Get Your Financial House in Order

I was recently interviewed on impactmakersradio.com.

Getting your financial house in order during divorce

The host, Stewart, and I discussed getting your financial house in order during divorce.

Mostly we talked budgeting and investing for those going through divorce.

I’ll link to the show audio when I get it, but I wanted to post the preshow prep notes I took. They give a good representation of what we talked about.

Tip: Get your financial house in order

The moment you know you’re getting divorced (whether you start the divorce or your spouse starts it), sit down and do a deep dive on your finances.

First, figure out every cent of income your family receives from every source (wages, rents, investments, trusts). Second, figure out every expense you pay (mortgage, credit cards, student loans, daycare). Third, piece together every single asset you have (asset: anything you own that you don’t make payments on).

After you’ve done this, put together a bare-bones budget so you know exactly how much you need to survive.

This bare-bones budget has nothing to do with your divorce, really. It has everything to do with knowing how much money you need after divorce to make ends meet.

If you do these things, you’ll be ahead of the curve by a mile.

But you don’t want to stop at survival. To get your financial house in order, you need to plan for your future. You do this by investing.

Our advice is that our clients invest something, anything, every paycheck. If you can only invest $25 per paycheck right now, do it. You’ll invest more and more over time if you commit to investing at specific intervals.

Best investment vehicle for normal people is low-cost index funds. These funds charge almost no fees, which is super important because fees can eat up investment returns really quickly. I personally invest in lots of Vanguard index funds.

Robo advisors are a great option as well. These are computer algorithms that manage investments without much human intervention. They perform well, and usually have much lower fees that human managed investments. (I use Wealthfront, which I think is great. Betterment is another one that’s really well done.)

Can you briefly describe the people you serve and the kinds of situations they find themselves in when they come to you for help?

We take divorce and child custody cases; that’s it. We limit ourselves because we want to help people to the best of our abilities.

The people we help all find themselves in really tough situations. Their marriages are ending and their families are breaking apart. They’re scared. They worry about not having enough money, and about losing friends.

A lot of times, we serve people who don’t have enough money because there’s almost never enough to go around in divorce. You use more resources when you get divorced because you give up economies of scale. More resources means more money, and most people live right up against their financial precipice, so there’s no slack in the system. One thing goes wrong and they’re over the edge financially.

What I’ve described is the most common situation people find themselves in when they come to us.

What’s the most common misconception surrounding the main topic of your tip?

I think the main misconception is people think you can’t get ahead financially after divorce.

That’s just not true.

Now, I’m not going to lie, divorce is tough, but if you have a financial game plan while going through divorce and one for after divorce, you can be successful with money.

You can pay off your debt and become debt free. You can invest in yourself and your family. You can do all of these things with the right plan and the willingness to follow the plan.

(Case study: There was a very nice lady who came in for a Roadmap and Recovery Session with us. She actually didn’t end up hiring us, but she took advantage of the personal finance 101 training we offer. During that training, we discussed family budgeting and how to pay off debt. She had never done a monthly budget before, but she took to it like a fish to water. I explained the system my family and I use to budget, which cut our family spending by at least 25% if not 33%. She went home and implemented the system and has had good success with it. She still emails me every few weeks to ask questions about the system. It’s great to see her succeeding with money, even during divorce.)

Taking the main topic of your tip into consideration, please share one unknown pitfall they might not, but should be aware of.

One unknown pitfall is that no matter how good your budget, no matter how well you plan and map things out, emergencies happen. Cars break down, kids go the ER, whatever.

You have to build some cushion in to the system to deal with emergencies, otherwise, you’ll get off track with your budget and not get back on the plan.

Have something set aside for emergencies. Dave Ramsey suggests starting with $1000. That’s a pretty high number for someone getting divorced, so maybe $500 to start. The point is, put something away for emergencies so you can stay on track no matter what.

Could you briefly tell us a little about yourself in terms of background, education and your experience as it relates to the main topic of your tip?

I grew up in a little village on the Aleutian Peninsula in Alaska. By little, I mean 85 people little. I had a great childhood hunting, fishing, and playing with my dogs.

I studied psychology in undergrad, and then graduated with honors from law school. After that, I clerked for judges, and worked in a big law firm.

To be honest, none of this prepared me to help people with divorce. What did that was talking to and working with thousands of people going through divorce. You do that enough and you begin to see patterns and problems people face. Then you start to think, “How can I help people fix these problems?”

That was the genesis of helping people get their financial house in order.

Keeping the main topic or your tip in mind, what would be your absolute best piece of advice/tip to the listener?

If you don’t have one, create a monthly budget. And I mean a real budget that accounts for every dollar coming in and going out.

It may sound simplistic, but If you create a monthly budget, you will figure out what all of your debts and assets are. You’ll figure out where you spend too much and where you can save. You can use those savings to start investing.

It all starts with a good monthly budget.

By small and simple things are great things brought to pass.