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Financially starting over after a divorce when you have no money may be the scariest thing you’ve ever faced. But it doesn’t have to be. Your life isn’t over. In many ways, this is your chance for a new beginning.
If this is the position you now find yourself in, the first thing I want you to do is take a few deep breaths in and out. Did you? Good.
It’s normal to feel sad, angry, worried, scared and a whole variety of emotions in this situation. But I am going to walk you through a series of steps you can take to navigate these difficult financial waters and get you through it.
In this guide, we’ll take a look at where you can go from here. Starting over financially after divorce will take a lot of work. But I promise you, once you get to the other side of this, it could be the best thing you’ve ever done. You may have no money now, but I will help you to create a plan for a bright financial future as a newly-divorced person.
Everyone’s divorce situation is different. Your decision to leave – your home, your husband, much of your stuff – may be very last minute. When that’s the case, you may not have time to make a divorce plan, and that’s okay.
But if you are able to put off leaving for a little bit, I encourage you to take a little time to make a plan. Some of the elements you want to put into this plan include:
Answering these questions — not just in your head, but by actually writing them down — will help you a lot when it comes time to actually leave. You’ll have at least tentative answers to your biggest and most immediate questions.
This divorce plan, however, only scratches the surface when it comes to your finances. It deals with how you will immediately meet your needs when it comes to shelter, food, clothing, etc. But once your immediate short-term needs are met, it is time for you to consider the larger financial picture: where you are and where you are going.
The first thing you need to worry about when you leave your marriage is getting a new roof over your head. If you have no money, this can be a challenge. And some people don’t want to consider the most obvious option here: temporarily moving back in with family or one of your closest friends.
Using your support system to meet your biggest needs – shelter, food, money, etc. – is not a sign of weakness or failure. Leaving a marriage that is no longer working for you is instead a sign of tremendous strength. So is asking people for help when you need it.
There is no shame in moving back in with either your given or chosen family. People do it all the time, for much smaller reasons than getting a divorce. This is the most important time for you to actually lean on your support network.
If that also means they are temporarily helping you with things like food, childcare, or money itself, that is also okay. When you are divorced and have no money to your name, this is what you need to do in order to start getting back on your feet.
And eventually, you will get back on your feet. But now is not a time for pride or ego. Take the help available to you from the people who love you and use that support network to give you a major boost. Then, when you can, you can start looking at how to start earning and saving your own money.
When you exit a marriage, you may still be working. If this is the case for you, keep going. It actually may help you emotionally to have something to focus on besides your divorce. And earning money always feels good.
If you do not currently have a job, when you are ready to start looking, get together the important things you will need. For example, you will need a resume that describes your educational and vocational history, previous work experience, and job-related skills and credentials you may have.
If you have never worked or it’s been a long since you have worked, that is okay too! You will likely be able to find entry-level jobs in the service industry, for example, or in retail. Don’t feel like this work is beneath you – all work is dignified work! Earning a paycheck, no matter how, helps show what a strong, competent, independent person you are. No job is too small or too beneath anyone. Check your ego at the door.
Once you start working, you will have to budget your money very carefully. One helpful tool is bucketing your expenses into three categories: needs, wants, and savings. At this point in life, you have to cover your needs and then increase your savings as much as possible. That doesn’t mean never spending a dollar on something you want. But it does mean being conservative, judicious, and frugal in that category as much as possible.
Once you start saving some money, you will need someplace to put it. And no, I do not recommend under your mattress. So let’s look at some options when it comes to where you should store your savings.
There are two main kinds of bank accounts you need to be aware of when you start putting your financial life back together after your divorce: checking accounts and saving accounts. Checking accounts will be for your immediate needs. Savings accounts can help you build savings for your future and to meet bigger financial goals beyond your most immediate needs.
This point is crucial. You need your own checking account, not a joint account with your ex-spouse or an account in their name that you have access to. You must have complete ownership over this account. This goes for all of your financial accounts, during and after divorce, as much as possible.
When you get paid, deposit this money in your checking account. You can either do so with a physical check or through a direct deposit system at your job. Either way, get those funds into your bank account. You can access them at any time by going to an ATM machine, or you can visit a physical bank branch when it is open. You can also purchase items with this money either by using your debit card, writing a check, or withdrawing cash funds.
This money is what you will use to meet your immediate needs — rent, food, clothing, childcare, etc. — and any “wants” that you decide to purchase. These could include things like a meal at a restaurant, a nice shirt, or beautiful flowers for your new apartment.
Once you are able to meet your basic needs, it is time to start saving money. While you can save money in your checking account, you may be more tempted to spend money that isn’t somehow physically separated into a distinct savings account. So now let’s look at savings accounts.
A savings account is where you can start to accrue money to reach larger financial goals or for financial emergencies. This can be anything from a security deposit on an apartment, a used car down payment, educational courses, etc.
An emergency fund is a pool of money you essentially save for a rainy day. This rainy day can be anything from losing your job, to a medical emergency, to an expensive car repair. While you do not know exactly what emergencies may come up in the future, most people do have financial emergencies of some sort or other that they need to pay for.
How much money do you need in your emergency fund? It varies based on things like:
Most experts recommend at the very least having three to six months worth of expenses in your emergency fund. So, if you spend $3,000 per month, you should save at least $9,000 to $18,000 in your emergency fund. If you spend $4,000 per month, you should save $12,000 to $24,000, and so forth.
But some experts also recommend having significantly more than three months’ worth of savings. Six months to one year worth of expenses may be more appropriate for you depending on this situation. But obviously, this will take more time for you to save up. While some experts may even recommend 18 months to 2 years worth of savings in an emergency, this may be too conservative for many people.
You should look for a savings account that has very low or no fees attached to it, and that may also yield a reasonable amount of interest. Given the current inflationary environment, you may be able to find some high-yield savings accounts offering up to 2 or even 3% on your savings. But, even if it’s only 1% or less, it’s still better than not saving money at all.
Another important aspect of your financial life during or after divorce is insurance. There are different forms of insurance you will need when you start getting financially back on your feet. The most important of these include homeowners insurance or rental insurance for rental apartments, auto insurance for your car, and life insurance if you are supporting anyone like a child.
Homeowner’s or rental insurance covers you for damage to your house or apartment and your stuff in case of some kind of emergency or disaster. This may include things like a fire, a leak, or theft.
If you have a new or used car, you are also legally required to have auto insurance for your vehicle. Shop around and try to find the best deal on auto insurance that you can while making sure you have enough coverage to protect you in an accident or other circumstances that may come up.
Life insurance is crucial if someone besides you depends upon your income — like your child. God forbid something happens to you, you want your dependents to keep being able to collect money to support their lives, which is why life insurance is so important.
Finally, health insurance can often be the costliest insurance in the market. If you are a full-time employee for an employer that offers health benefits — all larger employers are required to — this is usually the best and least expensive way to get health insurance. Otherwise, you may need to look for an affordable or emergency-only plan on the government health insurance exchanges.
Once you get your legs back under you a little bit, you are earning money, paying your immediate expenses, and have even saved up a small emergency fund, it is next time to consider paying down your high-interest debts and then investing for your future.
High-interest debts, such as:
These debts can really eat into your financial health and ability to save money for your future. It is possible that either during your marriage or even during your divorce you racked up quite a bit of credit card debt. Don’t panic, but now that you have funded some emergency savings, it is time to start paying this high-interest debt down.
There are various methods to pay down debts, such as the snowball method. For example, this method encourages you to pay down your smallest debts first, and then work to pay off the larger balances. Or, you could start with your highest-interest loan payments and then work on your lower interest rates – the “avalanche method”. But make sure you are paying off significantly more than your minimum payments each month or you are going to run into a lot of trouble paying your debts off.
After dealing with your high-interest debt, it is time for you to seriously start considering saving money for your future, especially for retirement. For this, you will need an investment account, such as an employer 401k, an individual IRA, or some other retirement-specific account like a 403b for educational workers.
The time to start investing is as soon as possible — as soon as you are meeting your immediate expenses, have an emergency fund, and have paid off your high-yielding debts. If your employer offers a 401k matching program, take this immediately and fund your 401k up to the available match. The longer your money is invested in the stock market, the more you will earn over time. This is really how you can power up your financial life after a divorce and go from having no money to living a life of financial independence and freedom.`
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