When you’re getting divorced, some of the biggest fears surround money. Will you have enough to survive? Will your kids have the things they need? Will you ever be able to retire? These concerns are even bigger for women, as they often receive a much smaller share of the marital assets and their earnings are often depressed because they’ve put their careers on hold for the good of the family. And many women come out of divorce with debt.
Budgeting is one of those words that lots of us hate to hear. But it is so important to make sure you’re on track financially, and more importantly, to help ease some of your money fears.
The first step to understanding your financial situation and paying down debt starts with a budget. If you are like a lot of women, your husband may have been the one handling the finances and paying bills. Don’t be ashamed if you weren’t involved with the money. You did other things for the family that were important.
Now is the time to start getting your arms around the money situation. You don’t have to stay in the dark. You probably have a lot of questions:
- How can I fight for a fair settlement if I don’t know what assets we have and how much money is involved?
- Why is there so much debt when their he has been earning a lot of money?
- How will I provide for myself and my children?
- Will I be able to stay in the family home?
Make a plan for your financial future by creating a budget. This roadmap will help you better understand your current financial situation by doing the following:
- Determine your income. Understand that for many women, income will shrink post divorce.
- List your fixed expenses (rent, mortgage, utilities, insurance premiums and transportation costs, childcare). This is a good time to evaluate whether you have the financial resources to stay in your current home or whether selling will be necessary.
- Take into account those ever-changing expenses (groceries, eating out, additional childcare needs such as school supplies, clothing and even braces for your children). Include outlier or one time expenses can help you have a better understanding of your financial future.
- Start an emergency fund. It can be hard to save when money is tight, but start by putting a little something in a separate account. It will build up over time, and that money will come in handy when you have the unexpected car or home repair.
- Prioritize paying down your debt. This can be particularly hard, but there are strategies. It’s important to start chipping away at the debt so a make a plan.
There are different approaches to paying down debt and you will be able to decide which is right for you after your budget is complete. Create a realistic budget. Take a look at your bank and credit card statements to better understand your spending patterns and your financial reality. This information will help you make adjustments and free up money for paying down your debt.
You may need to cut out unnecessary spending. Think about eating out less, cancelling recurring subscriptions (Netflix, Amazon Prime, etc.), and trimming entertainment expenses. You don’t have to cut out everything that’s fun. You still have to live, so if you enjoy a fancy coffee at the corner coffee shop, maybe you’ll treat yourself to one coffee a week instead of one a day. Cutting expenses doesn’t mean that you have to completely deprive yourself of the things that bring you joy.
And now for your debt. Of course, you can hack away at your debt by paying the minimum payments, but it will take forever to pay it off. You’re going to have to pay extra each month. But which debts do you put the extra money toward? One option is the snowball approach, where you put the extra money toward your debt with the smallest balance. When that one is paid off, move onto the next smallest. The advantage to this one is that you make progress quickly on the number of debts you have. It can be very motivating.
Your other option is to start with the debt that has the highest interest rate, and put all of your extra money toward it. The advantage of this method is that it costs you the least money in the long run. You’re getting rid of the most expensive (highest interest rate) debt first.
As time passes and you pay off debt, you will free up money for investing, travel or whatever your money goals are. There is a light at the end of the tunnel and you will be able to move onward and upward with your life with minimal to no debt.
