Rebuilding your financial life after divorce.
Rebuilding your life financially after divorce is a difficult but very achievable task.
Whether you were the main income earner in the household, or a stay at home mom, your financial status has changed as a result of the separation. To start rebuilding your life you need to start with a budget to ensure that you have an accurate idea about your new cost of living.
A Specialist Divorce Financial Planner can assist you in this rebuilding phase to:
- Assess your income and expenses and develop a budget moving forward.
- Help you to identify your financial goals – it is likely that these will have changed now that you are divorced.
- Formulate a financial plan to help you secure your financial future through appropriate investment strategies and life insurance. This may incorporate any funds received from your financial settlement.
The financial impact of divorce can set you back. This is particularly evident where divorce occurs later in your working life – the closer you are to your retirement date the bigger the risk that you will run out of “compounding time” to rebuild your financial wealth. Getting advice from a financial planner experienced in divorce, you can make the most of a difficult situation and start getting your financial life back on track.
Below in the light blue graph Investor A investing R100 per month in the equity market for 10 years and then stops, but she then leaves the invested capital in the market for 34 years until retirement age and ends up with R13 492 512. Ca-ching!
The dark blue graph is Investor B that only starts investing the same R100 per month in the same equity market 10 years later and keeps contributing until retirement age and ends up with R1 881 825.
Soarce - Coronation Fund Managers
Investor A contributed for 10 years vs Investor B that contributed for 34 year and ended up earning 7.2 times more. The differentiating factor her is TIME! (a)
The purpose of these financial building blocks is to give you a financial plan with structure and achievable goals.
If you can tick all these blocks then you should be financially secure.
1. Debt Management
Make sure that you have as little debt as possible after the divorce. This will ensure that you have a good credit record when applying for “good debt.”
Good debt as an example would be a bond on your property. Always pay surplus cash or bonuses into your bond account. This will save on interest paid over a 20 year term and you will own your property sooner.
If you have never had a credit history, now would be a good time to get one. A cell phone bill gets measured as credit history.
If you are prudent with your money you can consider applying for a credit card before you divorce and this should only be used as a back-up… don’t use this to pay for expenses. These cards have the highest interest rates.
2. Emergency Cash:
Let me start off by stating that money has no personality, no loyalty and most certainly no talent!
I can tell that money is an emotion that makes you behave in a certain way. Let’s call that Financial Emotional IQ or being Finsmart!
GOOGLE Results - Emergency Cash = Short term expensive loans. About 199 000 000 results.
What these results tell me is that cash always goes out of your wallet and hardly ever back in which is the opposite of an investment where you effectively have dividends or distribution. How do you stop livings on these “PAY DAY LOANS”?
Let’s look at the fine print of the Finsmart building blocks:
If you don’t have emergency cash you are going to make an emotional decision and land up in debt!
How much ER CASH should you have?
I would suggest at least 3-6 months of your monthly salary or the maintenance you receive, especially when the maintenance is paid late or not at all.
This is money for a real emergency. When you need to repair your car so that you can get back to work and earn an income or when you get retrenched and you are in between jobs. It is not for a dress for your BFF’s wedding!
So if you earn R20 000 per month take R500 a month and put it in a Money Market Fund. That’s 2.5% of you salary or 1 less dinner and a movie for two people. In 12 months’ time you will have R6000 saved up. Repeat and add ½ of your bonus if you can, after 2 years consider moving your ER CASH to a Stable or Defensive Fund. You will get a slightly higher return but not only that you will be introduced to your new BFF – COMPOUND INTEREST.
Welcome to the right side of your financial building blocks!
Option 2. If you have a bond put the ER Cash in your bond. You get guaranteed tax free return of whatever he interest rate is that the bank charges you. For example 10%. This not only save you a bit of interest but if you can do this you will also pay of your bond sooner.
- If you can “tick” the Cash financial building block I can guarantee you that you will have money in the future… but not only that, you won’t have to go into debt or destroy your future wealth.
- The second prize that you get is that you can transfer this money to the Wealth Creation block… cash should be used to create wealth!
So in summary stay away from emotional decisions that can lead to debt. Start your own emergency cash funds and stay on the Finsmart side of life.
Remember be Smart be Finsmart!