Getting divorced sucks. Waking up and realizing that you now have to support yourself can be terrifying. It’s even worse if you were not “in the know” while married and relied on your other half for managing the money. Perhaps you were kept in the dark, or choose not to get involved. If so, you’re probably thinking you would be better off today had you been more involved back then. Maybe that’s true, but it’s not too late to take control of your finances and overcome your financial fears.
There’s some simple things you can do now to gain peace of mind and put your finances back on track.
What the Experts Are Saying
I recently asked Todd Stepniewski, a Certified Financial Planner at Ameriprise Financial, about the main concerns newly divorced women have when seeking his financial advice. Todd said “the number one fear women have is whether they will be able to support themselves on their own”.
For women who never supported themselves, financial independence can feel like a great unknown. They are frightened about paying their bills, maintaining their lifestyle, affording their children’s expenses, going back to work, paying their medical insurance, and determining if they will be able to stay in their home.
While there is no one-size-fits-all answer, Todd recommends starting out by “getting organized with quality information.” Any good financial advisor begins with understanding the basics of your financial position, then helps you plan for the certainty of uncertainty. They will assist with building a financial plan to help you reinvest the assets and income you have, while determining how to sustain your way of life.
You’re Not Alone
Rich or poor, many people don’t have a clue about their assets and expenses. Ask any CEO what their cash position is, what they spend on research and development, salaries, and other fixed expenses, and they will rattle them off in seconds. Thus, it’s important that everyone divorced understands the basic principles of their financial position.
Overcome Your Financial Fears
While this may seem difficult, it’s really easy and you need not be a financial wizard to get it done. Follow these simple steps to get started by determining your:
1. Fixed Expenses – These types of expenses don’t fluctuate. They are items you can’t live without unless you make major changes to your lifestyle. For example, they might be for your mortgage or rent, real estate taxes, medical insurance, and utility bills. Check your bank and credit card statements along with your monthly utility bills. By doing so, you will have a good start towards identifying where your money is going.
2. Discretionary Expenses – These would include what you spend dining out, payments made on a second car, or other frills such as vacations and other optional entertainment. You should also track items you pay for in cash. With these items, you will have greater flexibility to cut back if needed.
3. Income – Figure out all income sources like salary, alimony, child support, dividends, social security, 401(k) or other pension distributions. Most of these will be on your last tax return and would also have been captured during your divorce.
Take Control of Your Finances
4. Assets – Consider everything you own that has a tangible value such as your home, cash in the bank, real estate, 401(k) balances, vehicles, stocks, bonds, and coins. Keep in mind that not all assets are created equal. For example, the equity you have in your home or car differs from liquid assets such as stocks or cash. Also, selling your home or stocks could have tax consequences that you should consider. Speak to your tax advisor before making a major purchase or sale.
5. Liabilities – This is what you owe for possessions such as your home mortgage or home equity loan, car loan balance, student loans or credit cards. Simply put, liabilities are the debts you owe to third parties.
6. Net Worth – Once you have calculated your assets and liabilities, it’s easy to determine your net worth. Simply subtract the value of all of your assets minus your total liabilities. Having a positive net worth is the goal.
7. Budget – Armed with the above information, it will be easy for you to create a budget that makes economic sense. You might not have worked while married, but you may want or need to now. While creating your budget, you may realize you need to cut back on spending and change your lifestyle. Check here to discover how to save substantial money without cramping your style.
Get Started Now
At the very least, follow the steps outlined above to give yourself a clear picture on your current financial situation. Once complete, you will put yourself on the right path for the future. If you need help, consult with a financial advisor. Most will meet with you the first time at no charge. Even if you pay for their services, a small investment now could provide you with substantial rewards later.
Divorce is stressful enough without having to worry about how you will pay your bills. Get started today to gain knowledge and insight into your finances and build a well-defined plan. Once you do, you will ease the concerns you have about money and overcome your financial fears.