While some people are in the position to celebrate their divorce with a brand new race car or a fun trip to Vegas, others need to think about the loss of their spouse’s income and their contribution to the household budget. While some people are in the position to celebrate their divorce with a brand new race car or a fun trip to Vegas, others need to think about the loss of their spouse’s income and their contribution to the household budget. Also, depending on when your divorce is finalized, you may be required to change your tax filing status to single or head of household. This isn’t a massive setback but you might gain or lose eligibility for certain tax credits and your standard deduction might change. You may have to use a tax calculator to determine your refund given these new changes to your filing status.
No matter which category you fall into, it’s important to check your new budget and see where you are with your finances to avoid any financial instability. Creating your post-divorce budget is pretty straightforward if you follow these few tips:
Figure Out Your Income And Expenses
Just grab a pen and paper and make a line down the middle. One side will be reserved for your income (job, alimony, child support, investments…) and the right side will be reserved for expenses (rent, mortgage, insurance, utilities, credit card debt, transportation costs, food, education…) This way, you can see whether your income matches your expenses and whether you need to boost your efforts in one of the sections. Over time, you’ll refine your income/expense tracking skills and you won’t have to use the pen and paper anymore.
Set A Budget And Follow It
Soon you’ll notice some spending patterns, so you’ll be able to set monthly targets for spending and ensure your financial goals are safe. For instance, don’t get a heart attack when you see how much money you spend on take-out at work. You can easily fix that issue in your budget with homemade lunches. Once your spending settles, you can create a monthly budget and follow it (keep it close, so you don’t overstep your limit).
Review Your Taxes And Rates
In some places, if your partner moves out and you’re left as the only adult living at your house, you are eligible for a discount on your council tax bill. It’s also possible to claim the discount if you live with a full-time student, care provider or a person with mental disability. People on a low income can also apply for a reduction in the council tax bill, so check with your local council.
Don’t Shy Away From Loans
In case you lose your car in the divorce, you can’t wait until your financial situation gets better—how are you going to survive with a car? In that case, consider applying for a car loan so you can continue going to work and bringing money home. If you need help buying or renting a car, find the best car loans so that you can secure finance for a vehicle even if your credit score is not so good. These experts will compare low-interest car finance options from various lenders and save you the trouble of applying to every single one yourself—great when you’re busy recovering from the divorce!
See What You Want To Do With The House
If you’re having issues with the matrimonial home during your divorce, there are a few options to consider. For instance, you can let one spouse living in the house and buy the other person out by cash-out refinance, property settlement note or giving up some other asset. Or you can sell the house together and split the proceeds. In many cases, one spouse chooses to keep the house, which is not always the best financial decision, even though it can be emotionally satisfying for the moment. Your house won’t pay your bills!
It’s often best to choose to sell the matrimonial home since today’s market can provide you with a reasonable price. Many couples are stuck with houses neither of them can afford to maintain alone, plus, they can’t sell them for what they owe on the mortgage. You can only sell your house at a loss, it’s best to choose to rent to a third party or have one of the ex-spouses stay and pay rent to the other ex-spouse until the market stabilizes. Good financial decisions concerning your house will do wonders for your post-divorce budget and save you a lot of financial headaches.
If you do sell the marital home, however, you will still need to think about your next property. Moving from two incomes to one is likely to force you into accepting a smaller property. Calculating the mortgage repayments before moving into your post-divorce home is vital if you wish to avoid the pitfalls. While it might not feel like it now, you may meet someone else in the next few years. With this in mind, you may wish to avoid long-term fixed-rate mortgages.
Either way, a stable home life will deliver huge rewards as you enter this next phase of your life.
Get Creative With Spending Management
If you notice that your expenses are bigger than your income, you have two choices: reducing spending or increasing income. For instance, you can downsize and move to a cheaper area to save up on housing costs. Selling some hobby equipment is also a good way to increase your budget and reduce expenses, especially if that equipment requires maintenance. On the other hand, you can take up some freelance work on the side to boost your cash flow. Once you have some extra income, try to spend it reasonably, preferably on increasing your 401k contribution, opening a savings account or paying off debt.
Save Up Even A Little
You might think it’s meaningless to try to save up when all you can put aside each week is a few dollars. However, having an emergency fund, no matter how small, will come in handy in many situations, so be sure to save.
Going through a divorce is a stressful time both for you and your finances, but if you make a few smart decisions, you will stay stable on all fronts!
Diana Smith is a full time mom of two beautiful girls interested in business and marketing related topics.
In her free time she enjoys exercising and preparing healthy meals for her family.