18 Aug How to Manage your Finances After your Divorce
After a marriage is dissolved, it is important for each party to begin managing their own finances. Financial situations can change substantially after a divorce because income may significantly drop, but not all expenses do. It is important to create a new financial plan that better reflects your new financial situation.
Creating a budget
Everyone needs a budget to follow. It is the foundation of any financial plan. Making a list of all monetary income and expenses is the best place to start. For people who have never made a budget before, there are tools available online to help with the process. If your former spouse took care of the bills during the marriage, make a good estimate of what the expenses are. When you are creating your budget, do not forget to include future expenses for which need to be accounted. Once all sources of income and outgo are figured, you will have a good idea of where your finances sit. If the expenses exceed income, think about what changes you can reasonably make to live within your means.
Building your own credit
When couples divorce, each party must start establishing their personal credit lines if they have not before. A personal line of credit can come in handy for obtaining a mortgage or car loan. The easiest way to establish personal credit is through the responsible use of a credit card. If it is difficult for you to qualify for a traditional credit card, you can apply for a secured card. Another option is to use retail cards that are only good at the store that issues them. Whichever option you choose, the key to establishing good credit is to keep balances low and make payments on time. Check your credit score regularly and make sure any mistakes you find in it are corrected immediately. If not, you may find yourself with a bad credit score that could potentially ruin your credit for years to come.
A divorce agreement will assign a portion of the marital debt to each party. Pay whichever debts you can upfront. Contact creditors you cannot pay immediately to inform them of the situation and work out a reasonable payment plan with them. When working with a lender, be honest and upfront with them. Also, do not make promises to them that you cannot keep. It is also important to keep accurate records of your payments as well as all correspondence you have with the creditor. Keep notes on with whom you have spoken, the actions you have promised to take, and promises the creditor made.
After a divorce, your financial records need to be updated. If your ex-spouse is listed as a beneficiary on insurance and retirement documents, be sure to change it to reflect a new person to whom benefits will go in the event of your death is allowable in the terms of your marital settlement agreement. Also, if you have written documents that include your ex-spouse’s name and dictate legal information such as the power of attorney and executors of state those will need to be changed as well.
Usually, married couples plan for retirement together. That situation changes after a divorce. Saving for retirement can be challenging for a spouse who was not working during the course of the marriage. It can be even more challenging to discern how much money you will actually need to retire. After the divorce, it is a good idea to speak with a financial advisor to put together an individualized retirement plan.
Learn to live within your means
This is, of course, sound advice for everyone to follow, but it is particularly relevant to people who have just experienced a divorce. When a household’s income has suddenly been slashed, it will probably be necessary to adjust your lifestyle accordingly. Setting a budget helps because it allows you to know exactly how much expendable cash is available to spend. However, the key to a successful budget is to follow it. It might take a lot of effort and discipline, but make sure you do not spend more than you have is a crucial factor in financial success, particularly after a divorce.
Seek and accept help
Newly divorced people often are hesitant about accepting help with their finances. Refusing to seek or accept help can be a foolish and costly mistake. If your finances are not kept in check, they can quickly get out of hand and can create a downward spiral that is difficult from which to recover. Accepting help from family or friends should not be embarrassing; it could be the best way to stay afloat when the world seems to be crashing around you. There are also many government and community programs in place that are meant to serve the needs of divorced people. If you qualify for assistance from these groups, accept it. It may be a temporary solution that prevents you from falling into deep financial trouble.
The financial change divorce brings does not need to be devastating. Being proactive and taking the necessary steps to remain fiscally responsible despite all the changes in your life can help keep you financially afloat.