Tips for Finding Your Financial Footing
If you’re reeling from the emotional rollercoaster of a divorce, it can be difficult to think of much else. However, it’s important to consider your financial future and take steps to make sure you’ll be able to support yourself and your children once the divorce is finalized. An important first step in this process is to reestablish your financial priorities. The following tips can help.
Tip #1 – Adjust your expectations.
Following a divorce, most people find themselves with more expenses and less income. Where you once may have had two people contributing income for household expenses, now you have only one. And you likely have half the savings you did when you were married. Because of this, it’s important to adjust your lifestyle expectations. You may need to become comfortable living in a smaller house or working more hours. The sooner you’re able to adjust your lifestyle to be compatible with your new financial reality, the better off you’ll be.
Tip #2 – Take stock of what’s important.
When you were married, you and your spouse likely had shared goals and priorities. Now that you’re single, have your goals changed? While it may be difficult to let go of the dreams you once held, coming out of a divorce provides a great opportunity to reevaluate what you want from life, independent of anyone else. Take time to consider what’s really important and what you desire. Then, readjust your financial priorities to make that happen.
Tip #3 – Understand your net worth.
As you plan for financial life after a divorce, it’s important to gain an accurate understanding of your full financial picture by creating a summary of your current assets and liabilities. Then, you can calculate your net worth by subtracting your total liabilities from your total assets.
Assets may include:
- Checking and savings accounts
- Investment and retirement accounts
- Annuities
- Real estate
- Valuables, such as jewelry or fine art
- Vehicles, boats, etc.
Liabilities may include:
- Mortgages
- Auto loans
- Student loans
- Credit card debt
- Any other loans or lines of credit
Determining where you are in relation to your goals is a critical first step to gaining control of your financial future. Tracking your net worth over time is also a great way to monitor your progress toward these short- and long-term objectives.
Tip #4 – Set a budget.
Once you have reestablished your financial priorities and gained an understanding of your net worth, it’s important to ensure you’re living within your financial means. Start by differentiating between your fixed and discretionary expenses. Fixed expenses are those you must pay each month and may include:
- Rent/mortgage
- Minimum credit card payments
- Car payments
- Insurance
- Utility bills
- Cell phone
- Childcare
Discretionary expenses are costs you choose to take on and are not essential for living your life. These are wants, not needs. Examples include:
- Ordering takeout or eating at restaurants
- Movie and concert tickets
- Streaming TV subscriptions
- Gifts
- Vacations
Once you’ve added up your fixed and discretionary expenses, you’ll have a clearer understanding of your current spending level and whether these expenses align with your income level and long-term goals. If not, consider areas where you can cut back. Can you limit ordering takeout or buying lunch at work to one or two times per week? When was the last time you used your monthly streaming subscription or gym membership? Can you save some money by taking a vacation closer to home instead of flying to a far-off destination? While each of these decisions involve short-term sacrifice, they have the potential to move you closer toward achieving your long-term goals.
Tip #5 – Track your progress.
One of the best ways to stay motivated is by tracking your progress over time. Schedule regular check-ins with your wealth manager, and review your progress toward your savings, investing and retirement goals. Seeing the progress you’ve made over time can help you remain accountable and motivated to continue on the path toward achieving your financial priorities.
Do you need help reevaluating your financial life following a divorce? Creative Planning is here to help you walk into your next chapter with confidence. We understand how challenging navigating the financial aspects of a divorce can be, and we’ll walk alongside you to determine your financial need, gain an understanding of your options and make decisions that are in the best interest of you and your family. For help navigating your finances following a divorce, schedule a call with a member of our team.
