Working as a financial planner for the past 13 years, I have learned that financial freedom often means many different things to different people. For some, it means having no debt. For others, it means being able to live comfortably off the income generated by a nest egg.
For a new client of mine—recently divorced and facing the task of managing her finances for the first time in a decade—it means taking control. After years of deferring financial responsibilities to her now-ex-husband, financial independence is at the top of her list. Let’s examine her step-by-step journey towards financial freedom. It’s a process that could easily apply to others who find themselves in a similar position:
1. Start Today.
No more procrastinating and no more excuses. By starting sooner rather than later, my client is able to take advantage of time and compound returns — a powerful combination for building wealth. This first step is sometimes the most difficult to take. It requires making a personal commitment to take action, but once it’s done the rest can come together more easily.
2. List Your Goals.
My client and I discussed her three top goals: (1) preparing for her retirement, (2) paying off the mortgage on her house, and (3) creating a substantial travel fund that will allow her to see the world. We ranked each of her goals in the context of her needs, wants and wishes. Identifying goals helps an individual better understand how realistic they are, and what is needed to achieve them.
3. Have a Plan.
Next, we created a formal, written financial plan that includes each of her stated objectives and an investing program, based on her income, specific to achieving each goal. After all, a goal without a plan is just a wish.
4. Automate Savings.
It’s important to pay yourself first when you save. One of the easiest ways to do this is through an automated program that helps you to save and invest consistently during both good times and bad. For my client, we set up automated withdrawals from her checking account to be directed into her investment accounts immediately following paydays, thereby minimizing the behavioral barriers and inertia often associated with manually monitoring a budget.
5. Focus on What Can Be Controlled.
Don’t get caught up in the hype of the moment or what the financial cable news programs are reporting each day. That's a recipe for making emotional, reactionary decisions. Instead of worrying about all the things outside of her control, my client decided to focus on her goals and the plan we created to help her get there.
6. Invest in Yourself.
My client saw this new chapter in her life as the perfect opportunity to invest in herself. After delaying her own education for years, she enrolled in evening courses at a local university to improve her skills, her career prospects and, ultimately, her earning potential and future savings. One of the positive outcomes of this step is that it can build up greater self-esteem and confidence. In fact, attending her first class “was such an empowering experience," my client told me.
7. Live Within Your Means.
As my client’s living situation and routines were changing drastically, so were her expenses. We took the opportunity to review and manage her budget so that her monthly expenses remained below her take-home pay. With lingering legal fees, credit cards, education expenses, and a mortgage, paying off debt requires spending less than you earn. While this was quite a lifestyle shock at first, creating responsible new spending habits and accepting how to live within her means was a priority.
8. Manage Risk.
An emergency fund that offers accessible cash reserves along with sufficient insurance coverage can protect you and your loved ones against loss or an unexpected event. For my client’s specific situation, we determined that maintaining a cash reserve to cover six months of expenses in a conservative investment account would offer her the cushion she needed for peace of mind.
9. Monitor Your Portfolio.
Given her divorce, my client’s investment portfolio and overall asset allocation needed to be updated. Other major events that could trigger review and adjustment of a financial plan include getting married, switching jobs, buying a home, dealing with a health crisis, and entering retirement. Together, we committed to regularly reviewing and updating my client’s portfolio to keep it aligned with her objectives, risk tolerance, and time horizon.
10. Get a Fresh Perspective.
Find ways to recharge your batteries. My client, for example, plans to take a monthlong trip overseas and use that break to think about what matters most. After all, that’s what financial freedom is all about. Source: http://time.com/money/4041567/steps-financial-recovery-divorce-tips/
Divorce is in many ways similar to death. Like death, there are different stages of divorce a person must transition through before they can completely move on. The final stage, recovery, might be the most difficult. It’s natural for many men to want to cling to that failed relationship and replay in their minds what went wrong. It’s a vicious cycle that can lead to feelings of blame, self-loathing, anger and depression. Men and women often deal with breakups differently, and men face a myriad of different health risks after divorce, including an increase in early mortality rate by up to 250 percent. During this recovery process, it is important to realize that life will eventually go on and you can even come out of it better off than before. It is critical during this time to take the proper steps to take care of yourself, both mentally and physically. There are many positive things you can do to help speed the recovery process, — including taking up a new hobby, working to maintain a positive social life, and giving yourself the proper amount of time you need to grieve. At the same time, there are quite a few things you need to avoid that can hinder your divorce recovery. Here are four habits to stay away from during the divorce recovery period:
Avoid holding everything inside.
Many people consider divorce to be a private matter. It’s incredibly frustrating and annoying when you know there are friends, neighbors and family members gossiping about what happened between you and your spouse. When that’s the case, it’s natural to want to shut everyone out. While it’s not necessary, or healthy, to share details of your divorce with everyone, bottling everything up isn’t a good idea either. Depression is a common side effect of divorce and it isn’t something you should have to take on alone. Find some people you know you can trust to confide in. Simply venting and letting off some steam can be one of the most effective coping strategies post-divorce. You might also consider counseling. Counselors and therapists can play a key role in your divorce recovery.
Don’t cope by turning to alcohol.
One of the most common mistakes men make after a divorce is trying to numb their pain by drinking alcohol. This is one of the most self-destructive decisions you can make. Statistically, men are more likely than women to turn to drinking after divorce. Abusing alcohol or other substances can delay the recovery process and lead to a myriad of other mental and physical health problems. Throwing back a few beers or cocktails probably will numb your pain temporarily, but alcohol is a depressant that has been linked to depression and many other health problems.
Don’t become a recluse.
You’re probably not going to feel very good for a while after your divorce as it takes time to adjust to being single again. That’s OK. Just don’t totally shut down and become reclusive. Try to turn the idea of being alone into a positive. Look at it this way, you now have more freedom than you’ve likely had in years. This is a perfect time to take up new hobbies, refocus on your career and reconnect with old friends you’ve lost touch with. Embrace being a bachelor again!
Don’t jump into a new relationship right away. (But don’t give up on dating again either.)
While it’s important to stay active, you can also go too far the other way by immediately getting back into a relationship. Just because your last relationship failed doesn’t mean you will never find love again. Plenty of people resume dating following divorce and are able to build happy, healthy relationships with a significant other. However, immediately jumping into a rebound relationship before you’ve had time to fully recover is a crucial mistake many men make. Like alcohol, a new relationship can help take your mind off your pain temporarily, but if you haven’t taken the proper time to heal, it will likely lead to more hurt and confusion. There is a reason the failure rate of second and third marriages are so high. Additionally, dating too soon after a breakup can create stress and hurt for your kids. If you introduce a new girlfriend to them too soon, they might resent you both for trying to replace their mother. While you need to look after yourself, it’s also important to put your children’s best interest before everything else after a divorce. Just because you’re not actively dating doesn’t mean you can’t lead an active social life, but make sure you take your time before getting back into the game. Source: http://dadsdivorce.com/articles/4-habits-that-can-derail-your-divorce-recovery/
Get registered for FREE on the Divorcing With Dignity Summit, starting June 10th 2017 and hear me and 20 other speakers being interviewed on how to build your ideal life after divorce.
