone, and start tracking everything you spend. You’ll know where your money is going – and where you can start saving.
- Take a Thorough Financial Inventory
Take a good look at your financial life. What accounts, credit cards or investments do you have? Make sure you know the shape of your financial life. Now is a good time to look for better deals on existing financial products, or let go of any that aren’t serving you right now.
- Draw up a Realistic Budget
A realistic budget will guide you forward so you can navigate the period after divorce without getting into dire financial straits. We’ve already mentioned spending – you’ll need to get a grasp on your income too. Examine your income and necessary outgoings and use that information to draw up a workable budget.
It’s so easy to panic about finances after a divorce. Everything feels overwhelming. Start with what really matters – keeping you and any children you have fed, clothed and sheltered. Figure that out first and look at the rest after.
- Get What You’re Entitled To
It sounds mercenary, but after divorce you may be entitled to alimony payments, depending on the terms of your divorce. Make sure you get what you’re entitled to. You might also qualify for certain state benefits, depending on your exact circumstances.
- Update Accounts and Documents
After a divorce you need to make sure all your financial items are in the correct name. That includes not only your bank accounts and credit cards, but also insurance policies, wills, title deeds and any other financial documents.
There’s no shame in needing expert advice when it comes to handling your post-divorce finances. If you need tax, legal or financial advice go ahead and ask for it. Make sure the expert you talk to is registered with the appropriate bodies. If possible get a personal recommendation, or ask for some references from satisfied clients.
- Check Your Credit Report
Divorce can affect your credit score, especially if you had joint accounts. Grab a copy of your credit report and find out what your credit looks like and any issues that need solving. Then set to work building up strong credit under your own name. Your credit report provider should be able to give you some advice, or you can talk to an expert or look for finance forums online.
- Establish an Emergency Fund ASAP
Once you’ve got the basics like bills and food covered, it’s prudent to create an emergency fund for yourself. Look for areas where you can cut back on spending so you have a little extra to funnel into saving for a rainy day. That way if the car breaks or you need a new refrigerator, you’ll be prepared. Six months worth of living expenses is a sensible safety net to aim for.
- Look to Retirement
If you and your spouse had shared retirement plans, or your retirement plan was provided through their job, you won’t have the same provision after divorce. Once you’ve allowed for covering your every day costs and saving for emergencies, your next stage should be to provide for retirement. Get some professional advice to help you decide the best plan for you.
- Straighten out Your Insurance
Just like your retirement fund, your insurance situation will change after a divorce. You might find there are some policies you’re no longer eligible for. Take stock of your insurances and make sure the names on all policies are up to date, and policies are changed as needed. Consider whether you need any insurance you don’t already have, too.
- Make a Plan
A long term financial plan keeps you on track and makes the future seem much less scary. Even if you’re on a small budget right now, you can start formulating a financial plan. Look at where you want to be financially a year, five years, ten years and twenty years from now, and start planning the steps you need to take to get you there. If you can afford it, working with an independent financial advisor is a good idea at this stage.
Divorce can throw your financial life into temporary chaos. Follow these tips for a smoother and more abundant transition.