Recently Divorced? Widowed? Here’s How to Handle the Financial Impact.
It’s no secret — people benefit from paying attention to their finances and life can change in a matter of seconds. At CURO, we always say that life only makes sense backwards. Preparing for life to not make sense feels awkward and like you may jinx yourself… but it’s also the only way to know that you are prepared for the unknown and confident in the future.
When a couple is divorced, or a spouse passes away, life changes rapidly. These situations force a complete turnaround of how you manage and view your finances. If you are someone experiencing a divorce or are mourning the loss of your partner, read on to learn about the first three proactive steps you can take to ensure your financial security.
1: Assess Your Situation
Knowing which step to take first is crucial and can make or break your financial future. For that reason, your first move is not to move. You’re going to need to take inventory of your life. Start by asking and answering the following:
1. What sources of income do I have? How much income do I need to maintain the lifestyle that I want? Where can I make additional income?
a. Account for all income sources such as: take-home pay (including bonuses,) additional pay from freelance or second jobs, investment income such as interest and dividends, Social Security, pensions, or annuity income.
Divorce: Income between each partner remains the same as well as the assets they hold. However, these resources are now supporting two households instead of one following the split. Thus, the standard of living for both ex-spouses will change.
Call CURO First: We help to make sure you’re on the right path from the start. To better prepare yourself for the divorce process, contact us to receive a comprehensive budget worksheet & a complimentary consultation with Marianna before consulting with a divorce attorney.
Widow: If you are mourning the loss of your spouse and they were working prior to passing, there will be an income reduction that you will have to adjust to. However, the deceased spouse may have had life insurance or pensions from previous employers that could reduce the financial strain. You may even be entitled to Social Security benefits, depending on your age.
2. What expenses do I have? Am I overspending? Where can I reduce my expenses without drastically changing my lifestyle?
a. Fixed Expenses: Fixed expenses are likely to be predictable and constantly recurring after a set period of time. Examples of fixed expenses include a mortgage, rent, a car payment, and insurance premiums.
b. Variable Expenses: Variable expenses are ones that are less predictable and consistent. Some examples of variable expenses include groceries, utilities, and entertainment.
c. Periodic Expenses: Periodic expenses are costs that occasionally occur. Some examples include things like car or home repairs and travel.
Widow: If your spouse has passed, expect a reduction in your regular expenses, but steep funeral, burial, and other irregular costs. Keep in mind that Life Insurance can help to alleviate some of these large expenses.
3. What assets do I have of value? Is my home my only current investment? If I were to lose my income tomorrow, what can I eventually sell to provide for myself?
a. Create an itemized list of assets & estimated values, including:
Retirement Accounts
Stocks and Bonds
Cash or Cash Equivalents
Real Estate
Personal Property
Cash Value Life Insurance
Business Property
To determine the true value of each asset, you should consult with a financial advisor. Before meeting with your financial advisor, make sure to come prepared with all important documents related to such assets being discussed (ex: deeds, policies, and statements.)
Want to get ahead? Try and keep inventory of your income, expenses, and assets throughout the year to ensure data accuracy & safety. Scheduling a quarterly meeting between yourself and your spouse, or a time for you to review your inventory alone (or with your Financial Advisor) will save you time and energy when you need it most.
2: Build Your Budget
The BEST way to get ahead of a financial stressor like divorce or the loss of a spouse is having a personal budget. You’ll never know your options if you don’t know where you stand.
To create and develop your own personalized budget, you can start with a basic budget worksheet and add or change the template to fit your unique lifestyle. Build it out based on your own experiences (no one knows you better than you!)
If you’re a shopaholic, add a category for shopping expenses and give yourself a spending limit each week to learn more about your habits. Some clients will keep spending journals to monitor their spending on the go and to track their emotion-driven purchases to learn from and change their habits.
If you are looking for a budget worksheet, reach out to Samantha (samantham@curowm.com), our Financial Planning Analyst, for the CURO comprehensive budget worksheet.
3: Increase Emergency Savings
Create an emergency savings account to act as a buffer for unexpected expenses. Before we had access to so many incredible savings accounts, people referred to the hidden cookie-jar full of cash as their “rainy day fund”. Something to fall back on in the case of an emergency: Car breaks down? Cookie Jar. ER Visit? Cookie Jar. Ice Cream Man coming down the street? Cookie Jar.
It’s never too late to start building your emergency fund. While we all support the cookie jar method for small in-house savings, opening an emergency high-interest-earning savings account is your best course of action. This way, you can build these savings while also having your dollars work for you- a much safer and smarter alternative to taking on debt or compromising your assets.
How much should I have in my emergency fund? The recommended amount to save within your emergency fund is at least six-months of your fixed expenses.
Everyone’s situation will be different and having this savings available will definitely ease some of the pressure.
Plan Confidently with CURO
Overall, the most important take-away from this discussion is to prepare yourself for the unexpected and take inventory of your finances. Understanding where you are will help you to see where you can go, and the possibilities are endless. Consult with your Financial Advisor to ease the process by creating a statement of Net Worth and Financial Plan. Both of these documents act as your current inventory and plan for the future which can be adjusted as your life changes.
Whether you are going through a divorce, thinking about getting one, or have recently lost your significant other, there will always be someone here to help you financially and mentally prepare for the future ahead of you. Call CURO first, because we’re in this together every step of the way.