The word budget can feel restrictive, but really it is a roadmap for your income and expenses. After a divorce, creating a strong financial plan is one of the most important steps you can take. The first year or two will bring a lot of changes, and how you prepare will make all the difference.
Here are five tips to help you get started:
1. Start Early and Work with a Divorce Financial Professional
Don’t wait until the divorce is finalized to think about your budget. During the divorce negotiations, a divorce financial professional can help you create a cash flow plan. This is not just about paying bills; it can impact spousal support calculations and help you understand what your financial life will look like after the divorce. Getting started early gives you more control and clarity.
2. Keep Two Years of Living Expenses Liquid
Divorce is a major life transition, and it is important to have easily accessible cash on hand. Aim to keep at least two years of living expenses in liquid accounts, such as checking, savings, or money market accounts. This money is separate from retirement assets. You will likely face upfront costs like rental deposits, moving expenses, or setting up utilities. Having cash available ensures you don’t face penalties or delays in accessing your funds.
3. Avoid Big Purchases in the First Year
It is tempting to celebrate once the divorce is final but be cautious. Hold off on major expenses like buying a new car, taking an extravagant trip, or running up credit card debt. Instead, recognize the milestone in a smaller, more affordable way. Keeping your spending under control during the first year helps you adjust to your new financial reality.
4. Involve Your Children in the Process
Divorce affects the whole family, including your kids. Be open and honest with them about changes that may have an impact on their activities or lifestyle. If they’re old enough, encourage them to take on part-time work or small responsibilities. Not only does this help the family financially, but it also teaches them valuable life skills and gives them a sense of contribution during a difficult time.
5. Stay on Top of Your Payments
Late payments on a mortgage, credit card, or insurance policy can damage your credit score, sometimes significantly. Since about 35% of your credit score comes from payment history, even a single missed payment can have lasting effects. To protect yourself, set up auto pay for all essential bills. This will keep you current on loans, insurance premiums, and other obligations without added stress.
Budgeting before and after a divorce does not have to feel overwhelming. Think of it less as a restriction and more as a plan for your new life. By starting early, keeping cash accessible, controlling spending, involving your children, and protecting your credit, you will create a strong foundation for the future.
Frequently Asked Questions:
1. When should I start working on a cash flow plan during divorce?
The earlier, the better. Ideally, you should begin during the negotiation stage so your plan can guide decisions about spousal support, asset division, and post-divorce living expenses.
2. What if I don’t have two years of expenses saved?
That’s okay, few people do right away. The goal is to keep as much as you reasonably can in liquid savings. Even building up a few months’ worth of expenses will give you flexibility and reduce stress.
3. How do I know if I need a divorce financial professional?
If your divorce involves assets like retirement accounts, real estate, or spousal support, a divorce financial professional such as a CDFA®, will help you understand your options and avoid costly mistakes. Even in simpler cases, having guidance will make your post-divorce financial plan stronger.
