In USA Today, one woman describes her financial journey through and after divorce. As one might imagine, it took her by surprise – at age 42, with a one-year-old son, she found herself “wiped out” financially with a condo worth less than the mortgage. Her return to the black offers some excellent tips.
First, she devised a list of long-term and short-term goals, so that every long-term goal had short-term steps. So, for example, becoming debt free would be a long-term goal. As short-term steps, she gradually paid off credit card debt and slowly began saving money every month. Over time, she reduced debt, increased savings and raised her net worth.
Second, she limited spending. Now, while this seems like such a simple concept, in practice it can be very difficult. What do we consider excessive or required in spending? What lifestyle changes can we make to allow us to meet budget goals? We have to take such an inventory in order to truly determine what is essential in order to create absolute limits and maximum savings. Also, we have to avoid going into debt to make other purchases.
Third, become more creative with financing. This does not mean look for ways to cheat on your taxes! It means think out of the box to pay for certain luxuries. She wanted to take a vacation, so she used reward points from work travel to pay for the flight and stayed with friends rather than pay for a hotel.
Fourth, increase income. This can pose a challenge to some because of the tight labor market or the need for retraining or the limits on work hours due to childcare responsibilities. But within your job, look for ways to advance and get raises. Also, look for additional sources of income, whether part-time work or other opportunities.
Finally, keep a financial journal. She found that charting all the gradual short-term steps and keeping track of progress really helped motivate her in down moments.
While this woman managed to dig herself out of a post-divorce hole, your best option is not to be in a hole in the first place. Sometimes this may not be possible financially because of the limited resources of the family prior to divorce. But if you stress to your attorney at the time of hiring you want to leave on sound financial footing, you can make different choices in settlement approaches that might lead to positive financial health. For example, if you are young and have a good job, you might want to trade future retirement benefits for no debt post-divorce.
If you have questions about your financial health during and after divorce, contact us – we can help.