Worried about divorce and its financial implications? You’re not alone!
According to the US Census Bureau, 33% of men and 34% of women in the United States are right there with you, having gone through a divorce.
Not only can divorce be emotionally taxing, but it can also have a long-term financial impact if you’re not careful. However, the end of marriage doesn’t mean an end to financial security.
While it’s true divorce can negatively impact your finances, there are things you can do to smoothen the financial road before you. One of the best ways to ensure you stay financially healthy after divorce is to budget.
A post-divorce budget will let you know where you stand financially. Luckily, you don’t need a Master’s degree in accounting or finance to develop one. In this guide, we’ll share some tips on how to budget for a comfortable life after divorce.
Why Is Post-Divorce Budget Critical?
Divorce can be costly, especially if you opt for a trial. But exactly how much does a divorce cost? Divorce can run up to the tune of $10,000 to $20,000 for most couples.
According to Legal Zoom, an extremely inexpensive divorce could cost as little as $500. Some of the factors that impact the cost of divorce include the divorce method, child support, and whether the divorce was uncontested or not.
So, why is a post-divorce budget critical? There’s an old saying, “If you fail to plan, you plan to fail.” Creating a post-divorce budget helps you understand where you stand financially and decide how to manage your money better.
As mentioned, divorce can be expensive. After paying the often-hefty expense to a divorce attorney, you’ll be solely responsible for housing, groceries, utilities, maintenance, etc.
And chances are your income will be lower than it used to be once support from your spouse is withdrawn. A budget will help you understand your income and cash flows, manage your expenses, and create healthy spending habits.
Tips to Budget for a Comfortable Life After Divorce
Now that you know the importance of post-divorce budgeting, how do you do it? Here are some golden tips to help you budget “smarter” after divorce.
1. Focus on Your Current Income
After divorce, budgeting can be tricky, especially if you’re doing it for the first time. Experts recommend budging based on the current after-tax income.
Do not base it on projected income, as this may never hit your account.
Instead, focus on what you have at the moment.
This helps avoid disappointments and ensures your income figures and projected cash outflows are realistic. Being pragmatic with your finances will pay off and help you avoid the debt trap.
2. Create a List of Your Expenses
Once you’ve figured out your total income, it’s time to factor in your expenditure. First, categorize your expenses. Classify your expenses into two categories:
- Regular expenses
- Irregular expenses
These are your recurring bills, like internet, cellphone, mortgage, etc. These expenses must be paid every month, so you’ll want to prioritize them.
These are expenses you pay once in a while. Some of these expenses can be postponed, depending on your financial situation, and have no impact on your life. Some examples of irregular expenses include:
- Holiday gifts
By categorizing expenses, you’ll be able to factor in what you can’t live without and budget accordingly. By failing to budget, you could end up taking vacations to relieve stress, only to end up with a deficit to pay for rent and other fixed expenses.
3. Avoid Any Debts
Debts can be a double-edged sword.
When you need a house, a mortgage can help you secure your dream home without paying a penny, especially if you qualify for a zero down-payment mortgage.
However, in the event of a divorce, debts can exacerbate the problem. It can be tempting to use your credit card for luxury shopping. Don’t give in to temptation. Doing so can make your financial future look glimmering.
While divorce doesn’t directly affect your credit score, it’s common for people to find themselves in trouble with their credit as the financial dynamics they’re used to change. Moreover, getting into too much debt after a divorce can strain relationships with family and friends.
4. Consider Working with a Financial Advisor
Working with a financial advisor during and after divorce is highly recommended. These professionals can help you navigate the financial aspects of divorce, including shared credit card debt, child support, and division of jointly-owned assets.
Post-divorce, a financial advisor can also help you set up a financial plan so your spending matches your earnings. They can also assist you with any investment you may have or plan to make after the separation.
Divorce is never easy, and the emotional and financial toll it brings on couples can have long-term impacts. But with a sound financial management plan and informed budgeting, you’ll be able to manage your finances and avoid falling into debt.