Big or small, divorce takes a financial toll on just about every person who goes through it. From loss of a steady income, increased child care and household expenses, a depleted savings account, to obtaining health insurance, etc. These financial impacts and changes, force all of us to rethink our lifestyle and where and how we generate income, spend, and save.
One of the best ways to understand your financial situation and make decisions on how to improve it, is to budget and create a financial plan, two concepts that make many wince and hide under the covers. But the good news is that you can do it and you don't have to do it ALONE!
Certified Divorced Financial Analysts (CDFA) are well versed in the nuances of divorced living and can help you assess your newly divorced financial situation objectively and with no judgment. They can also serve as your accountability and thought partner to help you stay on track, giving you counsel and recommendations you may not have even considered.
“It is never too late to start over, but it is hard. What role money has played in your life and what relationship you want to have with it are important questions to ask yourself as you restart your financial life as a single person,” says Tammy M. Gruen, MBA, AAMS®, CDFA® - Financial Advisor, Raymond James & Associates, Inc. (member New York Stock Exchange/SIPC) “Having a network of folks who can help you is critical because it means that you are not depending solely on yourself to make decisions. Your financial advisor can take some of the stress off your plate by helping you get organized then creating awareness of your financial realities, how to address them, and ways to plan ahead.”
Post Divorce Budgeting: Five Considerations
Before even tackling the actual budget, Tammy recommends you take perspective on these five factors. Acknowledging them will set you up for a successful budget planning experience that will leave you less stressed, more informed and on your way to living a healthier financial life.
TIME: A budget takes time to develop, make some initial guesses based on whatever data you have at that moment, then live with the budget for a few months to see if it needs adjustments.
FLEXIBILITY: Budgets are like diets, if they are too restrictive you won’t follow them and will feel like a failure. If you blow your budget one month, forgive yourself and start over next month.
AWARENESS: Budgets are less about rules and restrictions and more about awareness of what you are spending. They help to realign your thinking when it comes to spending, saving and financial goals.
HEALTHCARE COSTS: Don’t forget to factor in the cost of health insurance. In many cases it will be more expensive post-divorce unless your ex or your employer is covering it.
TRANSITION YEAR: If you can, try waiting one year after your divorce to make any major financial decisions. Give yourself much needed time to grieve, recover from the divorce itself and transition into your new life. Try avoiding knee jerk reactions and purchases.
Low Cost and User-Friendly Software to Create a Trackable Budget
Say goodbye to your excel spreadsheet, pad and pen and take advantage of really good and affordable budgeting software. Many packages make the process of setting up, tracking and maintaining much easier. Check out these three budget software tools available for less than a $100 investment. You can set these up on your computer then access via apps on your mobile device. Some apps have trial offers so you can test them out to see which one works best for you.
Quicken - This is one of the most well known financial management software tools. Several price categories beginning at $35/month. Super easy to use and very comprehensive.
YNAB (You Need a Budget) is an App and website with a focus on making you aware of what you spend and showcasing easy ways to help you proactively save. Free 34 day trial and then a monthly fee.
Mint - Free tool, no software to download. Brings together all your financial accounts into one online space and automatically categorizes your purchases. Lets you set budgets and also focuses on savings goals.
Ready To Get your Budget Going? Think Lifestyle and Categories, Not Percentages or Ratios.
“I suggest focusing on high spending categories, understanding why you spent, and whether that's aligning with your goals. If not, make a plan to change your spending habits,” says Tammy. For example, food is one of the largest expenditures, so consider splitting it into two sub-categories: “Restaurants” and “Groceries,” It should be no surprise that cooking meals at home is cheaper (and healthier) than eating out.
Keep the list of categories short (no more than 25 categories) and meaningful. This will make budgeting more manageable. Each situation is unique so the categories for one person are likely different from someone else’s categories.
Shifting Focus To Long-Term Financial Planning
Once you have a budget and are about a year out from your divorce with life more settled and in a groove, it is a good time to start a comprehensive Financial Plan. Several important assumptions will feed into your financial plan such as your budget, career plans, housing situation, children’s educational or aging parents’ needs, support payments and of course long term financial goals. While long term planning may feel like a chore, think of it as something that will help you live the lifestyle you want to in the years ahead and help you avoid situations where you are living a lifestyle you simply cannot afford under stress and pressure.
Need additional guidance in getting your financial life under control and in order? Reach out to Post Divorce Force, and let us help you get there.