8 Ways to Bounce Back When Divorce Damages Your Finances
How to Find Firm Financial Footing After Your Marriage Has EndedKathy Longo, CFP®, CAP®, CDFA Monday, 27 September 2021
While none of us head into marriage expecting a divorce, it’s an unfortunate truth that for many marriages divorce is the outcome. Divorce can lead to a complete upheaval of your life, impacting your personal life, your emotional well-being, your physical well-being, and, especially, your finances. For most people, coping with life after a divorce is one of the most difficult challenges they will go through. However, if you’re in the unfortunate position of leaving the divorce with limited or no funds, rebuilding a new life may seem nearly impossible.
If divorce has ruined your financial plans, thrown you off track, and made you feel like life is spinning out of control, know that it doesn’t have to be like that forever. Life is transient; it’s all about rolling with the punches and getting back up after tough falls. One of the most crucial parts of taking back control of your life is to come to terms with your new financial situation. This is especially true if you were in a relationship where you heavily depended on your spouse for your financial support. So, if you’re coming out of a divorce and struggling financially, try incorporating these eight steps into your money strategy to get yourself back on firm financial footing.
Adjust Your Budget Accordingly
Now that you’re on your own, you’re going to have to re-evaluate how much money you have coming in and how much money you’re spending. Chances are your income is going to drop and your expenses are going to increase, as you’re now solely responsible for meeting your needs.
If you have kids, adjusting your budget is especially critical. Whether you’re now the main caretaker, you’re sharing custody evenly, or you’re paying alimony, having children to care for comes with financial obligations that will eat deep into your financial pocket.
Coming to terms with this new reality can be difficult to do, but it’s a very important first step to take on the road to building your new life. Sitting down and writing out a new budget that accurately reflects your new financial situation can help make adjusting to your new life easier. In addition, knowing exactly where you stand financially can also help you feel more in control of your new situation, giving you some much-needed confidence as you move forward.
Get Your Priorities in Order
Rebuilding a new life requires the reassessment of many things - one of the main ones being what you want to prioritize. For example, if you’re used to regular vacations or extended holidays, you may have to put those on the back burner for a while as you get yourself back on solid footing. Getting yourself on the right track may require you to make some really hard choices, but prioritizing what’s best for you in your new life must come first.
Think about who you spend time with, how you’re spending your free time, what you’re giving your energy to – are these people and things that are helping you grow? If not, it may be time to cut some things loose.
Tackle Your Debt
It’s common for divorces to create new debt. Not only are there legal fees, but finding a new place to live, potentially getting a new car for transportation, and any other expenses that come with starting fresh all carry pretty hefty price tags. Not only will getting ahead of your debt early on be good for your mental health and confidence, but it will also save you money in the long run by preventing the accumulation of fees and interest.
There are a few ways that you can go about settling your debt. You might want to look at refinancing, or perhaps borrowing a loan from friends or family members who won’t charge high interest. An additional way you can minimize your debt is to cut down on your spending for a few months and put more money towards your debt payments.
SEE ALSO: Building Your Financial Confidence
Improve Your Credit
One of the reasons that tackling your debt is so important is because of the impact outstanding debt can have on your credit score. Having good credit is incredibly important in this day and age. It can help you buy a car, rent an apartment, own a home, purchase furniture, and qualify for loans in the future. So, the best thing you can do for yourself now that you’re living on your own is to work on building up your credit score.
If you don’t have a credit score – and some people don’t – begin taking steps to develop one. Even if you don’t have plans to apply for credit now, you never know what your future might bring. Taking the time to build a healthy credit score now will ensure that you’re in good standing should you ever need to apply for credit in the future.
A relatively easy way to begin bolstering your credit is to use your credit card for minimal purchases and then pay it off completely during the next billing cycle.
Increase Your Income
Increasing your income is much easier said than done and it’s not always possible for everyone. However, if you have the ability to do so, think about learning a new skill that might open up some new doors in your career or at a new place of employment. Another option is to improve any qualifications you already have by studying for a degree or going for postgraduate studies if it will increase your opportunities for higher-paying positions. Consider whether you could consult in your field of expertise, or whether you have a hobby that you could turn into a side hustle.
There’s no one way or right way to earn more money, so explore what may work best for you. If you can increase the amount of money you have coming in, it can help make the burden of budgeting and paying down debts significantly easier.
Spend Your Money Wisely
When emotions are heightened, it’s understandable to want to turn to retail therapy to help make you feel better. The idea of a new wardrobe or a tropical vacation with your friends can be incredibly appealing after a divorce, but those choices will only make getting back on your feet harder. Try finding positive, cost-effective ways to heal emotionally from the pain of divorce that won’t leave your bank account empty. A good way to be sure that you’re spending your money smartly is to pause before each purchase and ask yourself whether or not it’s necessary. While a little treat here and there won’t throw you off track, every penny matters so you want to be smart with how you’re spending your money at all times.
Address Your Housing Needs
Figuring out your living situation post-divorce will most likely be one of the more difficult tasks you’re forced to deal with, but finding the right place is incredibly important. You want to live somewhere that is good for your health and emotional wellbeing as you grieve, heal, and begin to move on. If you and your ex shared a home, you’ll want to start the process of changing ownership based on the terms of your divorce as soon as possible. If you get the house in the divorce but are unable to afford the payments, consider refinancing it or selling it for something more affordable.
If you’re in the position of having to rent or buy a new place, try to be as rational and logical about your selection as possible. Get a place that you can afford, keeping in mind the maintenance costs that go along with it such as water and electricity bills, as well. Even if it’s not your dream spot, remember that home is what you make it and you don’t have to stay there forever.
It’s common to struggle financially after a huge life upheaval like divorce. Getting back on your feet as you cope with your new reality can seem overwhelming and impossible at times, but you don’t have to tackle everything at once. Take things one day at a time, be kind to yourself, and lean on those who love you for support when you need a helping hand.
Ultimately, creating a strong financial plan and having the discipline to follow it is key to getting back on solid financial footing. At Flourish Wealth Management, we pride ourselves on empowering our clients to take control of their financial futures, especially after challenging life transitions. If you’d like to sit down with one of our financial advisors to discuss a financial plan that will serve your unique situation and future goals, give us a call today.
About the Author
Kathy Longo brings over 25 years of expertise and experience to Flourish Wealth Management. Kathy is wholly dedicated to improving the life of each client and finds joy in making complex matters simple and easy to understand. She excels at asking the right questions, uncovering new possibilities and implementing the most advantageous strategies for success. Playing such a pivotal role in her clients’ lives remains an honor and a privilege. After earning a degree in Financial Planning and Counseling from Purdue University, she began her career at a small firm in Palatine, Illinois where she worked directly with clients while learning to build a viable, client-centric business. Over the years, she gained extensive knowledge and wisdom working as a wealth manager, financial planner, firm manager and business owner at notable, various sized companies in both Chicago and Minneapolis.