Splitting Up? 8 Steps to Make Your Budget Work
The myriad financial obligations that accompany separating from your spouse can seem endless, especially since many payments will now be made on your own. In order to keep afloat of divorce fees, organize your financial records and learn the frequent financial mistakes others make so you don’t do the same “ or you may find yourself drowning in debt.Here are some steps to help.
1. Make order of the bills.
The first step to revising your budget is making some order out of the bills and bank statements that overflow from your desk drawer and spill off your nightstand. This means collecting, categorizing and creating folders for them. But not all papers in your piles are worth keeping. Decide what you need to hold on to and what can be tossed (after you enter them into your checkbook, it’s safe to throw away bills that do not affect your taxes, such as store receipts, utility bills, etc.).
2. Organize important records.
Critical records like your will, birth certificate, passport, 401(k) statements and tax returns, should be stored in a safe and easily accessible spot, such as a safe. Keeping things neat and clean is crucial for divorcing couples. Make copies of everything related to financial issues,” said Santa Monica-based family law attorney David Pisarra. When couples split up, bills are no longer jointly paid so if you are contemplating a divorce it’s critical to acknowledge the financial components that come along with it.”
3. Determine spending each month.
Once all of your financial documents are organized, it is much easier to evaluate your savings and spending habits. Find out what you’re spending your money on each month, each week and even daily. Write down from your checkbook and credit card statements what you actually spend and not what you estimate you spend. Most people are shocked by what they discover,” saidDawn Cardi, a prominent divorce lawyer in Manhattan.
4. Cut non-essential spending.
By tracking your spending, you’ll be able to calculate what you spend on essential items (rent, utilities, groceries, etc.), and you’ll most likely unearth your non-essential spending habits as well. This is where costs can be cut. A good way to minimize non-essential purchases is by paying in cash for these items; you’re likely to spend less money if you don’t use your credit card.Dining out, entertainment and clothing are three areas that should be substantially reduced, if not eliminated, when trying to create a more manageable budget. Find other, cost effective ways to keep yourself entertained and content.
5. Reduce your debt.
You also need to stay on top of your credit in order to reduce debt. This means paying your monthly bills on time and in full. It could take you years and thousands of dollars in interest to pay off a single credit card if you pay the bare minimum. Already in credit card debt? Get out before it gets worse! If you can’t pay your balance off in full, reduce how many credit cards you use and choose a card with a low annual percentage rate and a low or no annual fee.
6.Stockpile six months of savings.
Make sure you have about three to six months of living expenses in the bank. This will guarantee you can pay your way through the various financial obligations that will arise during this time. It’s also important that you insure yourself, said Cardi. You may be losing health insurance benefits and your car insurance may be impacted,” so make sure you account for that in your budget, she advised.
7. Consider your retirement.
If you’re a parent, you don’t think twice about putting your children first. But when it comes to your personal finances, it’s a good idea to think of your retirement before your child’s college costs. While a university can offer student scholarships and financial aid, an Individual Retirement Account (IRA) or 401(k) cannot. Just make sure to never cash in your 401(k) plan when you leave a job, even if you can’t keep the plan through your previous employer. If you cash out, withdraw penalties and income tax will outweigh any instant income. Choose instead to roll your 401(k) into a retirement plan such as an IRA.
8. Have a backup plan.
Or worse, if you happen to lose your job in what is becoming a tough economy these days, make sure you have a plan. “If you find yourself in this position the first step is to sit down with a financial planner and put your numbers on paper.” said Kelly Campbell, CEO of Campbell Wealth Management in Fairfax, VA. “This is a critical step to take immediately because having the correct plan, with the correct assumptions, will tell you whether you need to find another full-time job, a part-time job or don’t need another job,” added Campbell. With a little organization and a clear plan of action, you’re well on your way to a manageable budget. There is life after divorce, so start living a debt-free, worry-free life now and enjoy your newfound financial freedom.
