The world of investments can be confusing and scary – especially if you are not familiar with it. Yet, hiding your money under your mattress doesn’t make good financial sense either! If you are like most divorced women, particularly if you received a lump sum of money from your divorce, you not only need investing help, you need a financial education.
Jeffrey Landers, Certified Divorce Financial Analyst, and the author of the best-selling books, Divorce: Think Financially, Not Emotionally®, says the problem with dealing with your finances blindly is that what you don’t know can hurt you – big time! It’s just like going to an auto mechanic when your car breaks down. Unless you know something about cars, you don’t know whether you need a ten dollar part or a whole new engine. That makes you easy prey for a less-than-honest mechanic.
To help get you out of the financial fog, here are some of Jeffrey’s best investing tips for divorced women:
1. Define your goals and visions. While that may not seem like financial advice, the truth is: it is! Your finances and investments need to serve you. To do that, you need to figure out what you want your money to do. Are you saving for retirement? How much money will you need before you can retire? Do you need money to help your kids pay for college? How much? When do you need it by? You need to ask yourself all of these questions, and more, in order to determine the goals and visions you have for your money.
2. Put together a spending plan. You probably already did this while you were going through your divorce. You listed all of your income and your expenses. Now that your divorce is over, you need to re-visit your spending plan and make sure that it is in line with your current income, including whatever child support and alimony you may be receiving (or paying!)
3. Don’t spend your assets unless you can afford it! If you were fortunate enough to have received a nice lump sum of money after your divorce, that’s awesome! But, unless you are in your late eighties or filthy rich, you are probably not going to have the luxury of being able to live off your assets. What’s more, even spending down your assets to supplement your income can get you into trouble if you don’t have enough money to start with. For example, even if you have $1,000,000 in the bank, and are earning $100,000 per year, if you are spending $200,000, that means that your million dollars will be gone in 10 years. That may be OK if you are 90, but definitely not OK if you are thirty.
4. Don’t even think about investing unless your income is more than your expenses. Having an investment plan is great, but if you don’t have enough money to pay your bills, you don’t need an investment plan, you need a spending plan! You have to bring your spending in line with your income. That means that if you end up in negative numbers after you pay the bills every month, you either have to start earning more money, or you have to revamp your lifestyle and cut your spending.
5. Remember that alimony and child support won’t last forever. What’s more, in most cases, both can be modified. If your ex gets in an accident and goes on disability, both your alimony and child support can suddenly be decreased dramatically. So you want to do what you can to limit your reliance on these sources of income as soon as possible. Also, if you can put money away while you are receiving alimony and child support, that can help ease the transition when those sources of income end.
6. Understand the tax implications of selling assets to get cash. If you sell stock from an investment account to get money, remember that you are going to have to pay capital gains taxes on whatever you cash out. While the capital gains tax is lower than regular income tax (at least at the moment!) it still reduces the amount of money you get to keep from any asset you sell. Also, if you need to take money from a retirement account, not only will you have to pay income taxes, but you may also have to pay a 10% penalty as well.
7. Don’t stay with the same investment advisor you had while you were married. This is especially true if your ex hired or worked closely with, your investment advisor. You have to question where that advisor’s allegiance will lie. Remember, financial advisors are human too. They talk. Do you really want to have to worry about your ex learning about the state of your investments after you are divorced?
8. Take your time and find a good financial advisor to manage your investments. Nothing is more important than hiring a qualified financial advisor to help you manage your investments after you are divorced, particularly if you have not been involved in managing your investments in the past. A good advisor should have a lot of investment experience, and hopefully a lot of experience investing for divorced women. Shop around for advisors, and don’t be afraid to ask questions. If they never give you an answer, or, worse, seem bothered by your questions, think twice before hiring them!
To get more financial and investment information from Jeffrey Landers, go to www.thinkfinancially.com. Also, keep an eye out for Jeffrey Landers’ upcoming new book, Think Financially, Not Emotionally® – A Woman’s Guide To Financial Security After Divorce.
To get more divorce information from Karen Covy, go to www.karencovy.com.