Divorce and Cash Flow

Divorce and Cash Flow

October 20, 2020

Divorce and Your Cash Flow

Dealing with a divorce can lead to unforeseen money problems, and the effect of divorce on your cash flow can be an unpleasant surprise. This can be especially true for people who find themselves moving from salaries or weekly paychecks to commission-based income, or handling the challenge covering bills with only one income when you’ve previously made do with two.

My Own Cash Flow Experience

Are you starting to notice a theme in my blog post lately? Sometimes I think as professionals, and as fellow community members, we should use our life experiences to help others around us. Having just come out of a challenging time in my life, I find it valuable to share my own experiences to help my clients. None of us need to be going through a divorce and find ourselves with the challenge of navigating our cash flow.  

A year-and-a-half after I began my business, I started going through a divorce. That divorce process eventually took over two years to complete with thousands and thousands of attorneys’ fees spent. Going from a two-income household to a single, commission-based income household was very challenging. I needed to institute many of the tools I have walked my clients through countless times. I needed to understand what was coming in and what was going out, and I needed to plan ahead. Navigating those waters during this time was definitely tricky, but it made me work harder, work smarter, and it made me learn a lot about myself and being a business owner and a new divorcee. This involved many changes I had to make that may be familiar to other parents dealing with a divorce:

  • I needed to learn to work longer days, weeks and weekends when my children were not at my home. 
  • I needed to move my networking events to days when my children were not home. 
  • I needed to have evening and weekend appointments regularly to make sure I was building my business in a manner that does not affect my children. 

Getting Started Dealing with Cash Flow

When it comes down to beginning a new stage of life, whether that's starting fresh out of college, getting married or divorced, or losing a spouse, it's important to go back to basics. Remember that budgeting tool you learned many years ago? Yes, I'm talking about budgeting. It's not always fun, but using basic budgeting can be helpful when you have a life change. Along with budgeting, some other questions to consider with cash flow are:

  1. If you have a job where you get paid weekly or biweekly, take a look at when your paychecks come in, and when your bills come in. Do you keep enough cash in the bank to float between paychecks if your income and expenses do not coincide timewise?
  2. Have you established an emergency fund?
  3. If you are commission-based, have you considered trying to pay certain things ahead of time when you have a good month income-wise? This can give you some breathing room when you have a slow month.
  4. Have you considered separating out accounts so you know that money is earmarked for certain bills and obligations, or even your monthly mortgage? I have found that clients who earmark money in several different bank accounts do well with cash flow because they know important bills are covered like the mortgage, car payments,and groceries. Whatever is left is put in the “fun money” account - don’t forget to earmark money for yourself! Have you ever heard the saying, “pay or sell first?”

Don’t Forget Retirement Planning

Even if navigating cash flow isn't tricky for you as you go through a divorce, make sure that you are not letting down yourself either. Now that your life situation has changed, you should re-evaluate the sufficiency of your past and current retirement contributions in relation to your goals. If you feel like you're behind on retirement after your divorce, I would encourage you to build a financial plan, determine how much you need to be putting away, and work diligently to put that money away. Sometimes that might mean getting creative with other expenses. It also may mean reminding yourself that the market is a long-term game. It can be easy to get caught up in the market going up and down, but if money is truly earmarked for retirement jumping in and out of the market is not the best way to work toward your long-term success. In short, a great start is to make sure you are diligently putting away enough money for retirement and frequently revisiting your financial plan. Everyone has a unique situation and there is no blanket advice for whether you're on track for retirement — the important part is that you regularly evaluate your situation and adjust accordingly.

 

This is meant for educational purposes only.  It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Please consult with a financial professional regarding your personal situation prior to making any financial related decisions.  (10/20)