If you are coming out of divorce either in the past month or even in the past year, you may have questions about how your personal financial life can best be stabilized in light of the challenges you are currently facing. When a person like yourself gets divorced, you are necessarily losing part of your income due to the household you live in going from two working persons in all probability two only one. Whereas before you were able to rely upon a certain amount of money to live now, you have a certain amount of money to rely upon minus what your ex-spouse was also bringing into the household.
For today's blog post, I will not write from the perspective of a recently divorced person who has an established career, a defined manner of allocating money and budgeting, or in general, a great deal of wealth. The way I see it, if you find yourself in this sort of advantageous position, you probably do not need any of the advice that I will provide you today. That doesn't make any of the directions I'm going to give any less relevant or irrelevant to your circumstances. But if you are the breadwinner in your marriage steps, you need to put yourself on secure financial footing after divorce is less noteworthy than someone who doesn't already have a solid career.
For everyone else reading this blog post, I would like to provide you with some information that I have observed from working with many persons who have gone through a divorce and have utilized it in my own life. We all want stability in our finances. Our health and finances are probably the two areas of our life that are most likely to keep us awake at night. We just so happened to find ourselves living in a period where our health and finances may be in jeopardy due to the coronavirus and the economic shutdowns brought about to control the spread of this virus.
I do not want anyone reading this blog post to think that you have built-in excuses ready for you to fall back on due to the coronavirus. At some point, this virus will leave us. We don't know when that is, and we don't know what the world will look like at that point, but I can almost assure you that a stable financial life will be just as important then as it is now. You can kick the can down the road, and she did ignore any financial problems you are facing, but that will not do you much good. Remember that it is not only you that you need to be concerned with from a financial perspective, but it is your children and possibly even your ex-spouse. With so many people relying on you to get control of your finances, it would behoove you to dedicate yourself to following a disciplined plan for debt reduction and budgeting.
Stabilize your finances by budgeting
When do you see the word budget? What is the emotion that pops into your mind and that you feel? It may be that you feel a visceral reaction to turn away and resist the need to budget for many of us. Many people believe that budgets are confining and constricting. They force you to limit your spending and cause you to come face to face with your shortcomings from a financial perspective. If you were to create a budget for yourself as a single parent, you would have to come to terms with what you bring in each month and what goes out each month. This can be a humbling, if not scary, experience for many single parents fresh off of a divorce.
However, I would argue that my budget does not constrain or restrict your spending but instead permits you to spend. Let me explain what I mean by this. Do not think of your budget as something that is constantly looking over your shoulder and yelling at you not to spend. On the contrary, when a budget is done well and accurately, it will permit you to spend. It does this by giving you advanced warning on where your money is going and how much you have to pay in all facets of your life.
The way that I would recommend you start the budget would be to do a simple analysis at the end of a month regarding your income for the following month and your expenditures. In the wake of a divorce, you may not even know exactly what your expenses are each month. For example, if you have moved into an apartment or recently purchased a home, could you tell me off the top of your head what your mortgage payment is each month? What about your utilities? How much do you spend on groceries? What about uniforms for your kid's fall sports or other activities? Are you saving money each month for Christmas? Sources close to Santa Claus tell me that Christmas will be the same time this year as it was last year in the year before.
Budgeting allows you to take the money you made and divided it up before the month even begins. This way, you know exactly how much money you can spend on the essentials in your life and on the non-essentials. You will very quickly find out that your financial problems are directly related to your income, expenditures, or both. While it may not be pleasant to have these discussions with yourself and two live on realities terms when it comes to your finances, it is much better to come to learn where your shortcomings are so that you can make needed changes as we close out the year 2020.
Budgeting does not need to be done in a fancy way. You do not need to be sophisticated in personal finance or mathematics to create an operational budget for you and your family. I would tell you that for the first three months of budgeting, you will make mistakes, and you will not be able to estimate accurately what all your costs will be. The fact is none of us, when we are starting the budgeting process, would be able to predict with complete accuracy what our expenditures will be in any given month. It takes practice budgeting to become a good budgeter.
So, I suggest you get out a legal pad or even a single sheet of paper and a pen or pencil and begin to mark down Your budget at the end of a month. For example, now will be an excellent time to start thinking about your allotment for September. You can write down your income for the month and then List out the essentials in your life: rent or mortgage, utilities, transportation, and food. Please do your best estimate what it costs for you to feed your family and transport them to and from school or other places. Once you have determined what it costs to maintain your four walls, you can then Do a simple subtraction problem and figure out how much money you have leftover. The money you have leftover will determine how effectively and how quickly you can get through the next step in my plan to stabilize your finances after a divorce.
Want to build wealth? Pay off your debt first.
Anyone who's ever gone on a diet begins with their end goal in mind. If you are dieting, you want to improve the way you eat, become more active, and eventually lose weight; the more specific your goal is, the more likely you are to reach that goal. If you write down the plan, then you are even more likely to get it. Budgeting is a great way to begin. You are the focus of writing things down that you want to achieve. As a single parent coming off of a divorce, there is no better time than now to put your focus on reducing debt and eventually eliminating it from your life.
Ultimately, you need to ask yourself why you are even focusing on personal financial stability at all. I'm willing to bet that the answer to that question is not because it is fun, Interesting, or enjoyable. You need to identify your particular reason why it is important to you to be stable from a financial perspective. Your excuse may be short-term, like you want to be able to pay the bills in ensuring your kids have a good quality of life while they are in your home, or your goal may be more long-term. If your long-term goal is to build wealth and to be able to give generously, then reducing debt is the best place to start, in my opinion.
Along with budgeting, focusing on reducing debt as a single parent is the most direct way to accumulate wealth. Your income is your primary tool for both reducing debt and building wealth. You must eliminate debt from your life to contribute two retirement accounts, your savings, or any other investments that you are interested in. Again, investing in building wealth does not mean that you have to be a person with a great deal of financial knowledge or even be sophisticated in the ways of finances and saving. However, you need to be focused on accomplishing your goals and understanding where your money goes each month.
The first question you need to ask yourself is whether or not you know to whom you are debts. Much like my budgeting advice, I would recommend that you begin to organize all of your debts on a piece of paper so that you can look at them and get a feeling for who you owe and how much you owe. The particular method that you employ to reduce and eliminate debt is up to you. All you need to do is go online and perform a Google search for debt reduction methods, and you will not suffer from a lack of options to choose from.
The method that my wife and I employed when we were seeking to reduce and eliminate debt was to get our obligations in order from smallest to largest and then make minimum payments all the biggest ones and put all of our excess money each month on the smallest debt. Interest rates did not factor into our decision-making. The interest rate doesn't matter because you can focus your time and energy on paying down debt quickly; the interest rates don't matter much in terms of dollars and cents. Interest rates make a big difference in your life when you take a very long time to pay off a debt.
Once you pay off your smallest debt, you will feel a sense of accomplishment and then move on to the second smallest debt and down your list. While you are paying off debt, you can look for any opportunity to make more money and add to your income. Again, the end goal here isn't to become money obsessed or anything like that. The best thing I can tell you regarding debt reduction is that your life will become much more stable as a single parent if your income can be focused on your children building wealth rather than paying your creditors.
Questions about the material contained in today's blog post? Contact the Law Office of Bryan Fagan
If you have any questions about the material contained in today's blog post, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed family law attorneys offer free of charge consultations six days a week in person, over the phone, and via video. We would be honored to speak to you about our office's services to clients and how we could best serve you and your family in whatever family law-related circumstances you find yourself in.