No one gets married thinking they will someday get divorced. But it still happens, and it presents financial challenges in its aftermath. Taking control of your financial life after a divorce is important because you may now be living on a reduced income, and you want to set yourself and any of your dependents up to succeed financially.
Here are some tips for managing your finances after a divorce.
1. Choose Your Post-Divorce Mindset
Of course, having enough money to live comfortably is the goal, but it’s not everything. Decide that you will learn what you need to and you’ll ask for help. Decide not to stress about money because that won’t help anything. Take some time to envision yourself doing the things you enjoy and being able to provide for yourself and your family.
Surround yourself with people who believe in you, care about you and can share financial wisdom with you.
2. Know Your Numbers
Now that you have your mindset established, you have to determine where you’re at before you can get to where you want to be financially. This can be hard because where you are may be a little scary. But you need to face it in order to change it. This is where getting some help from a wise friend, parent or financial advisor can make all the difference. Create a spreadsheet or grab the old standby (pencil and paper), and begin to list your income and expenses. This will help you put a doable plan into place.
If you received a cash settlement (from the sale of your shared family home, for example), consulting with a financial advisor to determine the best ways to utilize that settlement and manage your finances after your divorce is critical for your future.
As you create your post-divorce budget, be honest about your spending and debt. (For related reading, see: Budgeting Basics.)
- Do you need to sell your newer car and get a more affordable one instead?
- In which areas can you cut back (eating out, dry cleaning, car washes, etc.)?
- What can you sell to turn into immediate cash? What are your real costs of living going to be (utilities, insurance, rent/mortgage, daycare, etc.)?
- Do you need to get a better or different job?
- What kind of emergency fund should you have?
3. Set Your Goals
If you don’t know where you want to go, it’s going to be harder to get there. Managing your finances after divorce will help you make those dreams a reality. So, is your goal to eventually be able to purchase your own home? Fund your retirement? Be able to send your kids to a private school? Retire by age 50? Vacation in Hawaii? With a realistic, working budget, you’ll have a plan to follow so you can reach your goals.
4. Adjust Your Life Insurance and Beneficiaries
This is assuming you have life insurance. If you don’t, you’ll definitely want to look into getting it sooner rather than later—especially if you have children still in the house. If you already have life insurance, be sure to change your beneficiary information to either your children or a trusted family member or friend.
5. Keep an Eye on Your Credit Rating
Your credit rating can take a hit after a divorce, especially if you have any joint unsecured debt from credit cards or unsecured loans. The two biggest factors that affect your credit score are payment history and debt level. So the best thing you can do to maintain a positive credit rating is to minimize your debt during and after the divorce. And, of course, stay on top of your payment schedule so you stay current. (For related reading, see: 3 Easy Ways to Improve Your Credit Score.)
You need to deal with your joint debt so your credit isn’t penalized by an ex-spouse who pays late or not at all. It’s better to have joint debt divided between the two parties so each of you are responsible for your own portion. Hopefully, this is something you took care of during the divorce proceedings.
Don’t let fear, lack of planning or lack of knowledge set you on a path to financial tragedy. You deserve to have a good and fulfilling life, and by managing your finances after divorce, you can still have the financial security and successful life you’ve always dreamed of having.
(For related reading, see: Get Through Divorce With Your Finances Intact.)