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Living with limited or no savings can make you feel like you're walking on a tightrope with no net to catch you if you fall. That doesn't feel good at any point in life, but after a divorce it's especially difficult.
The financial ramifications of divorce, especially for people 50 and above, can put you in a position to start from scratch at a point when you have less time in the workforce to make up for the money you lose after a split.
How To Build Your Savings Up After Divorce: 5 Steps To Take For Financial Security
Post-divorce your priority might be to rebuild your life, and a significant part of that life rebuilding process includes regaining your financial footing. But where do you start?
Here are 3 steps to take when building up your savings after a divorce:
Step 1: Understanding Your Financial Picture
To rebuild, you first need to understand where you stand financially. That means preparing a detailed document outlining your income, expenses, debts, and assets—effectively creating a post-divorce budget.
As Jennifer Lane, a financial advisor and Principal at Compass Planning Associates reminds us, "Understanding your cash flow is fundamental. You need to know what's coming in and what's going out every month."
Do you know how much money you have going in and out of your accounts every month? What you spend on personal expenses? Housing expenses? Etc? If the answer is no, get on top of figuring out the hard numbers of your life first. Don't forget to think about annual costs when you break down your monthly spending.
The Divorce Planner's customizable monthly budget calculator walks you through every possible expense and does the math for you.
Step 2: Establishing an Emergency Fund How To Build Your Savings Up After Divorce: 5 Steps To Take For Financial Security
Once you have a clear picture of your financial health, your next step is to establish an emergency fund. If you don't have one, build one A.S.A.P. This fund will serve as a financial safety net for unexpected life events, providing you with peace of mind and financial stability.
The standard recommendation from financial advisors like Suze Orman is a six-month emergency fund, which covers six months' worth of living expenses. "Having that safety cushion gives you financial security, and that feeling of security in itself can be priceless," Orman says.
Step 3: High Yield Savings Accounts
The next step to consider is opening a high yield savings account. As the name suggests, these accounts offer a higher interest rate than standard savings accounts, which helps your money grow faster.
Financial institutions such as Goldman Sachs, Ally Bank, and Barclays offer high yield savings accounts with competitive interest rates. NerdWallet tracks which financial institutions are offering the best rates every month.
As per Sharon Epperson, CNBC's senior personal finance correspondent, "The returns on high-yield savings accounts can help you reach your financial goals sooner. It's a safe, smart way to save post-divorce."
Step 4: Consider Automated Savings
Another critical strategy for rebuilding your savings post-divorce is to make saving automatic. Many banks offer automated savings options, allowing a fixed amount to be transferred from your checking account to your savings account each month.
Start small. Putting $25 dollars a month into savings is a victory!
The magic of steady saving is exactly that—magic! Studies have shown that even the smallest amount, when saved consistently, can accumulate considerable wealth. According to a CNBC report, by putting away just $5 a day, you could end up with nearly $200,000 in 40 years based on an average market return rate! This highlights the strength of compound interest and its ability to boost your wealth exponentially over time.
At The Divorce Planner, we believe that every dollar saved is a step towards financial independence and stability. No contribution is too small, and no effort goes unrewarded in the grand scheme of things. By consistently adding to your savings, you're not just securing your financial future, but also exercising control over your present situation.
Step 5: Continue To Educate Yourself About Personal Finance
Read finance-related books, attend webinars, follow respected financial experts, and do not hesitate to seek professional help if needed.
Most banks, credit unions and other financial institutions offer free financial planning services! Book a consultation to discuss your goals and make a plan.
"Being scared of managing money is not an option. Ignorance is not bliss. You have to take control of your financial future, and that begins with understanding money management and embracing financial literacy," advises Patrice Washington, a renowned personal finance author.
By understanding your financial situation, establishing an emergency fund, considering high yield savings accounts, automating your savings, and embracing financial literacy, you can rebuild your savings after divorce.
Remember, the goal is not only to survive but to thrive and build a secure financial future.