Do you know your credit score or the details of your Social Security report? Can you find your house deed, mortgage, life insurance policies, car title, auto insurance policies, past 5 year tax returns, brokerage, and statements? banks of the past year? Do you know what your spouse earns or how much goes into a 401k plan annually?
Divorce is often a wake-up call when it comes to finding out what you know and don’t know about your family’s finances.
Managing your finances isn’t about knowing which stock, bond, or mutual fund to buy. It’s about knowing what you own (assets); what you owe (passive); what goes in (income) and what goes out (expenses). It’s about paying attention to where your money is going and how it is organized.
You will be asked to produce a lot of financial paperwork and documentation for the court, your lawyer or mediator, and for your future ex-spouse. So let’s get started:
Get rid of a workspace and collect all your statements: banking, brokerage, credit cards, etc.
First, let’s tabulate your net worth (the difference between what you own and what you owe): make a list of everything you own: house, car, brokerage accounts, life insurance, retirement accounts and their value (the internet can help – try KBB.com and zillo.com). Next, list everything you owe: mortgage, car loan, credit card debt, school loans, and their outstanding balances. Keep this information in the first section of your 3-ring binder.
Then find out where your money is going (the cash flow), or the reality of not having a clue where you spent all that money. The easiest way to determine your cash flow is with a computer program like Quicken or QuickBooks. A useful website is mint.com. If you prefer not to use the computer, this can be done with Excel, columns on lined paper, or on graph paper.
To budget, gather your check books, check stubs, and credit card statements. Assign each expense a category and a subcategory. Example: Utilities: phone, Utilities: cell phone, Utilities: cable and enter your expenses for each month. You will get a total for each subcategory as well as a total for the entire utility category. Remember to enter your income, including income from child support and alimony. Print a report every month and a quarterly report every 3 months. Put them in a Cash Flow or Budget section of your binder.
It may take you several months to get a picture of your income and expenses, but it will become the basis for managing your finances as well as negotiating child support and alimony.
With a grip on your cash flow, you can look for places where you can cut spending or control spending. Try to take 10% off on top of your income in the form of savings. Then rework your spending to see if you can still manage. Use the amount of money you can save for:
• Get out of debt – pay off credit cards and loans
• Have an emergency fund not invested in the stock market. Aim for a minimum of 3 months of household savings expenses. If possible, have an additional 3 months on a short term CD or money market account
• Take advantage of pension plans
Put this information in the Savings Goal section of the workbook.
Armed with this information, consulting with a chartered divorce financial analyst early in the process can help you face the challenges of divorce with more confidence and dignity than you might otherwise.