Divorce Financial Planning

Part 2: Take Inventory and Understand the Real Cost of Living

Written by Stowe, Vermont Financial Planner Steve Schleupner, ChFC®, Certified Divorce Coach®

Take Inventory

Legal separation documents guide couples through taking inventory of monthly expenses, account types and balances, and property values and debts. As much as the process is helpful, it is also fearful, if not down-right scary. It’s hard enough to run one household on two incomes, let alone running two households at the same income. Many divorcing couples get hit with the awakening “a-ha moment." This is the time to bring all your resources to the forefront and seek out divorce financial planning.

The reality is you are going to have monthly cash outlays and inflows. Many divorcees will have some value in an account – whether it be a retirement account, bank account, life insurance policy, or a home. Don’t let this be the end to your inventory process. Divorce financial planning requires a holistic view.

Take time to assess your strengths and weaknesses, and your overall “money knowledge." Make a list. Are you good at budgeting? Do you struggle to save? Do you understand your employer’s benefits? Do understand how Social Security works? If you need help seeing the entire picture, meet with an objective divorce financial planner.

As you review your weaknesses and knowledge gaps, try to identify people or other resources who can help. Maybe you know someone who is great at budgeting? Maybe there is another divorced person who can help? Maybe you can seek the help of a coach, or an expert?

If you find that you are feeling overwhelmed, don’t put things off. Instead, set a fair expectation for yourself. Set a simple goal to check off one or two things on your list each month, and then gradually eat away at the list.

Understand the Real Cost of Living

In 1991, I landed a job out of college making $15,500 per year. I said to myself, as soon as I make $30,000 per year, I’ll be set. A few years later I was making $30,000 per year. Then I said, as soon as I make $60,000 per year, I’ll be set. The logic continued. The reason I never felt “set” is because I drastically underestimated the “real cost of living.”

We assume the cost of living is inflation, or how much an item goes up in price over time. We look for our employers to give us inflation adjusted raises, and, if we receive the raise, we feel more comfortable we are not sliding behind. The issue, however, is the raises do not keep pace with the real rising cost of living. The real cost of living is not just inflation.

For example, when we buy cell-phones, computers, automobiles, and virtually all other products, they have designs that are planned to fail, which is called planned obsolescence. Even though we might be able to replace the item at a lower price, we can end up replacing it more often. This is a cost of living that is not inflation.

Sticking with the technology theme. When we acquire data plans, virus software, high definition, and other technical features, they create a new lifestyle expense, but that is not inflation. The cost to own products these days continues to rise.

When the state government decides to raise sales tax, or other taxes, that is not inflation, but it is a rising cost of living. When, medical benefits increase much more than the inflation-adjusted pay raise, that is a cost of living.

You get the point. It is vital to understand what you are bringing into your new life, and assess it to see what the true cost of ownership will be. Otherwise, you might find yourself striving to be “set." Consulting a professional when divorce financial planning can help you bring light to the whole picture.

Additional Divorce Financial Planning Tips

Divorce Financial Planning - Part 1: Transition and Cash-Flow
Divorce Financial Planning - Part 3: Liability, Legal Documents, and Beneficiaries

Written by Stowe, Vermont Financial Planner Steve Schleupner, ChFC®, Certified Divorce Coach®

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