Many things change with the end of a marriage and one thing’s for sure: you have to get to grips with your finances.
Credit card bills, household expenses, bank charges, kid expenses, mortgage refinancing, retirement asset transfers … divorce often means having to deal with all of these all at once. It can feel like a deluge and if you haven’t been managing the household finances, it can be overwhelming.
Add to that the emotions we all attach to money and it’s no wonder we procrastinate and delay and end up feeling incompetent and inadequate.
But … living on a fixed income with no one else to share the financial responsibilities means we do have to get to grips with the finances after divorce.
So where do you start?
Is there a way to make this less painful?
How do you prioritize the competing goals?
My guest for this Conversation has been divorced, knows what all this feels like and has some great solutions. Shannon McLay is CEO of The Financial Gym. She believes the key to financial success for most people is human contact and not a website or an app. More than that, she believes that given the right guidance we can all be financially fit. Listen in below or keep reading …
Fear And Shame
Probably between 25 – 50 percent of the people I work with have never had to manage their finances and are intimidated by the prospect. In many situations, disagreements over money was a key factor in the divorce. I asked McLay, how did our society get to this place where as adults we don’t know how to do this.
McLay agreed this is a common problem and it’s rooted in two words.
“Two words we hear at The Gym all the time are fear and shame around money, like ‘I’m afraid I will never pay off my student debt or pay off my credit cards,’ or ‘I’m ashamed I make this money and I have nothing saved,'” said McLay. “Those are really highly charged emotions.”
The impact of fear and shame is fundamental because money is not something we can avoid. McLay says it’s part of our DNA.
We’re Not Financially Educated
The reality is that without a good education at home, there is no good reason why any of us should be good with our money. Many of us learn what not to do from our parents but that doesn’t tell us what we should be doing. And then we don’t learn this at school – even now, children are graduating without taking financial literacy classes. On top of this, there’s billions of dollars spent every year in marketing and advertisements, with quick and easy payment options.
McLay believes we are in a financial crisis in the U.S. and it is no wonder. She also believes that we learning how to manage our money should be mandatory in school. It’s far more useful to most of us than learning physics or the circumference of a circle.
The Problem With Financial Planning
Knowing your current financial picture, setting goals and managing your money to achieve those goals is all financial planning. But there’s a problem. To access the professional advisers in the financial planning industry you typically need sizable savings. McLay was formerly with Merrill Lynch and if you wanted to work with her there, you’d need to have at least $250,000 in assets. So it’s a catch-22: you can’t get the help you need without assets but you can’t get the assets without the help.
“We spend more time planning vacations than we do our retirement,” said McLay. “Most of us wouldn’t go on a road trip without a plan in place and yet we drive around all the time without a financial plan making all these decisions that impact our money and not having any guidance.”
It was this hole in the financial planning industry that led McLay to create her company, The Financial Gym, where people can sign up to work with a financial trainer for a simple, low monthly fee.
Budgets Are Like Diets Or Working Out
There are a lot similarities between managing your money and managing your health or fitness. There are lots of diets and fitness plans and not all of them work for you. You have to find the one that suits you and when you do, it doesn’t feel constrictive.
“Most of us don’t live in a spreadsheet life that fits easily into a box,” said McLay. “There are emotions but you can budget around those emotions actually. Whenever they flare up you have a plan.”
One Size Doesn’t Fit All
It’s not that there aren’t enough financial planning resources available but rather that there’s too many … books, websites, apps, programs. They tout goals such as maxing out your 401(k) contribution or paying down your student loan debt and those are undeniably smart goals but too often they are geared to a perfect scenario. They forget that we all have baggage and we have to work through those other challenges first before we can get to those standard goals. And those standard goals may not be what we really want.
Set Your Own Goals
McLay believes that the first step in any financial plan is to set your own goals but this is a big challenge for many of us. It’s almost as if we’ve been so conditioned to think about the traditional financial planning goals that even knowing that those don’t fit our situation, we don’t know or can’t imagine what else we might want.
Divorce also throws a wrench into life plans. For example, you may have had a vision for what retirement looked like when you were married but now you’re divorced, you really have no idea what the future holds.
“We encourage our clients to dream big,” said McLay. “In a perfect world what would be your ideal goal? Do you want to own a home? Do you want to have $10,000? Do you want to pay off your credit cards? Do you want to pay off the student loan debt?”
McLay says to write down the goals and then break them into small steps. The goals themselves can seem insurmountable but having a plan changes that. It’s like training for a marathon.
“If you decide you want to run a marathon, you’re not going to run a marathon tomorrow,” said McLay. “It takes months of active work to actually get to the point where you’re ready and you never run the full marathon until the actual marathon. It’s the same with money.”
Learn Why You Spend Your Money
Losing weight has as much to do with recognizing and understanding why you’re eating as it does with what your eating. Similarly, managing your money successfully means learning your emotional triggers and calming them.
McLay describes working with a 51-year-old lady who was living in her parents’ home – not where she imagined she would be living. She had some savings for a house and she did want to buy her own home but she didn’t have a handle on how much she was spending each month. After tracking her expenses for three months, it was clear that she was spending a lot on shopping each month and McLay asked her how important that was.
Her client explained that the shopping really wasn’t that important but that she gets depressed about living at home so she goes out to Starbucks and then to T.J. Maxx or Target.
Talking through how to make the shopping trips financially healthier, McLay’s client agreed to limit the spending to $50 per trip, to only buy food at Target and also to force herself to try on clothes in the store before she bought them because she realized that never returned the items she did’t like.
By their third quarter session, McLay’s client told her that she had realized that more than owning a home, what she loved was to travel and go to live concerts. “She had just had a big trip to Nashville and she saw Tom Petty before he died,” said McLay. “She was spending money on what she valued instead of wasting on emotional stuff.”
The Divorce Coach Says
Truthfully, I don’t think there is any part of getting divorced that is fun or easy but getting to grips with your finances is absolutely empowering.
I had a client who, during her divorce process had been declined for a credit card. She believed it was because of financial difficulties she and her husband had had. She told me it was because she had an awful credit rating. She was pretty despondent about her finances and having to live pay check to pay check every month.
I asked her if she knew her actual credit score – she didn’t and she said there was no point in looking. She didn’t want to know. Eventually, I persuaded her to find out her actual score. We did it together. She was pleasantly surprised to discover that it wasn’t actually awful. She was visibly relieved and she was glad she now knew because it made her finances seem more manageable.
I’m sharing this because I want you not to be defeated because you’ve not managed your money before or that haven’t done it very well or because you’re finances are limited. The basics are not difficult. The hardest part, I think is not letting your emotions get in your way. You can absolutely do this especially if you have a trainer like The Financial Gym by your side.