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How To Manage Your Finances After Divorce
After divorce, one of the most drastic changes is certainly your finances. You might have been the stay-at-home mom with no outside income, or maybe you were the breadwinner who managed all the bills. Whatever your circumstance, now that you’re on the other side of splitting up, life looks different. And it’s squarely on your shoulders now to manage your finances after divorce.
For some, that thought alone can paralyze you. Will you have enough money to pay the bills? What happens if there is an emergency? How are you going to pay for the kid’s college? Fear, anxiety, even panic. For others, it’s easier to take an “out of sight, out of mind” approach, which isn’t good either.
Deep breath. Let’s take it one step at a time and find some middle ground.
What Debts Do You Have
First things first when it comes to managing your finances after divorce; where do you stand with debt? Set aside some time and space where you can gather up all your information (bank statements, bills, taxes, etc) and lay it all out. You need to take stock of all your debts and assets. If you already went through this step as part of your divorce settlement, then part of your work is already done!
Make a list of all the debts, everything that you owe. Write down the amount, the monthly payments, interest rate, etc. Then total it all up. Scary number? Yep. I know.
When I split with my ex-husband, we had almost $100k worth of joint consumer debt, not including our mortgage. Unfortunately, my ex’s credit rating wasn’t the greatest, and he didn’t qualify for enough credit to split our debt 50/50. In order to separate that debt, close joint accounts, and have my name free and clear, I ended up taking on 75% of the debt. It did mean I kept the house, but that also meant the mortgage too. Those were some pretty daunting numbers.
Before you go into a full-on panic (because I know certainly wanted to), let’s set those numbers aside for a moment.
Money In, Money Out
Second step is to look at the money coming in and going out every month. If you have no idea, pull out your last 3 months of bank and credit card statements.
Write down your after-tax income, the amount that actually gets deposited in your account each paycheque. If you get reliable child support (automatically garnished wages, etc) than add that. Any other income you get, like child tax benefits, include that too. That’s what you have to work with for money coming in.
Now write down all your non-negotiable expenses. Things like mortgage/rent payment, property taxes, insurance, car payment, utilities, etc. Add in your variable expenses like groceries, gas, restaurants, entertainment, clothing, haircuts, kids activities, etc. Don’t forget debt repayment, but for now, list the minimum monthly payments required.
Cutting Back and Prioritizing
If the money coming in doesn’t cover the money going out, then you have some thinking to do. What are the most important things? Can you cut out or cut back on some of the variable expenses?
For groceries, can you plan your shopping better, using flyers and coupons? Can you plan out your meals so you cut back on take-out and restaurants? Do you spend a lot on coffee out, when you could save by making it at home? If this is an area you are struggling with, I highly recommend the Grocery Budget Makeover. Learn how to plan, shop, spend less money on groceries and make meals at home for less.
Do you need cable tv, or can you cut back and watch more online, or just have Netflix or another streaming service?
Remember though, before you hack your way to a bare-bones budget, self care is important. While it’s nice to set aside money for gifts for the kids, make sure you budget for you too…a baby-sitter so you can have a girls night out, a massage, therapy sessions. If you don’t take care of you, you can’t take care of everybody else!
Two Different Strategies for Tracking Expenses
If you struggle with setting (and keeping) your monthly budget in certain categories, there are a couple of different approaches to manage your finances after divorce, on either end of the spectrum…using all cash, or charging everything on credit card. There are pros and cons to each way of budgeting, and you may have to experiment with both to see which way (or a combination of) fits your family the best.
Using a cash envelope system allows you to stick to your budget. No cash left in the envelopes, no more spending. Want an awesome detailed plan with printables, videos and more? Check out The Cash Fueled Life course by Kim Anderson of Thrifty Little Mom.
Another option is to use your credit card for all purchases. This one requires a lot more control than using cash, but it allows much better tracking, even down to that coffee at the drive-thru. Many credit cards offer cash back programs (mine earns enough to cover the annual fee and $500+ that I use to pay for Christmas), extended warranty on purchases, and travel insurance. Do your research to find the card that offers the best benefits for you and your spending habits. Just be sure to pay off your balance each month to avoid interest costs.
Each of these strategies will give you a good idea of what you ACTUALLY spend in a month, allowing you to tweak your budget in different categories.
Give Yourself Time and Grace
This is all new territory, and it isn’t going to settle into a nice, smooth routine overnight. There are going to be bumps in the road. Expenses you forgot about, budgets you underestimated, emergency repairs you didn’t anticipate. It’s going to take some time to adjust to your new life and routine. If you can, give yourself a few months or even a year to get used to things, without any huge expectations (or the guilt that follows).
When the dust settled right after my divorce, and I was faced with the daunting debt, and overwhelming emotions, I made some choices. While I did make a rough budget, and cut back on a lot of things, I also gave myself some grace. Refinancing the mortgage and debts gave me a little breathing room. Instead of my normal high-anxiety mode of constantly looking at my debts and the bills and the dwindling bank account every week, I made a choice to step back.
I gave myself a year. A year where I wouldn’t worry about the debt, and to get used to my new single mom life. No off-the-rails, out-of-control spending mind you. I still paid the bills and I made sure to make minimum payments on the debt on time every month. But I forced myself to only look at the finances once a month.
And I spoiled myself and the boys a little. If they played well while I did housework, we went for ice cream after dinner. We went to the movies and playplaces and museums. I even took my tax return that first year and we went back to Disney, because it was our “happy place” (and it still is, just not as often).
Did I go a bit further into debt that year? Yep. But what I saved in stress and worry more than made up for it. And after a year of doing it all on my own, I had a better sense of where our priorities were as a family, and I set about making a new (balanced) budget that better reflected our reality.
Managing your finances after divorce can be one of the biggest stressors in life, but by taking it one step at a time, laying it all out, making choices and giving yourself time and grace, it can also be one of your biggest sources of pride and accomplishment. Once you make a plan that works for your new life, you really can say that you’re thriving all on your own!
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