As our children go back to school, those going through a divorce have discovered that some things just are not taught in the K – 12. For instance, we were never taught the basics of personal finance in school. We had more years of high school and preparatory college math, which we may rarely need, than any financial literacy or education. Many of us have learned by trial and error.
During a divorce, we’re suddenly forced to confront our finances. Either our spouse took complete control of the finances during the marriage or we’re arguing with them over how the money is spent.
Financial decisions need to be made with the future in mind and when going through a divorce, it’s tough to think about the future. It’s best to get back to the following four financial basics to educate yourself.
Know Where You Stand
The best way to take back control and feel more confident about your financial situation is to know how it looks today. The typical legal process of divorce will ask for an inventory of every financial account as well. This includes bank accounts, credit cards, car loans, family loans, student loans, the house and any automobiles. A good place to obtain most of this information and get a big picture is with a copy of your credit report.
List Monthly Expenses
If you’re in transition or separating your finances, your monthly expenses are going to be fluid. Your goal is to get a clear look at your spending in a typical month. Remember, any annual expenses should be included at a monthly rate. As an example, your car registration is usually annual but if you break it down by month and set that aside, you’ll have the money ready when it’s due. Be honest about your spending and you’ll be in a better position to pay for things.
Compare Expenses to Income
Now add together all of your sources of income. If you’re unsure about child support, this exercise will also help you know what you’ll need. After comparing your expenses to your income, some decisions can be made. If expenses are higher than your income, you can assess which expenses can be reduced. You may also decide to take on another job to earn extra money until you pay down some things. It’s a good idea to compare expenses and income on a regular basis. This practice will make you more intentional in your spending habits.
After seeing your financial situation in a new light, you may choose to set goals for yourself. A good short-term goal, at the very beginning of a separation or divorce, might be to make sure you build up an emergency fund of three months of expenses, or to pay off attorney fees. A longer term goal may be saving for a much-needed vacation next year. Having these goals makes economizing easier emotionally and also helps to avoid emotional spending that could ruin your budget.
Build Your Personal Finance Muscle
Remember that your life isn’t over after a divorce and your future is very important. While there are useful takeaways from how you came to be in your present situation, this is not about beating yourself up for past decisions. Without training and education, most of us make mistakes. It’s time to move forward and commit to taking responsibility for your own finances.