So, you’re newly single? First of all, congratulations! Even though you may not feel great right now (you may even feel terrible), you’re over the worst part. Once you’ve decided to split from your spouse, you can start to take the steps you need to get back control over your life.
One of the first steps to living the life you want is to get control of your finances! However, managing your money after a divorce isn’t such an easy task. It’s especially daunting if you’ve never had to take on this role before.
But right now, there’s no need to worry. I’m here to help! You’re going to be okay! In fact, you’re going to be even better than before. There are some simple steps to take to get your finances on track. If you’re ready to start managing your money after a divorce, here’s what you need to do.
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1. Start Managing Your Post-Divorce Finances with a Budget
Let’s get started on taking control of your finances by setting up your post-divorce budget. If you haven’t done much budgeting before, I recommend you start with my guide on how to budget your finances.
It’s time for you to create and navigate through your “new normal” of being on your own. You can embrace it and look at it as an opportunity to live the life you want — especially when you don’t need to answer to anyone else or share the burden of his or her financial missteps.
The most critical piece to understand about budgeting is that it’s a simple matter of “money in versus money out.” At the fundamental level, you want to bring more money in than you have going out the door each month. Now, as you’re adjusting to a solo income, this can be daunting, especially if your partner was the one in charge of the household finances. As you get a handle on what’s happening in your budget, you’ll feel much more in control.
For women, control over your finances is especially important when you consider that women make .81 to every dollar that men make (for the same work). You have to know where every penny goes. So it’s time to streamline your expenses by going through all those bank statements and credit card statements. This process will help you see where you can trim the fat. What services are duplicated? What’s unnecessary and what can you cut?
If you’re very recently single, it’s essential to give yourself some leeway. Your emotions are running high and you’ve been through a challenging time. Process your feelings rather than turning toward the urge to fill the void by buying new unnecessary things. You’re creating a new you and your new normal. Start taking control of your finances so you can shine even brighter than before!
2. Start Building an Emergency Fund
Now that you have your budget figured out, your priority should be to set up an emergency fund. What’s an emergency fund, you ask? Think of your emergency fund as your financial backup plan. Now that you’re tackling your finances solo, you’re on the hook for anything unexpected that may arise.
A trip to the ER? A broken pipe? A furnace that goes caput? These little emergencies can derail your financial picture quickly. In fact, recent studies have shown that the majority of Americans are ill-prepared to deal with a sudden $1000 crisis. In the event of an emergency, even a small emergency fund can help save you from a financial crisis.
Now that you’re your own safety net, your cash accounts become especially important (in this case, “cash accounts” refer to your checking and savings accounts and cash you keep on hand). To build your emergency fund and prepare for the unexpected, you’ll want to examine three areas of your financial picture:
- Your cash cushion
- Your existing emergency savings
- Your regular savings account
Your cash cushion should be the amount you need to keep in your checking account or keep on hand to cover those fees, overdraws, and miscalculations. Some of us feel comfortable with a small cash cushion ($100 or so), while others prefer to keep $500-$1000 on hand just in case. Your cash cushion is up to your comfort level.
Your existing emergency savings should consist of $1000-$2000. If you have dependents, you may want to err on the side of higher. If you’re single and flying solo, $1000 may cover any emergency that comes your way. This fund is there to cover those trips to the vet, calls to the plumber, or unplanned car repairs.
Your regular savings account is another area where you can let your comfort levels guide you. Most financial experts suggest you have 3 – 6 months of living expenses tucked away in case the worst should happen. This amount of saving isn’t always realistic for everyone, though, especially as you’re going through a divorce. If you have debt, tackle your debt first and then worry about building up your regular savings. Eventually, you can use this fund for more significant purchases and fun activities (so you don’t need to pull out a credit card and rack up more debt).
3. Protect Yourself by Managing Your Risk Post-Divorce
The next part of managing your finances entails reviewing all your existing insurance policies and accounts. Get out those statements for all your insurance policies: auto, home, umbrella, and health.
Since you no longer need to worry about your spouse, your premiums should reflect a single head of the household. Often, this means you are going to save some money! The big “but” here is that since you’re solely responsible for the finances now, you should ensure you have enough coverage if you need it.
It may be time to consider increasing the deductibles on your policies, especially if you’re looking for ways to reduce your premiums. If you’ve built up your emergency fund, you should be able to cover an unexpected expense fairly comfortably. This wiggle room allows you to pay a higher deductible should the need arise (but of course, weigh out factors like your health and other concerns).
Do you have disability insurance? If you aren’t clear about this type of coverage or what it does, it’s something you should explore (especially now that you’re head of household). In the event you are unable to work due to a medical situation, disability insurance will lower your monthly, out-of-pocket insurance. Disability is expensive insurance, but it’s well worth it in the long run. The costs of premiums are a direct reflection of your age, line of work, experience, longevity, and location.
Since insurance was a significant part of my career focus, I try to stay at the cusp of new products in the marketplace. I stay up on which insurance carrier is presenting what products. Many changes are going on in the industry right now. I only recommend insurance after I’ve read and fully understand the features and benefits offered (for ANY type of protection). Stay tuned for the latest changes.
Finally, don’t overlook life insurance! Life insurance is absolutely critical. It doesn’t matter if you currently have a policy or not. You need to explore your options (especially if you’ve never had life insurance up to this point). If something happens to you, do you really want to leave your outstanding debt to those who you care for the most? Life insurance isn’t exciting or sexy, I get it — but it’s the foundation of any solid financial plan. Something to keep in mind if you’re not a believer — life insurance isn’t meant for you, but instead, for those you leave behind. Now that you’re single, life insurance is vital.
4. Check Your Retirement Accounts
When you’re in a long-term relationship, you often dismiss retirement worries as something you can hand off to your partner. At least one of you will end up with significant retirement savings you can both live off of, right? Well, nothing in life is guaranteed, and now that you’re single, it’s even more crucial that you set up a plan for retirement.
If you’re unfamiliar with the many retirement options out there, visit my post on retirement plans where I break down all the various options in a way that’s easy to understand.
If you have a retirement plan but you haven’t looked at it for a while, now is the time. Review all your 401(k), IRA, and pension plans. Get out those statements and review them thoroughly.
Following a divorce, you must change your beneficiary information as well! It still shocks me how many people forget to change their primary beneficiary information on their retirement accounts after a divorce. They pass away, and their current spouse isn’t too happy to discover their ex is going to be the one living large — and there’s nothing they can do about it! Admittedly, women aren’t usually the ones who forget this (surprise), but it’s still worth a reminder.
5. Review Your Estate Planning Documents
If you’re ready to get financially organized after a divorce, you’re going to need to review all your estate planning documents. Whether you have them in place already or need to set them up, this is the time to get it all in order.
Your estate planning documents go beyond your will (so if you’re thinking, “I don’t have anything to leave anyone, anyway,” you should still look into them). These documents include your health care directives, durable power of attorney, and guardianships.
If your ex was designated as the one making financial and medical decisions on your behalf before the divorce (as happens in the event you’re incapacitated and unable to make the decisions for yourself), you need to schedule an appointment with your estate-planning attorney. Unless you’re entirely comfortable with your ex maintaining their role and respecting your wishes, you should hand off these essential duties to another close friend or family member.
Of course, estate planning is something no one likes to think about, but it’s so important. During a death or accident, emotions run high and loved ones may not be in a state to make measured decisions. Take the pressure off them by outlining clear directives and stating your wishes. Even if you don’t have a fortune to leave in your will, you are giving them a great gift by taking away the pressure to manage your estate in their grief.
Look Ahead to Your Brighter Future
Divorce is often painful and challenging, but you will make it through. It’s important to look out for your financial well-being and interests during this time. Eventually, you will come out on the other side and realize this experience is behind you.
The best thing you can do for yourself right now is to set yourself up for a brighter, more prosperous future. Shouldering the responsibility of your personal finances is empowering. It’s your money and your life. You get to control it and do whatever you want with it.
Even though it may seem like a painful ending, it is also a time of an exciting beginning. This is your future to create. With the right financial tools, you’ll ensure it’s a safe, comfortable, happy life for you and your loved ones.
If you’re ready to get financially organized or take your finances to the next level, I’m happy to schedule a consultation with you. Click here to learn more about my financial consultation services. Together, we will help you get control of your finances so that they won’t control you!