Divorce ain’t cheap. Legal bills, reduced income, possibly dividing up assets with the ex. All month Worthy’s blog has been talking about how to recover from a divorce’s financial impact. When you’re making a budget, planning out how to pay down debt and possibly afford your kid’s college education, how do you find a place?
Think strategically about the long term.
As tempting as it may be to start making headway on the legal bill – for psychological reasons alone – remove your emotions from the process and take a step back. Who’s charging you the highest interest rate? Your credit card or your lawyer? The interest rate is what you’re paying every month to borrow the money and if your Amex charges you 22% and your lawyer only 5%…pay the Amex first. Don’t get me wrong, pay everyone, and don’t skip payments, but send any extra money above the minimum owed to the debt with the highest interest rate.
When you’re making a budget, planning out how to pay down debt and possibly afford your kid’s college education, how do you find a place?
Talk to the people you owe money. It can feel scary, embarrassing or intimidating, but I’ve yet to encounter a company that wasn’t willing to work with me when trying to pay off a bill. If you’ve been a great customer for ten years Amex might lower your interest rate. Your lawyer’s office can likely set up a payment plan, trust me, they’ve done it before. And then don’t ever miss a payment. Put a reminder on your calendar. Set up auto-pay.
If you do miss a payment, or make a late payment, call immediately and address the situation. In the midst of my crazy divorce I missed a payment for a credit card I don’t use often. It was only one day late but I called and explained the situation, asked for mercy and got it. They waived the late fee, took my payment by phone and didn’t raise my interest rates.
Seeing that $200 come out of your paycheck when you owe so much money elsewhere, it could be tempting to temporarily stop contributing. Don’t. First, those dollars are pre-tax dollars. So if you stop your contributions you’re not getting that full $200 back into your paycheck. Depending on your tax rate it could only be $150 to much, much less. Secondly, your employer likely matches contributions. That’s free money. If you feel like you must reduce your contributions always contribute up to their match, whether it’s 3% or 4%. Would you walk by five hundred dollars lying on the sidewalk? Nope. But that’s what you’re doing, essentially, when not taking advantage of an employer 401K match. This is one area where you shouldn’t sacrifice the long term for the short term gains.
Speaking of short term…
All of the above will eventually set you up for long-term success. But it’s no fun to deny yourself the simple pleasures in life, or live without joy or color. More importantly, financial discipline is like a diet. When you make stuff ‘forbidden’ and live a life that’s too restrictive eventually you’re going to fall off the wagon and binge – whether it’s chocolate cake or a new purse.
If you make two grand a month and budget one thousand, nine hundred and fifty you’re going to feel stressed and pinched.
Leave yourself some wiggle room – When setting up your budget, leave room for fun. There’s a theater near me that gets movies after they’ve left the big chains, tickets are only $4 and since I don’t have to see stuff right away once a month I treat myself to popcorn and the movies. I also love getting beauty boxes in the mail, for $15/month I can experiment with new products and feel like I’ve treated myself. If you make two grand a month and budget one thousand, nine hundred and fifty you’re going to feel stressed and pinched. You’ll probably come to resent that feeling and, in that resentment, may not make the best financial decisions. Don’t set yourself up to fail, in other words.
Three to six months’ living expenses is what most financial advisors recommend. Remember, you’re a one-income household now. As tempting as it may be to throw all your extra cash at those bills you’ll sleep better at night knowing that you could cover an unexpected car repair. Whether it’s starting a side business or selling stuff online or on craigslist, tuck away a little cash before you start putting your extra towards bigger bills.
In the short term, it’s important for you to get back on your feet emotionally, not just financially.
Did you have any hobbies that you loved pre-marriage that fell by the wayside while married? For me, it was skiing. Maybe it was watercolor painting, or knitting, or biking. Put a line item in your budget for something that will help you recover and get back to you. A painting class, or a new helmet, or a knitting retreat to brush up on your skills. If your marriage has ended you’ve been through a lot. Even in the most amicable of situations, there is grief and loss. In the short term, it’s important for you to get back on your feet emotionally, not just financially. Evaluate your emotional and healing needs and if you have to make the minimum payments on everything for a few months, or a month here and there, do it. View it as an investment in you rather than in a savings account.
Money is, by its very nature, a finite resource. You can’t do everything, and you’ll probably have to pick and choose from the list above based upon your unique circumstances. But with a little thought you will be able to find a balance.
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