Going through a divorce is like driving through a snowstorm in the middle of the night on some forlorn country road. Congratulations for surviving the harrowing ordeal. Now it’s time to turn your attention to a brighter future. We have worked with many divorced women, and we offer the following strategies to help you gain financial independence.
Take Financial Stock
The best place to start is to take stock of where you are financially. What assets did you walk away with after the divorce (e.g. the house, retirement accounts, savings, investments, property)? Did you end up with some debt (e.g. mortgage, educational loans, credit cards, vehicle loans)? What are your sources of income (e.g. alimony, child support, wages/salary from work, rental income)? What are your expenses? It would be wise to distinguish between basic living expenses (food, clothing, shelter, and utilities) and discretionary expenses (e.g. dining out, entertainment, vacations, etc.).
Now that you know your assets and debts and your income and expenses, you can start planning for financial independence. Your highest priority should be saving for retirement. You should figure how much you will need to save each year for retirement and set those funds aside before you spend on anything. Then use the remainder of your income to pay for your basic and discretionary expenses.
If you have been out of the workforce for a while, think about returning to work. Working will provide income and reduce your need to draw upon whatever resources you have after your divorce. You may need to earn new credentials, refresh your skills, or update your experience to secure the kind of work you want.
Manage Financial Risks
There are lots of financial risks that you need to think about as you look to the future, and you need to plan for them. You could become sick or hurt and need medical care. So, make sure you have adequate health insurance to pay for your medical expenses. Also, make sure you have disability insurance that will provide you with income if you are not able to work. While there are disability benefits through Social Security, it is very difficult to qualify for them, and you should not count on them.
Women live longer than men, and they often arrive at retirement with less money than men. You can do a few things to avoid the risk of running out of money and ensure your financial independence. Plan on taking Social Security as late as possible (age 70), because for every year you wait, your benefit will increase by 8%. Also, consider using an annuity in conjunction with Social Security to provide additional guaranteed income that you cannot outlive.
Contact us today to learn how a Certified Divorce Financial Analyst® can help guide you and answer your financial questions before, during, and post-divorce.
Avoid Financial Mistakes
The reason many women struggle financially after divorce is that they make mistakes with their money. You may feel compelled to help your children and grandchildren financially. Support them in as many ways as you can. Just don’t let that support threaten your financial independence.
You should only use credit cards as a means of convenient payment. Americans have grown accustomed to carrying costly balances on their credit cards. Experian reported that the average credit card balance in 2019 was $6,194. The number has been increasing for several years. You should pay off your credit card balance in full and on time. The interest on credit card balances and the fees for late payments are extortionary and should be avoided.
It can be tempting to splurge when some exciting opportunity pops up. It could be a flashy, new car, a beach vacation, a piece of art, or whatever might strike your fancy. When this happens, please be careful. You should have a budget and if the expense you are considering is not in your budget, you will have to either make room for it in your budget (i.e. spend less on something else) or skip it. Most Americans buy things they fancy and figure out later how to pay for them. Your financial independence depends on your ability to stick to your budget.
Stay Healthy
Women live longer than men and if they need assistance with basic living activities, they need it for longer than men do. Paying for care is very expensive. So, to minimize the odds that you will eventually need help, take care of yourself. Eat well. Exercise frequently. Drink alcohol moderately, if at all. Keep your mind active. Practice your religion. Meditate.
If you have a family history that suggests you may need professional care, plan for it. You could save enough to pay for it, or you could purchase long term care insurance to cover it. Paying for expensive care is one of the greatest threats to your financial independence. So, plan for it.
Get Professional Help
If all of this seems a bit overwhelming, you should consider hiring someone to assist you. If you are in the midst of divorce or just emerging from it, look for a Certified Divorce Financial Analyst (CDFA®). The role of a CDFA® is to help you (and your attorney) navigate wisely the financial aspects of divorce. If your concerns are broader than those involved in divorce, look for a Certified Financial Planner™ (CFP®). A CFP® is a fiduciary (i.e. required to act in your best interest) and has knowledge, skills, and experience in a broad array of financial planning topics.
Over the years, several of our divorced women clients have told us that they fear becoming a “bag lady” late in life. They usually express this worry with a bit of a nervous laugh. We get it. Single women are more likely to live in poverty than men or couples, particularly in old age. But, if you follow the strategies we have shared, you can live in financial independence.