Your Financial Roadmap Post-Divorce
Divorce brings many changes, and transitioning to a single-income household can be an intimidating adjustment. But it’s important to note that managing finances doesn’t have to be daunting. As you begin to navigate a new financial landscape, learning foundational financial skills can make a big difference. This guide offers essential budgeting and financial tips, to help you gain confidence and create a stable future for yourself and your kids.
Understanding Your Financial Landscape Post-Divorce
One of the first steps in managing income and expenses post-divorce is to take a close look at your finances. Understanding your finances is crucial and gets easier once you begin. Start by creating a financial snapshot that includes your income, assets, regular expenses, and debts.
You can begin with the basics:
- List Your Income Sources: Document all sources of money coming in. As income changes, this list will help you make adjustments to your financial plan. Include any:
- Employment
- Full- or part-time salary
- Bonuses and commissions
- Self-Employment
- Freelance/Consult work earnings
- Running a small business
- Gig economy jobs (ride-share, delivery)
- Investment Income
- Dividends from stocks
- Interest of savings or bonds
- Rental income from properties
- Retirement Accounts
- Withdrawals from pensions
- Distributions from 401(k) or IRA accounts
- Government Related
- Social Security
- Unemployment
- Disability benefits
- Tax refunds or rebates
- Other
- Selling handmade or vintage items (Etsy, eBay)
- Tutoring or teaching lessons (Music, Language)
- Baby-sitting, Pet-walking
- Cash gifts or Inheritance
Identify Assets and Debts: Note all of your assets and debts.
Asset (def.): Anything of value that you own, which can contribute to your financial security, including cash, investments, property, vehicles, retirement accounts, and personal possessions that have financial worth. They may be tangible items, like real estate or jewelry or intangible, like stocks or patents.
Debt (def.): Money owed to others, typically borrowed funds. They include loans, credit card balances, mortgages and unpaid bills. Keep in mind that interest may apply, which will add to the amount owed over time if not paid off. (Source)
- Calculate Monthly Expenses: List your fixed and variable expenses.
- Fixed expenses:
- Rent or mortgage payment
- Utilities (electricity, water, gas, internet)
- Insurance premiums (health, car, home/rental)
- Subscriptions (streaming services, gym memberships, classes)
- Credit card payments
- Student loans
- Personal loans
- Any other outstanding debt
- Variable expenses:
- Groceries
- Transportation
- Any recurring payments, (car loans or insurance)
- Entertainment (movies, dining out, hobbies)
- Savings
With this financial snapshot, you’ll have a clear understanding of your resources and obligations, making it easier to set up a workable budget.
Create a Realistic Budget
A budget is a powerful tool. A realistic budget allows you to align your spending with your income, ensuring that your essentials are covered and that you can start building savings. Here’s a straightforward way to create a budget that works for you.
- Categorize Expenses into Needs and Wants: Good news! You’ve already done this by identifying your expenses as Fixed (needs) or Variable (wants) expenses.
- Set Spending Limits: Based on your income, assign limits to each category. For instance, if you spend $400 on groceries monthly, allocate that amount to the “groceries” category and commit to spending $400 or less.
- Track Monthly Expenses: Use apps that offer a range of features to help organize household budgets easily and for free.
- Mint – Tracks expenses, categorizes spending, and sets budgets.
- EveryDollar – Zero-based budgeting app to help plan each dollar.
- PocketGuard – Shows how much is “left to spend” after bills and savings.
- Wally – Tracks expenses and organizes spending with receipts.
By setting realistic spending limits and tracking expenses, you’ll gain control over your finances, making it easier to stay on top of bills and avoid overspending.
Building an Emergency Fund for Financial Security
An emergency fund can be a financial lifesaver, especially on a single income. An emergency fund is a dedicated savings reserve for unexpected expenses, such as medical bills or car repairs, so you don’t need to rely on credit cards or loans when these things occur. If starting a fund seems difficult, remember that even a small amount, like $20 per month, adds up over time.
- Start Small but Start Now: Aim to save a small portion each month, even if it’s only $10 or $20 initially.
- Automate Your Savings: Set up automatic transfers to a dedicated savings account. By treating your emergency fund as a non-negotiable part of your budget, it will grow consistently. And as you find savings opportunities within your budget you can always add more!
- Set Realistic Goals: Aim to save up to three months worth of essential expenses, but don’t let that goal discourage you from starting with a smaller amount. Once you reach that goal, aim to add 3 more months so that you have a 6-month cushion. Any amount you save contributes to your financial security and peace of mind.
With an emergency fund in place, you’ll have a safety net for unforeseen costs
Managing Child-Related Expenses
For co-parents, child-related expenses can be a significant part of the budget. School supplies, extracurricular activities, and childcare costs can add up quickly, so it’s essential to plan ahead with your co-parent.
In mediation, you can reach agreement on how you will share these costs, particularly for large or recurring expenses. For example, some co-parents agree to contribute a percentage based on their incomes, others agree that one person will cover expenses like:
- Childcare Expenses
- Education Costs
- Medical and Dental Expenses
- Extracurricular Activities
- Clothing and Personal Care
- Transportation Costs
- Special Occasions
- College Savings
- Vacation and Travel Expenses
- Technology and Electronics
- Emergency Fund for Child-Related Expenses
- Housing-Related Costs
Communicate About Shared Costs: Keep an open line of communication with your co-parent about child-related costs. Using tools like OurFamilyWizard can make it easier to track and manage shared expenses. Managing these expenses thoughtfully can help ensure that your child’s needs are met without derailing your budget.
Reducing Debt and Building Credit
Debt management and credit building are critical to achieving long-term financial stability. Post-divorce, you may find yourself facing debts that you previously shared, making it important to address these obligations proactively. In mediation, you will reach agreements regarding all outstanding shared debt. Here are some basic steps to tackle debt and improve credit:
- Prioritize High-Interest Debt: Focus on repaying the debts with the highest interest rates first to minimize the amount you pay over time.
- Make Consistent Payments: Paying at least the minimum amount on time each month to protect your credit score. Consider setting up auto-payments to pay bills promptly. Adding a little extra each month can save you lots of money long term!
- Monitor Your Credit Score: Check your credit score annually to track your progress and identify errors. AnnualCreditReport.com offers free annual credit reports.
By paying down debt and improving your credit score, you open up financial opportunities, such as lower interest rates on loans or credit cards.
Increasing Income Where Possible
In addition to budgeting, you might increase your income to give you more flexibility. There are many ways to boost your earnings without sacrificing time with your kiddos.
- Explore Freelance or Part-Time Opportunities: Gain extra income on your schedule. Sites like Upwork or Fiverr offer flexible job opportunities.
- Consider Remote Work: Working remote allows for the flexibility needed to balance work and parenting. If you have a skill that’s in demand, such as writing or tutoring, many companies hire remote talent.
- Look into Resources for Parents: There are scholarships for education or grants for small business ventures just for single parents. Research local community centers or online resources for information on these opportunities.
Increasing your income, even by a small amount, can make it easier to reach your financial goals and offer added financial security for you and your family.
Getting Support and Guidance for Financial Planning
Remember that resources are available to help you succeed.
- Use Free or Low-Cost Resources: Community organizations and nonprofits offer financial counseling or workshops.
- Consider a Financial Advisor: If you have questions about complex financial issues, a financial advisor may be a worthwhile investment. Many offer free initial consultations to see if their services suit your needs.
- Join Supportive Communities: Online communities for divorced parents can provide advice, resources, and encouragement. Sharing experiences and tips can make financial planning feel more approachable.
Having access to financial guidance can empower you to make informed decisions and feel confident in your financial future.
Conclusion and Call to Action
With some thoughtful planning and practical strategies, you can build a stable and secure financial foundation. Budgeting, managing debt, and creating an emergency fund can empower you on your financial journey.
Taking small, consistent steps can have a significant impact over time.
If you are going through a divorce and are worried about your financial stability moving forward, contact Aurit Mediation.
You can navigate your finances more confidently, ensuring that you and your children have the support needed for a secure future.
THE AURIT CENTER 