Going through a divorce can have a devastating effect on your personal finances. While most people think of the main impact being legal fees in the lead up to a divorce, it’s the after effect of being single again that potentially has a greater impact. When you’re married, most of your financial decisions are based on two incomes. Things such as where you live and the type of house that you have, the school that you send your children to and where you travel on holidays. When you find yourself being single with one income, you have to sometimes make difficult decisions on how you’re going to move forward. Below are the top three issues many newly divorced people face and some tips on how to navigate them.
Direction impact
Not that long ago, you were committed to moving your life in a particular direction. You may have had a house that was being paid off, or you were renting and building up savings. After a divorce, your focus and direction will change dramatically. While it’s tempting to take a long holiday, keep in mind that you have diminished resources so just breathe and take a moment to consider your options. Where you do what to live? Do you want to own a home again or buy that first property? Do you want a fresh start in a different area? Don’t make big financial decisions until the heightened emotions have started to settle and you have a better idea of where you’re going. The cost of swapping and changing can erode your capital.
Cash flow impact
After a divorce the household budget can take a massive hit, especially if there are children involved. Living expenses are usually much less when you live together as a couple sharing the costs. Paying the mortgage or rent by yourself can become challenging and might be where you have to make some tough decisions. While it’s tempting to keep things as normal as possible, especially when you have children, poor financial decisions will lead to even greater financial pressure. Take the time to consider your options and make plans around what is practical and affordable for the future. If you do need to move, change schools or take other drastic action, the short term loss can be painful, but the long-term gains from being financially stable will soon start to provide a positive impact.
Retirement impact
While you’re busy looking after the now, it’s hard to think about the future. It’s a long way away, and making sure you’re safe and comfortable is always going to take priority. However, spare a minute for thinking about the future and a secure retirement. Can you afford to salary sacrifice a little? Could you put aside a little bit to start a share portfolio? If you have capital from a settlement but don’t want to go out and buy a house, maybe you could look at a rental property? There are many options around building wealth for the future that are available to you, but you’ll need to take the time to work out which ones are best for you.
Consistently ranked one of Sydney’s top financial planners (Adviser Ratings), Brenton helps his clients life a great life by making the most of their money. Read his full bio here.
