Managing finances after a divorce can be emotional and overwhelming. Even the best-laid financial plans can seem complicated as you adjust to your new situation and next steps. No matter how complex your financial circumstances may seem, the following steps can help you secure your financial future:
Adjust your budget to match your current lifestyle. Start by calculating your new monthly income, including spousal or child support, if applicable, and estimate what you expect to earn over the next year. If you are a stay-at-home parent or spouse, you may decide to re-enter the workforce to increase your income. Or it may be the right time to change careers or seek a promotion.
Next, look at your spending to see if you need to adjust your patterns. Whether you’ve decided to stay in your home or look into new living arrangements, look at the numbers to see how much home you can realistically afford. Also, evaluate your lifestyle expenses, including entertainment, dining out, and activities for your kids, to see if you need to cut back. If possible, avoid making any major purchases until you are comfortable with your updated budget.
Consider the future of your children. If you have children, it’s understandable that they should be at the center of your planning. It’s important to start thinking about how you’ll handle future financial milestones. Milestones can include paying for private elementary school, college tuition, a down payment on a house, or a wedding. If you want to help your children with such expenses, consider these questions: Will you receive financial support from your ex-spouse? Do you expect your children to contribute? As each event approaches, be honest with your children about what you can afford so they can set realistic expectations.
Prioritize saving for retirement. No matter how close or far you are from retirement, make it a priority to update your retirement goals and continue to build your savings. You are responsible for your own savings, and the biggest challenge you face financially is having enough money to cover what could be several decades of expenses. While retirement savings can seem overwhelming when balancing competing financial priorities, having a plan can help you feel more in control.
Make sure you are protected. An important step after divorce is to maintain, replace, or establish insurance to help secure your financial future. All forms of insurance should be reviewed and considered, and your beneficiaries updated if necessary. Make sure you understand the specific benefits you and your former spouse are entitled to, as well as the life, health and disability insurance policies you both have through your employers. If you have children, whose health insurance plan will be used to cover them? Work quickly to establish an insurance plan to avoid the financial risk of not having insurance.
Consider the tax implications of your new filing status. Review your situation with a tax professional to see if you need to revise your tax strategy. Divorce can affect your tax situation in several ways. Impacts may include entering a different tax bracket, providing or receiving child or spousal support, your investment strategy, and your process for handling future tax returns.
Dream and plan for the future. Once you have a handle on your new daily finances and retirement, allow yourself to dream and plan for other milestones that are important to you. Do you want to visit all the continents? Pay off your mortgage before you retire? Open a small business? Whatever your dreams, determine the cost of each one so you know how much you’ll need to save. Save what you can each month and keep in mind that even small amounts will add up over time. If you’re tempted to spend the money elsewhere, consider opening a separate savings account.
Don’t do it alone. Professional guidance from an attorney, tax professional, estate planner, and financial advisor can ease the burden of managing your finances. It’s hard to start over, but you can do it. A financial advisor can help him with the complex decisions he faces during a divorce and offer strategies to get him on the road to reaching his new financial goals.