After a divorce, it can feel like a whirlwind. So, what are some of the first steps in finding financial stability?
The first step is to gain an understanding of your total cash flow. This involves gathering all of your different income sources, including earned income, passive income, child support, and spousal support. Then, you need to understand your actual monthly expenses. This can be a hard process, but you need to get real and look at the numbers in black and white. Some expenses occur on a monthly basis, while others occur on a quarterly or annual basis. It’s important to understand every bit of your financial picture, including what’s coming in and what’s going out.
After understanding your cash flow, it’s time to determine how you will handle unexpected life expenses. It’s important to carry health insurance, an individual disability insurance policy, an umbrella policy, and the maximum coverage on your home and auto insurance. Without adequate coverage, someone could face wage garnishment for damages from a lawsuit. You also need to consider unexpected expenses that may come up.
The next step is saving for your future. If you can manage your lifestyle expenses so that you can save between 15 and 20 percent of all of the income that you have coming in, eventually, you can have six to 12 months’ worth of living expenses set aside. This needs to be a nest egg set aside in an account that you can easily access and that you’re not going to have to pay taxes or penalties on. It’s liquidity so that you can handle whatever life is going to throw at you.
It’s also important to carry out a cleanup process after your divorce. Make sure that your will, trusts, and power of attorney are updated and that all taxes are good. You may also want to consider working with a financial planner, a CPA, and an estate attorney.
Finally, it’s time to start dreaming about your future. Establishing your own financial well-being is essential to your children’s financial well-being. It’s important to prioritize and plan your own retirement before funding your kids’ college tuition.
