Working as a Financial Planner and a Certified Divorce Coach® I’ve seen many people struggle getting their arms around finances. The theme is consistent, whether I am in Stowe, VT, Frederick, MD, or some other city. Some struggle with making proper adjustments, and forming proper habits. Others struggle with the realties around managing money, which was once their ex-spouse’s role. Here are a few important things to keep in mind when contemplating divorce financial planning.
Divorce transitions are temporary. Yet, it can be tempting to make permanent financial decisions, which can prove difficult and unclear when our emotions are high. Divorcees tend to rush to buy/sell a home, hastily sign legal documents, or agree legally to take on expenses. Many get stuck in a pattern of absolute thinking – using words like “I always” or “I’ll never." These are ego-dominated phrases based in fear.
There is a paradox in life that suggests “it’s important to slow down, in order to speed up.” It is okay to pause in life. It is okay to not max a retirement account for a period of time. It’s okay to rent a home. It’s okay to take time to heal yourself. It’s okay to spend time watching the way you are tempted to spend money. It's okay to seek help for divorce financial planning.
We are taught by society to think of our financial life in linear depictions whereby we gauge success based on the size of accounts at a certain juncture of our life. “I’m 50 years old and I lost half of my retirement.” This is true, but the emotional uncertainty following is not painting a true depiction. Know the life transition will pass, and it is very possible new opportunities will surface. Real success and growth are around your ability to move on as your best self. To get there, patience is important and a realization that this is a “for now”, and not a “forever."
The financial industry is great at creating solutions around milestones, such as college or retirement. It’s their job to match a product solution to a need. These programs serve their purpose, but they should not box us in, or hamper the ability to rebound.
In reality, there is only one financial plan while you are living, and that is a cash flow plan. This continues to be true when divorce financial planning. We need cash flow to pay for college. We need cash flow to live in our elder years. We need cash flow to live today. Cash flow equates to flexibility. Personally, I would trade a tax deferral, or a future time requirement, for the flexibility to handle struggle today. Yet, so many divorcees sacrifice cash flow for the size of the account.
Now that you are, or soon will be single, there is a greater burden of responsibility. The key is to build a balanced financial strategy that places you in a position of strength to handle life events as they occur. We will all get hit with a life event. What varies is the magnitude of the event. Focus on getting your arms around your monthly cash flow. We cannot tell our money where to go until we understand where it went.
(By the way, this advice is the same for married couples, singles, college graduates, whoever. It’s the one realization I wish I could instill with everyone.)
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