When you experience a breakup with or death of a partner or spouse, you may be overwhelmed with new responsibilities while at the same time dealing with grief from the life change. Suddenly you must manage your finances on your own. Developing a plan to separate today’s needs from longer-range financial decisions can help you start your new life off right.
Immediate needs
Where are you right now? The first step is to assess your overall financial situation. Make a list of all your bills and expenses, including rent or mortgage payments, utilities, car payments, credit card bills, and any other debts you may have. This will give you a clear picture of where you are right now.
Many couples rely on one spouse to handle all the finances, and it’s still seen as a man’s job in many relationships. In fact, a recent UBS report found that 48% of women surveyed said their spouse takes care of long-term financial decision making. If you find yourself not knowing where to start, reach out for help. Call friends or even your kids if you don’t know how to access your accounts, or consider watching online videos many banks provide. You can even set up an appointment at the bank or brokerage to have them show you the ropes.
Update your accounts. As you’re researching your income and expenses, log onto your accounts and update your information, including possibly changing sign-on information and passwords. On the range of immediacy, this may not be as pressing if you are joint owner on an account where your spouse passed away. However, if you were part of a hostile divorce, you may want to protect what’s yours sooner rather than later.
Don’t forget to update beneficiaries, especially if you are recently divorced. If you have named your ex-spouse as a beneficiary and something happens to you, the account will go to them even if you change your will.
Create a budget. Once you have assessed your financial situation, create a budget. Start by prioritizing your expenses and bills. Make sure you have enough money to cover your essential expenses, including housing, food, and transportation. Then allocate money to other expenses, such as entertainment and hobbies. Make sure to save some money each month for emergencies or unexpected bills.
If you are having difficulty with this step, some experts advise you to consider it a temporary budget. Perhaps you make a budget that will last you through the next six months or year, then you can reevaluate where you are when life has calmed down.
Watch or reduce expenses. If your income has decreased after your breakup or divorce, you may need to cut back on expenses. A large discrepancy may lead you to consider downsizing your home or car, while with a smaller deficit you may need only to reduce your monthly bills (perhaps switching to a cheaper cell phone plan or canceling your cable subscription.
Build an emergency fund. Depending on the changes in your life, you may need to use part or all of your current emergency fund for immediate needs. However, as soon as you’re able, try to rebuild your fund so you have several months of living expenses saved in case of an emergency.
Longer term
After you have a complete understanding of your current financial situation and have secured your accounts, it’s okay to live for a while. When my mom died I had an initial rush to figure out as much as I could about her financial situation, then I was able to settle more into making appropriate decisions. But at some point, you will also need to focus on the long-term.
Do you have debts? Managing your debts could go under immediate term, but honestly if you can stay on top of them by making the current payments while not expanding the amount you’re in debt, you may choose to deal with this when you have more bandwidth.
Credit cards. If you have thousands in credit card debt, take an afternoon to list out who you owe and how much you need to allocate each month to pay these off as quickly as possible.
Cars. Perhaps you now have a couple of cars when you only need one. Are both paid off or are you having to make two car payments per month? Again, depending on the financial situation you find yourself in, you may choose to tackle certain debt earlier (especially if you’re selling an extra car that’s sitting unused in the garage).
Your home. What to do with your home is a huge decision, whether it’s a home you bought with your partner five years ago or the home in which you raised your children. Many people will feel sad or even guilty about selling the family home. Add to that any outstanding debt on the home – and your ability to continue making payments – and you have a very complex decision. If you want to and can afford to live in the same home, there’s nothing wrong with delaying the decision. However, if you find that the house is too big, holds too many memories, or just costs too much, it may be time to consider selling it.
Update insurance and your estate plan. I mentioned above that it’s important to change beneficiaries, especially if you were involved in a divorce. You also should change your estate documents and update your insurance policies.
Understand your credit score. Take a few minutes to learn about your credit score. Check your credit reports several times every year; initially you’ll want to make sure that no debt from your spouse or partner has been noted on your account. Additionally, you will want to maintain credit in your name. This is why so many financial advisors recommend you keep a credit card in your name during marriage.
Plan for YOUR future. Now that you’re single, it’s important to plan for your financial future. While at first this may seem scary or even depressing, it can also open up a world of opportunities you never considered before. What do YOU want to achieve? Work to put your goals on the front burner.
Mistakes you want to avoid
When my mom died, I wasn’t as concerned with my health as perhaps I should have been. I still went to the gym but wasn’t focused, and pizza became a go-to dinner item. At times I felt overwhelmed with the moving parts of working with her estate and paying her bills while continuing to manage my household and be a parent to my kids.
Making big changes too quickly. Selling the home, getting involved in another relationship, changing jobs, moving to Europe… most experts say to wait six to twelve months before considering this type of change. You don’t want to wallow in your grief, but you also need time to process your new reality.
Living the same lifestyle. I just said not to make big changes, now I’m saying you can’t stay the same? Even if you have a good-paying job of your own, you may now have a household income that’s 50% less than what you were used to. Perhaps when you’re reviewing your bills you unload some of the subscription services or even cancel the pool membership for this year.
Shopping as therapy. Emotions can have a huge impact on your financial situation. At times like this, it can be difficult to think clearly and make responsible financial decisions. You may be tempted to spend more money than you should, hoping to fill the emotional void with material items. All too often though this increased spending only provides a temporary lift while causing long-term financial headaches.
Losing a partner is rarely easy, even if you were the one most wanting a change. Then to add financial decisions on top of that may just seem cruel. Managing your money may be challenging, but it’s important to take control of your finances and make a plan for your future.