A divorce can be a very stressful event for anyone, but especially for a woman who finds herself in an “unwanted” divorce. The last thing you may want to deal with is money and budgeting. Unfortunately, it’s essential to move your life forward, and it could play an important role in reducing overall stress. Having no plan may cause greater anguish in the long run. Taking the time to build and execute a financial game plan will move you forward and ensure the essentials get done.
In my 12 years in the financial services industry, I have worked with multiple divorced clients and I have discovered these 6 Steps to create a solid base with which to build a solid financial future.
Budget, Budget, Budget
This may not be the most enjoyable exercise, but it is the foundation to laying the groundwork for your financial future and to aspire for a little less stress in your life.
Step 1: Gather Data
What will your income look like in the short-term? What assets will you have access to? Compile a list of all your income sources and assets that you will have at your disposal in an emergency. Some income sources to include are: work income (after taxes), alimony, and child support.
Step 2: Summarize Your Data
Determine what your minimum income will be month-to-month for the next 12 months without having to deplete other assets such as home equity and retirement plans. This will give you a fairly good idea what your spending budget should be as you begin to lay the foundation of your new financial life.
Step 3: Short-Term Goals
What do you plan on accomplishing over the next 12 months? It may be as simple as re-establishing yourself in a particular part of town, working on getting in better physical shape, obtaining a new license or educational degree, or it might be to spend more time with your kids. Your long-term goals may not come into focus yet and may change over time, but it’s important to establish goals for the next year as you prepare your budget.
Step 4: Itemize your Expenses
As you list out your expenses, keep them separated into 2 categories:
- Non-Discretionary Expenses - These are the bills you have to pay each month…things like mortgage (or rent), utilities, transportation, credit payments, and groceries.
- Discretionary Expenses - These are flexible categories that would be “nice to have” but not essential… including dining out, clothes, entertainment, vacations, etc.
*Note: If you would like a budget spreadsheet outlining the most common expense categories to help in your budgeting, please contact me at: sclements@cavuwm.com
Step 5: Fine Tuning
Match up your income with your expenses and make sure you allow for a balanced life while living within your budget.
If your spending plans are greater than your income, see if there are ways to cut back on your expenses without increasing your stress. The gym membership might be especially important and necessary, but the Wine Club membership may not. Be realistic and strive for a plan that is reasonable and one that you can live with.
If possible, try NOT deplete your long-term assets. If that is not possible, begin focussing on how to get your income to grow. Make every effort to keep those assets intact and only use in emergencies. There may be penalties associated with depleting these resources; and if you keep these assets whole, you can keep growing them for a better long-term future.
If you need to begin using these assets, make sure to talk to a tax or investment professional about the most efficient way to do this while minimizing your tax burden.
Step 6: Build Your Life Team
Think about what type of team you could use to support you in pursuing your goals on your new journey. This team may include a financial advisor, your divorce lawyer, and an accountant. You should also consider including close friends, family members, a personal trainer, a nutritionist, and a divorce coach. Their support can help you stick to your budget, keep you on track to meeting your new goals, and give you the confidence to soar to new heights.
Scott Clements
CAVU Wealth Management
sclements@cavuwm.com
(858) 360-7800
Scott is an Investment Advisor Representative who has been licensed since 2008. He has a Chartered Retirement Planning Counselor designation and he specializes in working with divorcees and widows. He lives in San Diego with his wife and is the proud father of 3.