Financial Action for Divorced Women
Managing your finances effectively will become a high priority during a major life transition. Money can’t buy happiness but your ability to manage your finances will play a large role in your financial future, and to a large extent, your ability to live the life you choose.
It doesn’t necessarily require a huge amount of time to get your finances moving in the right direction. It’s often a matter of focusing on the “fundamentals” and taking the following steps can help you get on track.
1. Create a Budget. It seems elementary but it’s too often overlooked. Your income will likely be less and your expenses may be the same - leaving you with less disposable income to work with. Knowing your sources of income, and where your money is going, is crucial to building a stable foundation.
2. Reduce Your Debt. Although cash-flow may be tight for some time, avoid or limit new debt. Pay off credit cards by prioritizing the ones that charge the highest interest rates. Strive to always pay at least the minimum amount on-time for the others, while putting more money towards the higher interest cards. Sometimes it’s helpful to pay-off a lower balance card first since it is an accomplishment, and an emotional “win” if you can do it quickly.
3. Pay Yourself First. Save a set amount of your earnings each month. Start by accumulating the equivalent of 6-9 months of living expenses in a liquid savings or money market account for an emergency. Consistently saving a modest amount will help create good money habits. You want to be prepared for “when” an unexpected expense occurs, not “if”.
4. Establish Good Credit. You can receive a free annual credit report from each of the three major credit bureaus: TransUnion, Equifax, and Experian. Good credit is important for obtaining favorable rates on financing items like a new house or car. Credit is even factored into things like your auto insurance premiums that affect the amount you pay. It’s also important to monitor your credit regularly to help protect against identity theft.
5. Insurance Check-up. Review your risk management program at least annually. Your life, health, and disability income insurance needs will likely change as you progress through various life stages.
6. Update Your Estate Plan. With any life event it’s important to update your beneficiaries. Have an attorney create or update your trust and will. Prepare advance directives, such as a durable power of attorney, living will, and health care proxy. This is important for everyone to do regardless of age.
7. Think Long-Term. Consider your liquidity needs, risk tolerance, and time horizon for retirement by creating a bucket strategy where you have short-term, mid-term, and long-term goals for your money. Be sure to consult a CERTIFIED FINANCIAL PLANNER™ professional to help develop a plan for your financial future.
8. Tax Planning. The focus should not be on how much you earn, but rather what’s important is how much you have left after you pay taxes. There are many tax-free and tax-deferred investing strategies to mitigate the impact of taxes. If you’re eligible, contribute to an Roth IRA, an employer-sponsored 401(k) plan, or another similar retirement plan.
9. College Savings. College tuition continues to rise. Relying on your children to receive scholarships or financial aid may not be the wisest strategy. Students are graduating with huge amounts of student loan debt and often have trouble digging themselves out of the hole as they begin working in the real-world. Consider contributing to a 529 college savings plan or other college planning account as soon as you can. Compound interest is your best friend and qualified withdrawals from 529 and Coverdell plans are tax-free.
10. Future Care. Consider your possible long-term care needs. Have you ever thought about your future long term care needs? People are living longer which means one day you may require help with simple activities of daily living (ADL’s). These are simple activities such as eating, bathing, dressing, transferring, toileting, and continence. Long-term care insurance provides funding to pay for the enormous increasing costs of care.
Getting your financial house in order can seem like a big task, but it can be broken down into manageable steps. A CERTIFIED DIVORCE FINANCIAL ANALYST™ practitioner can help you manage the financial aspects before, during, and after your divorce. Make a commitment and start planning now. Focusing on the fundamentals and taking baby steps will help you make progress and ease your emotional well-being as you transition through your divorce.