Did you know that female senior citizens are 80 percent more likely to live in poverty than males? I found that sobering statistic and others about women, retirement, and money in this March 3, 2017, New York Times article. As a divorced (or divorcing) woman, wouldn’t you appreciate a road map so you don’t spend your “golden years” being broke?
My clients freak out at the thought that one day they might have to rely on their children or other family members for money. To avoid that, they want to know what they should be doing, what are the most important financial steps after divorce.
I’ll cut right to the chase: the most important practice is to create a plan for how not to run out of money. This practice involves three critical steps.
Step #1: Secure What’s Yours and Protect What You Have
After your divorce is final, the last thing you feel like doing is more financial tasks, I know. But now that you are independent, there are important steps you must complete. Failure to do so could cost you a lot of money.
Case in point: I was managing a brokerage account for a divorced client who was waiting on her ex-husband to complete paperwork in order to transfer half of his retirement assets to her. Because it wasn’t his priority to meet his ex-wife at the Fidelity office to sign papers, it took over a year for those assets to transfer to her ownership. I calculated that the delay cost her over $12,000. Why? Because her ex-husband had his retirement plan sitting in a conservative portfolio that wasn’t growing much due to the large bond exposure. Had that money been invested in the same manner that I had managed her brokerage account, her individual retirement account (IRA) would have been worth $12,000 more!
Elsewhere, it’s important that you protect what you have by updating the beneficiaries on your accounts. If you were to die, you’d probably prefer your money go directly to your kids or siblings instead of your ex-husband, right?
You don’t necessarily need an attorney to help you with most post-divorce steps. You may want to consult with a certified divorce financial analyst (CDFA) or follow a post-divorce checklist like the one I provide my clients and financial students. (More on that soon.)
Step #2: Pay Your Bills and Pay Yourself
The mortgage, property tax, utilities, Internet, cell phone …those darn, pesky bills! If we don’t have enough money each month to pay our bills in full, sometimes interest accrues on our credit cards. I teach women how to reverse that situation. Instead of paying income to the credit card companies, consider how you might pay income to yourself! That may sound strange, but each month you should have an expense line in your budget in which you are paying yourself, typically in the form of contributions to a tax-deferred retirement plan. You want that money to be invested so it builds up over time to replace your child support or alimony (assuming you receive one or both) or your employment income when you are too old to work.
Tip: Many women don’t know this but spousal support is considered “qualifying income” so even if you don’t work outside the home or you work part-time, you can still make contributions to an individual retirement account (IRA) and in many cases reduce your tax bill.
Is a budget really important? The short and long answer is YES. If you don’t know how much you spend, you don’t know how much it costs you to live now or in the future. And thus, you have no idea if you will or will not run out of money later on.
If you have never created a budget, don’t despair. You can search the web for various templates that you could use. I will also tell you about another resource in a moment.
Step #3: Invest Your Money Now to Create Financial Abundance Later
Once you start building a nest egg for your future, you need to invest the money so it at least keeps up with inflation. We don’t like to think about it, but it will cost a heck of a lot more money to pay for necessities and luxuries in the future than it does today. That’s because the cost of goods and services rise over time. It’s called inflation.
You need to spend years building a nest egg that is large enough so you can withdraw money each month to pay your bills. Think social security will cover you? Please keep reading.
Many divorced women I encounter are overwhelmed by the choices they have when it comes to investing. There are robo-advisors on the Internet, people trying to sell you insurance as an investment, and financial advisors on every corner. If you don’t have a solid foundation of financial literacy, how are you going to evaluate which financial or investment advisor is right for you?
If all of this sounds complicated to you, it’s okay. It did for many, now high functioning, financially savvy women I know, too. What they did to turn their lives around was to frame this new chapter in their lives as a start over. And then they got educated.
You can do this too in a number of ways. You could buy a book. You could have a smart, patient friend teach you – if you are comfortable with that. You could also hire a professional to help you take responsibility for your financial empowerment. Or you can take my online course, for less cost than it is to visit a lawyer for an hour.
Based on what I know women need in their divorce recovery to become financially literate and to move forward to plan and protect their lives, I teach you the language of investing and the right actions involved.
Through more than 2 dozen educational modules (often done in easy to absorb videos), my course, How Not to Run Out of Money: Recently-Divorced Woman’s Guide to Financial Independence, is designed to show you how to do everything I’ve mentioned above, step by step:
- Secure What’s Yours and Protect What You Have
- Pay Your Bills and Pay Yourself
- How to Invest Your Money Now for Abundance later
In this course, you will learn how to create a budget (using a template I developed for women and considerate of women’s expenses and needs) and how to use it; you’ll learn if you can rely on social security in the future (I have a module helping you understand social security and what you must know). All this so that by the end of the course, you’ll know if you need to increase your income (and by how much) or cut your expenses. Or, if you are fortunate, you’ll conclude that your divorce settlement is large enough to cover your expenses throughout your lifetime.
Knowledge is power, isn’t it? Let’s put your growing knowledge and past experience to use protecting you and your future
Laurie Itkin is a financial advisor, certified divorce financial analyst (CDFA) and the Amazon bestselling author of “Every Woman Should Know Her Options.” In her comprehensive online course she provides affordable education for divorcing and divorced women. You can write Laurie or learn more about her by visiting TheOptionsLady.com.
Full disclosure: SAS for Women feels so strongly about this course, having tried it out and learned through it, that we officially endorse it and wish you to know that SAS receives a nominal fee if you purchase the class, too.