Life after divorce can come with many challenges. Once the papers have been signed and the dust has settled, it is time to begin moving forward both personally and financially. In our previous article we briefly covered the first few essential considerations regarding housing and possible support payments or obligations. Now that those considerations have been addressed, you need to begin preparing for the future and for expenses that fall outside of basic housing needs. You have a roof over your head and are now ready to begin the detailed and extensive process of budgeting, not only for your regular monthly expenditures, but for long term needs and goals as well. In our first article we discussed utilizing a CDFA® in your divorce team to help with negotiations and decisions relating to the financial impact of divorcing. However, a CDFA® only works with a client DURING the divorce proceedings. Now that your divorce is finalized, your financial needs and goals should be addressed. One way to accomplish this is to use the experience of a CERTIFIED FINANCIAL PLANNER™ (CFP®). In this article we will discuss further how to forecast for long term plans by working with a financial planner to thoroughly assess your monthly cash flow and savings possibilities.
Emergencies and Unexpected Expenses
Living paycheck to paycheck is a reality for many single parents as they begin navigating and potentially adjusting to their newfound independence. If you have been accustomed to a two income household, it may take some effort to reprioritize your spending habits in order to be able to live comfortably on only one income. The danger with living paycheck to paycheck is that it leaves almost no room for emergencies and unexpected expenses in your monthly budget. If an emergency arises, or a minor problem leads to a larger unexpected bill, you may find yourself relying on credit cards. This can lead to acquiring debt you probably won’t be able to pay off quickly. So how do you handle emergency spending when you have little to no “wiggle” room each month? The first step is to sit down with a CERTIFIED FINANCIAL PLANNER™ (CFP®) and extensively map out your current budget, or monthly expense worksheet. The following list is an example of a list of monthly expenses that should be added, in addition to the housing expenses mentioned in the previous article, to your budget:
- Daily public transportation fees (metro, bus, paid parking etc.)
- Car expenses including but not limited to: car payment, insurance, maintenance (oil changes, minor repairs and replacements, inspection and emissions fees etc.), personal property taxes, gas, and commuting tolls.
- Daycare, after school care, holiday and summer break camps/care
- Groceries, take out, daily latte from Starbucks - list it all!!
Outstanding or Revolving Debt
- Credit cards
- Storage container fees (PODs etc)
- Student loans
- Yearly physicals, specialists, primary care visits, copays, recurring prescriptions etc.
- Dental procedures (beyond regular cleanings)
- Vision exams and eye care (contact lenses, glasses)
- Anything that comes out of pocket on an annual basis AFTER health insurance coverage.
Personal or Misc Items:
- Cell phone plans and hardware
- Entertainment (movies, outings, activities etc.)
- Clothing and personal hygiene needs
- School supplies
All spending (and we mean ALL spending) should be listed, categorized, and analyzed. If you don’t know where all of your money goes each month, you might want to consider using a spending app that accounts for all purchases and then itemizes them by product or service. We all know that a daily $4 Starbucks trip can add up to big spending by the end of the month. You may also have to reconsider trips to Target...
Once you have compiled a comprehensive list of your spending habits, a CFP® can help you begin to “trim the fat”. A CFP® can work with you to itemize and prioritize outstanding debt in order to make the most of your payment obligations and cash flow. Working closely with a financial planner can mean the difference between saving for future expenses and handling emergencies head on, or sinking under the weight of ever increasing credit card debt.
Future Expenses and Investments
It isn’t only the fear of the unexpected that should guide you to seek out the professional expertise of a financial planner. We all have a laundry list of expenses that crop up in regard to our children. You’ve probably laid awake on more than one night wondering how you will pay for expenses like college or trade schools for your teenager. Higher education costs grow exponentially every year. Or maybe your youngest has just lost another baby tooth and you’re about to start a year or two of orthodontic treatments. The average cost of braces can be in the thousands. These are the types of expenses we know are coming, but are still not always prepared for.
There are so many expenses that we don’t always factor in to our monthly budgets and savings plans. Seasonal sports fees, summer vacations, holiday trips to visit family out of state etc. We all want to be able to give our kids meaningful vacations and experiences, but in order to do so, we have to have a way to pay for it all. Whether it’s a summer trip to the beach, or the first semester’s tuition, you need to have a plan to pay for the many expected expenses that come with raising a family.
A knowledgable financial planner can help you analyze your current spending habits and use the analysis to navigate a path toward savings, and away from careless spending and debt accrual. One of the hardest things to do is to stop thinking in the moment and make saving a priority. We have a tendency to focus only on the “here and now”. Working with a financial planner is the first step in making tomorrow a priority.
The material was created for educational and informational purposes only and is not intended to provide specific recommendations, tax, or legal advice.