For anyone going through a divorce, or considering a divorce, getting your finances in order is imperative. You can’t really take control of your life or even make progress toward building a new single life until you have a good grasp of your existing financial obligations and assets. The first step in evaluating your financial situation should be organizing your financial paperwork, including all your incoming bills, all bank statements and any important permanent records too. Once you have assembled and organized all of your financial documents it will be much easier to determine a clear picture of your current situation and will also allow you to create an effective budget plan for the future. Here are some tips to get you started on your path to financial organization:
Gather Your Bills
You know you’ve got bills. Ones you have paid and ones yet to be paid. But just because they are all heaped in a basket doesn’t mean they are organized. Separate the paid bills from the unpaid, the new bills from the old. Try to make categories for them too. House payments, credit card bills, car payments, grocery bills, and bills from your divorce attorney too, all should be selected, sorted, marked and stored in one convenient and readily accessible place. Don’t forget to throw away all the bills you no longer need, cleaning out is a big part of cleaning up.
Gather Your Legal Documents
Permanent legal records are not bills, although in some cases bills can be permanent legal records after they are paid, like tax returns or house payments. .You’ll need to keep these and other permanent legal records such as birth certificates, passports and retirement account (401K) statements separated from your bills and stored in a secure place. Categorize and organize your legal records so that you can find what you are looking for easily and quickly later on.
Create a Budget
After you have organized your bills, take a look at the paid items and try to create an estimate of your monthly spending based on past history. Set a start date and for at least one month keep an ongoing record of what your actual costs are. Comparing your estimated monthly costs to actual amounts spent will give you a very accurate picture of your monthly budget and expose categories where you might be spending more than necessary.
Cut Monthly Spending
Once you have created a budget and examined each category of actual monthly spending, you should be able to spot a few areas where you can spend a bit less. It is hard to cut cash out of fixed essential bills like your house payments or groceries, but you can cut down on energy consumption and reduce your utility bills without too much sacrifice. Turning off lamps you aren’t using or spending less time in the shower will not compromise your lifestyle. Many areas of non-essential spending can be good candidates for cost reduction too. Restaurants, movies, live entertainment, and new clothes are all areas where spending can usually be reduced immediately.
Consolidate & Reduce
You can reduce the amount you pay out on your fixed monthly bills by consolidating and renegotiating where possible. If your bills are organized it should be easier to pay them on time and avoid any extra costs in penalties. If you have too many bills from too many sources, reduce the number if you can. Consolidate those eight credit cards into one or two accounts that you can get the best interest rates on. Pay off or terminate accounts you don’t use. Take a look at renegotiating (when legally possible to do so) your mortgage to obtain a lower monthly payment.
Although many sources of financial wisdom recommend creating and maintaining a separate bank account containing enough cash to cover one year of living expenses in case of unforeseen emergencies, many people simply do not have that kind of money available to put aside. If that is your case, simply do the best you can in your own situation. A three month supply of cash is far better than no reserve at all. Even three weeks of cash reserve is better than none. Unexpected cash expenses can be especially hard on someone going through a divorce, they are much easier to deal with if you have put some cash aside in advance.