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Do you know your credit score or the details on your Social Security report? Can you work out your home, mortgage, life insurance policies, car title, car insurance policies, tax returns for the last 5 years, brokerage and bank statements for the last year? Do you know what your spouse earns or how much is going into the 401k plan annually?
When it comes to finding out what you know and don’t know about your family’s finances, getting divorced is often a wake up call.
Managing your finances isn’t about knowing which stock, bond or mutual fund to buy. It’s about knowing what you have (assets); what you owe (liabilities); What is coming in (income) and what is going out (expenses). It’s about paying attention to where your money is going and being organized.
You are being asked to present a lot of financial paperwork and documents to the court, your attorney or mediator, and your soon-to-be ex-spouse. so let’s get started:
Clear out a workspace and gather all your details: bank, brokerage, credit card, etc. Other supplies to gather: paper, pen or pencil, 3-ring binder, hole punch, index divider, highlighter, and a sense of humor.
First, we’re going to tabulate your net worth (your assets versus what you owe): Make a list of everything you own: house, car, brokerage accounts, life insurance, retirement accounts and their value. (Internet can help – try KBB.com and zillo.com). Then, list everything you owe: mortgages, car loans, credit card debt, school loans and their balance. Store this information in the first section of your 3 ring binder.
Next, figure out where your money is going (cash flow), or have no clue where you spent all that money. The easiest way to determine your cash flow is with a computer program such as Quicken or QuickBooks. A useful website is mint.com. If you don’t want to use a computer, this can be done with Excel, in columns on lined paper, or on graph paper.
To create a budget, gather your checkbook, check stubs and charge card statements. Give each expense a category and a subcategory. Example: Utilities: Phone, Utilities: Cell Phone, Utilities: Cable and enter your expense for each month. You will get the totals for each subcategory as well as the totals for the entire category of utilities. Don’t forget to enter your income, including income from child support and alimony. Print a report every month and a quarterly report every 3 months. Place these in the cash flow or budget section of your binder.
It may take several months for you to get a picture of your income and expenses but this will form the basis for managing your finances as well as negotiating child support and alimony.
With your cash flow in check, you can look for places where you can cut back or control spending. Try taking 10% off the top of your income as savings. Then, work through your expenses again to see if you can still manage. Use the money you can save:
• Get out of debt – Pay off credit cards and loans
• Have not invested an emergency fund in the stock market. Aim for at least 3 months of household expenses in savings. If possible, keep an additional 3 months in a short-term CD or money market account
• Take advantage of retirement plans
Enter this information into the Your Savings Goals section of the binder.
Armed with this information, a consultation with a certified divorce financial analyst, early in the process, can help you face the challenges of divorce with more confidence and dignity than might otherwise be the case.
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