Managing finances after a divorce can be emotional and overwhelming. Even the best financial plans can seem complicated as they adapt to your new situation and your next steps. No matter how complex your financial situation feels, the following steps can help you secure your financial future:
Adjust your budget to suit your current lifestyle. First, calculate your new monthly income, including spouse or child benefit if applicable, and estimate what you can expect to earn in the next year. If you are a parent or spouse who stays at home, you can choose to get back on the workforce to boost your income. Or it is time to switch careers or seek a promotion.
Next, review your spending to see if you need to adjust your patterns. Whether you’ve decided to stay in your home or are looking for new forms of living, enter the numbers to see how much home you can realistically afford. Also, evaluate your lifestyle expenses, including entertainment, dining, and activities for your children, to see if there is a need to cut your expenses. Whenever possible, avoid making major purchases until you are comfortable with your updated budget.
Look at your children’s future. Understandably, if you have children, these are the focus of your planning. It is important to think about how you will deal with future financial milestones. Milestones can be the payment of a private elementary school, tuition fees, a down payment for a house or a wedding. When looking to help your children with these expenses, consider the following questions: Do you receive financial assistance from your ex-spouse? Do you expect your children to contribute? As each event approaches, talk to your children about what you can afford so that they can have realistic expectations.
Prioritize saving for retirement. No matter how close or far you get to retirement, make it a priority to update your retirement goals and keep building your nest egg. You are responsible for your own savings, and the greatest financial challenge is having enough cash to cover expenses that may last for several decades. While retirement savings can feel overwhelming when you balance competing financial priorities, a plan can help you feel more in control.
Make sure you are protected. An important step after the divorce is to maintain, replace, or establish insurance that will help secure your financial future. All forms of insurance should be reviewed and considered, and your beneficiaries should be updated as necessary. Make sure you understand the specific benefits to which you and your ex-spouse are entitled, as well as the life, health and disability insurance policies that you both have through your employers. If you have children, whose health insurance is used to cover those children? Work quickly on creating an insurance plan to avoid the financial risk of not being insured.
Take into account the tax implications of your new marital status. Review your situation with a tax advisor to see if you need to revise your tax strategy. Divorce can affect your tax situation in several ways. The implications may include entering a different income tax bracket, providing or receiving support for children or spouses, your investment strategy, and your method of handling future tax returns.
Dream and plan for the future. When you have your new daily finances and retirement in control, you can dream and plan other milestones that are important to you. Would you like to visit every continent? Pay off your mortgage before retirement? Start a small business? Whatever your dreams, determine the cost of each one so you know how much to save. Save what you can each month, and remember that small amounts can add up over time. If you’re tempted to spend the money elsewhere, consider setting up a separate savings account.
Don’t go alone. Getting professional advice from a lawyer, tax advisor, estate planner, and financial advisor can make managing your finances easier. It’s hard to start over, but you can do it. A financial advisor can help you with the complex decisions you face during a divorce and offer strategies to help you achieve your new financial goals.