Are you wondering how you will rebuild your finances after divorce?
In many divorces, once the dust has settled, the legal bills have been paid and emotions begin to subside, there is often a common outcome – lower income and a change to your lifestyle. Moving to just one income can be challenging to say the least especially as so many families these days rely on two incomes to run a household.
While it may be unavoidable, the sooner you can start rebuilding your finances after your divorce, the quicker you will get back on track financially and adjust to your new situation and lifestyle.
Here are some key steps you can take to rebuild finances after divorce.
Step 1 – Separate Your Bank Accounts
If you had joint bank accounts while married, the first thing you need to do is to advise your bank of your separation or divorce and start up individual bank accounts.
This should include joint credit card accounts as well. Change passwords and pins you may have shared with your ex. Only then can the real road to financial freedom can begin.
Step 2 – Update Your Providers
Equally importantly, you need to separate debts and liabilities and update your providers. Inform your service providers of mortgages, utilities, insurances, rates and any other bills for which you are liable. Don’t forget to re-assess and update your will, executors, beneficiaries and your Power of Attorney documentation.
Working out who will be responsible for servicing your liabilities should be jointly agreed and form part of the overall divorce settlement.
Step 3 – Set Up An Emergency Fund
Unanticipated things may happen to you at any time, often when least expected!
You could lose your job, get sick, have an accident, your car might break down, household appliances may break and need replacing. So the sooner you start an emergency fund for life’s little surprises, the less stressful they will be when they arise.
Much discipline is needed here. The best way to start an emergency fund is to put away an amount as soon as you get paid (not at the end of each month when you see what’s left – because there won’t be anything!) and only use it for genuine emergencies.
Step 4- Create A New Budget Plan
After any divorce, financial matters tend to take a nose dive for most people. The key thing to help rebuild your finances after divorce is to separate needs from wants and adopt the save first, spend later policy. If you approach this from the other way round it simply won’t work as effectively.
Once you are clear about your personal and family needs and your total and disposable income, you can establish what kind of lifestyle you can afford without going into debt.
The next challenge is to ensure that you live within your means and not spend money that you just do not have. This is a common reason for financial failure and spiralling debts.
If you are in debt, your first priority should be to become debt-free as soon as possible. Credit card debt is the most expensive debt and is usually the one that financial advisors recommend paying off first.
Step 5 – Monitor Your Spending Habits
The most effective way to ensure that you live within your means is to continually monitor your spending habits and take immediate action when and where you may be going wrong.
It’s not an easy thing to do, as it can be eye-opening to realise just how much your outgoings are and where you are spending your money. This is where discipline kicks in.
If you’re wanting to spoil yourself with an item or a holiday trip, set yourself a goal and work towards it. Perhaps you could try to create some additional income by taking on a second job, applying for a better paid job or up-skilling, to enable you to apply for a job that will be the next step up for you.
Please note the contents of this article are not intended as independent and qualified financial advice – for guided financial advice, please speak to a qualified financial advisor about your personal circumstances and needs.