How to manage finances after a divorce?
Now that the ink has finally dried on your divorce it’s time to start making plans. Recognizing that you may be feeling anxious about the life you are leaving behind, there is wisdom in using the time wisely by reflecting on what you would like to see happen as you start this new chapter. Many recent divorcees talk about feeling overwhelmed as they contemplate making financial plans. Especially if they were not the ones who managed the finances in their marriage. It’s important to create a solid future by making crucial financial moves after the divorce. Read on for the 7 essential tasks you need to have on your To-do list.
Create a Monthly Spending Plan
It doesn’t matter if you are a millionaire or are coming out of the divorce with modest resources. Chances are you will sleep better if you run the numbers on your finances. Now is the time to add up your income from all sources ( i.e. spousal support, child support, employer income) and subtract your expenses ( rent, mortgage, other essential and non-essential spending) so that you have a sense of what you will need to pay the bills each month. Remember to add in all of the new expenses associated with your new lifestyle and estimate what your expenses will be over the year. After you have estimated your monthly expenses, track it against what you actually spent each month. You can use budget software to help you such as Mint.com or YNAB.com to track your expenses in real-time.
Establish a Credit Identity as a Single Person
Now is the time to establish a new credit identity on your own. This includes confirming all accounts that were held with your partner are now closed after the divorce and applying for credit on your own. You will also need to check your credit and ensure the details on your credit are accurate. Keep in mind a low credit score can also limit your chances of being able to rent an apartment or be approved for a car loan. Websites that allow you to check your credit for free include Borrowell and CreditKarma.
Build a Cash Cushion
Many women say they feel more vulnerable after a divorce. Especially since they are on their own don’t have a spouse to back them up if something unforeseen happens. To address this need for greater financial security, set up a savings account with at least 3 to 6 months of cash in it. Check out Ratehub.com to get the best rates on savings accounts.
Cancel All Joint Accounts and Change Beneficiaries
All accounts previously held with your partner should be closed after the divorce as per your divorce agreement. It is also a good idea to change beneficiaries on any accounts and insurance policies that are left in your name to prevent your ex from inheriting assets you would have wanted to be passed on to your children or another family member should you pass away. This is also a good time to prepare a new will. More on that next.
Rethink Your Will and Estate Plan
If you are one of the 51 percent of Canadians that do not have a will, you may want to think carefully about your decision now that you have split with your partner, as there are many sensitive issues to consider as you plan as a single person with respect to your property your care and your children. Questions to consider include, who has custody of the children and who would be the guardian if you or your ex were to pass away? Is there life insurance in place to cover any support payments and who would manage your finances and care now that you are divorced should you lose your health in the future? Keep in mind an estate plan is meant to address these concerns and the timing of creating a plan could never be more critical after such a major life event.
Taking a closer look at the investments that the investments you acquired in the divorce should be a must-do on your list. Especially if you were not the one in your household that made the investment decisions. Ask yourself are you familiar or comfortable with the assets you now hold? Are you clear on how those investments will perform over time and contribute to your long term financial security? Are you comfortable with the level of risk associated with the investment and the amount of taxes you will pay when you sell them? If you are not sure seek out an independent investment advisor to help you with this. Ask for referrals and shop around to find someone you can speak freely to about this.
Build a Financial Plan and Hire a team to help you
As you prepare for a new life on your own, seek out help. There are many moving parts to consider when thinking through your finances. A financial plan will help you to organize your financial goals in a way that is meaningful to you. It will also provide you with a big picture understanding of what you will need to do next in order to get there, including answering questions about how much risk you need to take when investing, how much taxes you will pay as a single person and what you will need to save to retire on your own. Ask for referrals to capable tax and financial professionals who you can have revealing conversations about your money with. Expect credentials.
Remember, a positive attitude can go a long way when things are uncertain. An essential step in feeling good about your circumstances is by taking the reins on the areas of your life you can control. Finances are a good place to start.
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