Ruth's Two Cents: Regrouping Financially After A Divorce

Hi Ruth,

My husband and I separated about 18 months ago after 15 years of marriage. It was mutual, and I’m happy with the outcome — that’s just the way things go sometimes! However, now that the dust has settled, I’m beginning to feel stressed about my financial situation. I’m not well-versed in managing money, as my husband did the bulk of that, and I don’t have as much in my Kiwisaver as I would like, as I took some time off work to be a stay-at-home mother. I don’t know where to start on this new phase of my money adventure - please help!

I’m sorry to hear about your divorce. Not because of the marriage ending, as you sound happy with that outcome, but for the pressure you are feeling about your finances and the financial learning curve you are suddenly facing.

I don’t doubt that there were many jobs your husband did throughout your marriage that you are now learning to do for yourself. I’m sure he is facing the same situation! The outsourcing of financial management to your spouse is a big one, though. It’s a broad topic that reaches into most of the decisions you will now find yourself having to make.

The first thing I want you to internalize is that your financial situation is unique to you, and you alone get to map out how you want to structure things. You have complete control over how you earn and spend your money, which is exciting! I want you to think, “I get to build my financial future in a way that is meaningful to me”.

The second key point about money is that keeping it simple is the best way to feel in control and grow wealth. Whenever you need to make a decision, think to yourself, “is this the obvious and simple choice I’m about to make?”

Right, let’s go! I have outlined a roadmap for you.

1. Calculate your net worth

Find all your money! Grab a pen and paper or open up a spreadsheet and in the left-hand column, write down the balance of each of your bank accounts, your KiwiSaver account, and any other investments or accounts. Total them up.

Next, write down the balance of anything you owe; your mortgage, credit cards, student loans, and Buy Now Pay Later debt. Total them up.

Deduct what you owe from what you own — this is your total net worth.

Write down each month of the year, and from this point forward, calculate your net worth on the first day of every new month. Over time, we want to see your total net worth amount growing.

You can start with pen and paper, but over time, money management software such as PocketSmith can be used to help you easily and accurately calculate and track your ever-changing net worth.

2. Start a simple budget

Budgeting is the most empowering thing you will do, impacting your sense of wellbeing and feeling in control.

Open up your bank statements for the last three months and have a new spreadsheet or piece of paper ready. For each month, note down what you have earned from any source. Then create broad categories such as Housing, Food, Utilities, and Transportation. Every expense you see on your bank statement needs to fall under one of the categories you create. This is your first opportunity to see, maybe for the first time, what you earn and spend each month — this is critical information to help you.

Look at:

• Each month: Are you spending more than you are earning or less?
• Each category: Are you overspending in one area and need to cut back?
• Your income: Do you need to earn more, or is your income covering your expenses?
• Each expense: Could you cut it, get a better deal elsewhere, or are you happy with it?

You can use this information to shape your spending. Always spend less than you earn. If you find yourself with more month than money, you have two options: Spend less or earn more. Like net worth, I want you to give up this paper-based system over time and learn to use PocketSmith, mainly because you will soon begin to forget to update your spreadsheets manually!

Next, set up several bank accounts, called Sinking Funds, where you can begin to save towards future expenses, such as an annual insurance bill, school fees, a child’s orthodontist bill, or even Christmas. Each has its own account with a name that is meaningful to you. Find out the cost of the expense, when it is due for payment, and divide it by the weeks you have until it is due. Set up a weekly automatic transfer of this amount into a separate bank account. By the time the bill is due to be paid, you will have the money there, which will remove “bill shock”.

3. Create an emergency fund

It’s all on you now. If the car needs a $500 repair, it’s you who will be paying. But don’t feel frightened; feel empowered and know you can handle any emergency alone. Open another bank account and call it “Emergency fund”. Now that you know your monthly expenses, work towards having 3-6 months of those expenses saved up in this bank account.

Set up an automatic transfer of an amount you can afford to get this started. As this builds to $500, then $1,000, then $5,000 and beyond, you will feel that pressure begin to come off your chest, that fear of having no money in a crisis will pass. Next time your car needs an emergency repair — no bother! Reach into your emergency fund, pay it, and then begin to replace that money in your fund.

4. KiwiSaver

Find out what fund you are in, what risk profile it has and what its fees are. Many people your age are looking for a low-fee, passive growth fund, but pick whichever one feels right for your goals. Make sure your employer contributes the maximum amount they will allow to your fund and match that with deductions from your paycheque. If you are self-employed, create a weekly contribution to your fund, a minimum of $20, more if you can manage it. Once your budgeting and income stabilize, increasing your contributions to your retirement fund makes sense.

5. Work towards becoming debt-free

If you have any debt, the first step is to commit to taking on no more. Remember how I said, “simplicity is key”? If you have a credit card, consider getting rid of it. Credit cards are a form of debt and add a layer of complexity to your budgeting that you most likely don’t need at this time. A debit card does the same job, but you are using your own money and will naturally spend less.

List your debts from smallest to largest, then start using whatever money you have left over after your monthly spending to start wiping these debts out. If you have a mortgage, stabilize your mortgage payments and settle into making set payments, which will then help you budget further.

6. Explore investing to grow your wealth

Finally, once everything else is done, the last stage is to invest your money for future growth. I advocate using just one or two broad-based, low-fee diversified ETF investments for beginners as they allow exposure to an entire share market at a lower risk.

But take the time to explore what’s out there and what channels you can use to invest — that’s half the fun of investing!

That’s a lot to take in!

How do you feel about all that I’ve just said? It’s easy to write and easy to read but hard to implement, mainly because it takes time. But, starting today, you have time on your side to build a simple solid financial foundation.

I’ve spoken with many people who have ended a marriage and struggled to find their feet, but once they decided (like you have) that they are going to get back on their feet, they just follow a simple plan like the one I’ve outlined above and month by month, start rebuilding their financial lives.

Money is just a lot of learning and small but consistent actions where incremental steps add up over time. I guarantee you that you will quickly get stable, gain a sense of control, and keep moving forward. Enjoy the adventure!

Got a burning money question for Ruth? Send them through to [email protected]!

Ruth blogs at thehappysaver.com all about how she and her family handle money. What’s the secret? Spend less than you earn, invest the difference, avoid debt and budget each dollar that flows through your hands. She firmly believes that if you can just get the basics right, life becomes easier from there on in.