The Divorce Money Reset:

Essential Financial Strategies for Your New Beginning

From a financial perspective, divorce is a process that splits one household into two. 

Setting up your own home after a divorce often requires multiple lifestyle changes. You may need to sell your house and move; perhaps you received the house in your settlement, and now you must pay the mortgage yourself, or you could be responsible for alimony and child support. 

Whatever your circumstances, now that you’re single, it’s time to create a budget that reflects your new life. Here are eight tips:1.0

1. Concentrate on basic expenses
First, list your most essential needs, any expenses dictated by your divorce settlement, and their monthly cost. Be sure to include your mortgage or rent, food, utilities, transportation, insurance, child support, and alimony. Tally these costs, and you have the minimum amount of money you need each month.

For variable expenses like utilities or groceries, look at the past three to six months of spending and calculate an average to get a more accurate picture. Remember that some expenses, like heating and air conditioning, fluctuate seasonally.

Consider using digital tools to simplify this process. While I can’t recommend a specific app, NerdWallet has some quality suggestions that will help you categorize your spending and identify your essential expenses with minimal effort. Many of these tools also offer budget templates specifically designed for major life transitions.

2.  Figure out how much money is left 
Once you know how much you spend each month on basic needs, look at your paycheck to determine how much money is taken out for taxes, social security, and other payroll deductions. 

Subtract this amount from your yearly salary and divide it by 12; this is your monthly take-home pay. Now subtract your necessary expenses from your monthly take-home pay, and you’ll have the amount of money available to you each month. 

Hopefully, you have a comfortable margin, so you’ll be able to save, invest for the future, and enjoy some non-essentials. But, if there isn’t a lot left over, there are steps you can take.

3.  Track all expenses
Before creating a budget, you must know exactly where your money is going. Keep a notepad with you for at least two weeks, preferably a month, or use the Notes app on your phone to record every purchase you make. This may seem tedious, but you could discover that you’re spending more than you realize on incidentals. If you’re grabbing coffee every day on the way to work or eating lunch out often, you’d be surprised how quickly it adds up!

Pay special attention to categories where spending tends to be unconscious, such as subscriptions you rarely use, convenience services, and recurring charges that may have slipped your mind. 

Review your bank and credit card statements line by line to catch any automatic payments you might have forgotten about. Many people are surprised to discover they are paying for multiple streaming services or apps they no longer use.

Create specific categories for your tracking that match your lifestyle. Beyond the obvious categories like groceries and utilities, you might want to track “kid’s activities,” “self-care,” or “professional development” separately to get a clearer picture of where your money goes.

4.  Reduce or eliminate non-essential expenses
Once you know where you’re spending every cent, you can determine where to cut back. 

Look at how much you spent on extras like eating out, clothes that aren’t necessities, and cable/streaming services. If you spend $200 a month on clothing, could you cut back to $100? Could you cut one of your streaming services or get rid of cable? 

Small cuts will add up to real savings throughout the year.

5.  Manage your credit score
One often overlooked aspect of divorce is its impact on your credit score. When you were married, you likely had joint accounts, shared credit cards, and loans in both names. Now that you’re single, it’s crucial to establish and maintain good credit on your own. 

First, obtain a copy of your credit report from all three major credit bureaus, Experian, TransUnion, and Equifax (annualcreditreport.com).You’re entitled to one free report from each bureau weekly. Review these reports carefully and dispute any errors you find.

Next, close joint accounts when possible or remove your ex-spouse as an authorized user on your credit cards. For joint loans that can’t be separated, such as a mortgage that hasn’t been refinanced yet, stay vigilant about payments even if your ex is responsible for them. Late payments will affect both of your credit scores.

Opening new credit solely in your name is an important step in building your independent credit history. Consider starting with a secured credit card, if needed, and remember to keep your credit utilization under 30% of your available credit.

Lastly, pay all bills on time. Payment history makes up 35% of your FICO score, making it the single most important factor in your credit rating. Setting up automatic payments can help ensure you never miss a due date during this transitional time.

6.  Bring in extra money 
There’s never been a better time to start a side hustle because the opportunities are plentiful. 

You could start a small pet-sitting service, deliver groceries or food from restaurants, teach English online, or find a part-time gig (if they agree to work around your full-time job). Consider doing freelance jobs after work if you have a career that allows it. 

You could also take an honest look around your home and begin selling things you’re not using. You could have a big garage sale or sell through Craigslist or Facebook Marketplace. 

One last thing to consider is downsizing your housing. Now that you’re single, you may have extra rooms, and switching to a smaller place could put serious money in your budget each month. 

7.  Create a budget 
Now that you know how much money you bring home, how you’ve been spending your money, and how you can bring in extra cash if needed, it’s time to create a written budget. You’ll be a way into this process because of the steps you’ve already taken, but if you need a guide, a helpful budgeting strategy is the 50/30/20 rule:

✔️ 50% of your income is for your basic needs
✔️ 30% of your income for extra wants
✔️ 20% of your income for savings and paying off debts

If the 50/30/20 rule doesn’t work for your situation, consider a zero-based budget where every dollar of income is assigned a specific purpose. This method can be particularly helpful during major life transitions because it forces you to be intentional about every expense.

Plan to revisit your budget at least quarterly but also set specific triggers for budget reviews, including major life changes, new employment, or seasonal expenses like back-to-school shopping or holiday spending. 

Each review is an opportunity to adjust your allocations as your needs change, and you pay off debt. Remember to keep your budget visible so you follow it. Adhering to your budget will lead to healthy spending and saving habits and a more secure financial future.

8.  Pay yourself first 
Even if it’s just a few dollars a paycheck at first, if you’re not already, get in the habit of saving. Your priority should be to create an emergency fund if you don’t have one. A safe amount to put in your emergency fund is three to six months of expenses, so if you lose your job or something else unexpected happens, you’re covered until you’re bringing in money again.

To maximize your emergency fund, consider keeping it in a high-yield savings account that offers better interest rates than traditional bank accounts while still providing easy access to your money when needed. Set up automatic transfers to this account from your paycheck to ensure you’re saving consistently.

If you’re juggling savings goals and debt repayment, consider using either the debt snowball method (paying off smallest debts first for psychological wins) or the debt avalanche method (focusing on highest interest debts first to minimize interest paid). Choose the approach that best matches your financial situation and personality.

Next, begin saving for your future. If you have an employer-sponsored retirement plan, contribute as much as possible. If your employer matches your contributions, try to invest at least to their contribution level.

9.  Reassess your long-term financial planning
While creating a budget that works for your immediate needs is essential, divorce also necessitates a complete reassessment of your long-term financial goals. Your retirement timeline and financial security may have changed.

If retirement accounts were divided in the divorce settlement through a Qualified Domestic Relations Order (QDRO), you’ll need to decide how to manage your portion. Working with a Certified Divorce Financial Analyst® (CDFA) can help you determine the best steps forward. Mark Yatros and I are CDFAs® and we’d be happy to meet with you to see if we’re a good fit to help you. Contact us at 269-218-2100 or here.

This is also the time to update your retirement contribution strategy. Without a partner’s income to rely on, you may need to increase your contributions to stay on track. Take advantage of catch-up contributions if you’re over 50, which allow you to contribute more to your 401(k) and IRA than standard limits.

Social Security benefits require attention as well. If you were married for at least 10 years, you may be eligible to receive benefits based on your ex-spouse's record without affecting their benefits. This could provide higher payments than what you’d receive based solely on your own work history.

Finally, update your estate plan. Review and change beneficiary designations on all accounts, including retirement plans, life insurance policies, and investment accounts. Create or update your will, powers of attorney, and healthcare directives to reflect your new circumstances. Without these updates, your ex-spouse might still have legal authority over your finances or healthcare decisions in emergencies or inherit assets you’d prefer to go elsewhere.

10.  Talk to a financial advisor
Creating a budget, figuring out your cash flow, and developing a debt repayment strategy can be overwhelming. An experienced financial planner can help you create a budget, offer ideas on how to save money and pay off debt, and offer guidance on how to invest. Working with a professional can help hold you accountable if you’ve had difficulty sticking to a budget in the past.

You can schedule a complimentary, no-obligation consultation with Allegiant Wealth Strategies’ team of experienced financial advisors by calling 269-218-2100 or by clicking here.