Getting divorced can wreak havoc on not just your emotions but your finances as well. Once you go from a dual-income household to a single-income existence, you'll need to rethink certain aspects of your budget and make changes to ensure that you're not overspending. Here are a few key areas to focus on.
1. Your mortgage
Many married couples buy homes together with the assumption that they'll have two incomes to help cover the mortgage. What this means is that you might struggle to cover your mortgage once one of those incomes disappears. Even if you win the right to remain in your home as part of your divorce settlement, you'll still need to run the numbers to see if you can actually swing the costs involved.
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Remember, as part of paying a mortgage, you'll also be responsible for homeowners' insurance and property taxes. And while it's OK for housing to constitute your single greatest monthly expense, you should also make sure that your total cost in that category doesn't exceed 30% of your take-home pay. If it does, you'll need to consider moving to a home you can more easily afford.
2. Your car payment
Maybe you and your former spouse shared a vehicle -- and its cost -- when you were living together. But now that you're divorced, you'll need to think about whether that car payment and its associated costs are worth it. It costs $725 a month, on average, to own a car, according to AAA. If you're on a tighter budget because of your divorce, you may want to reconsider that expense if it's not an absolute necessity. Crunch some numbers and see what it'll cost to take public transportation to work and the occasional car service around town as opposed to retaining that vehicle. If you stand to save a few hundred bucks a month, getting rid of that car is probably a worthwhile move.
3. Your health plan
Getting divorced means losing access to your former spouse's workplace benefits, and that includes health insurance. If you were on your spouse's health plan and need to switch to a new one, you'll need to research your options and see how they might impact your finances. Your first step should be to check out your own employer's plan, assuming that's an option. Most companies subsidize health insurance to a certain degree, so you'll probably spend less on an employer plan than on one you purchase through the open market.
Either way, you may come to find that your out-of-pocket costs are higher under your employer's plan than what you paid with your former spouse's plan. Look at things like your deductible and copayments to get a sense of what you'll end up spending. You might also think about shifting your flexible spending account (FSA) allocation if it turns out your costs will increase significantly. Though the amount you initially contribute per plan year to an FSA typically can't be changed, exceptions apply for life events such as getting divorced.
4. Your general expenses
One benefit of being married is having someone to split the bills with -- bills that remain the same whether it's one person utilizing a particular service or two. Now that you're divorced, you'll need to examine your spending and make sure you can actually afford the things you used to spend money on. You may need to scale back your cable plan, limit your leisure spending, or do more cooking at home to avoid going over your new budget.
5. Your savings
When you're first getting used to the idea of living on less money, the idea of saving some might seem laughable. But just because you're divorced doesn't mean you can let your long-term goals fall by the wayside. Tough as it might be, make sure to continue saving at least 10% of your paychecks (and ideally more like 15% to 20%) for retirement. Your newly configured budget should offer plenty of room to contribute to an IRA or 401(k), if your employer offers one.
Also, don't make the mistake of neglecting your emergency savings. Now that you no longer have a second income to rely on, it's even more crucial to have a minimum of three months' worth of living expenses tucked away in the bank. For an even greater dose of security, aim to maintain an account with six months' worth of living expenses. Emergency funds are so important, in fact, that they should trump retirement savings, so if yours is lacking after your divorce, work on building it before you focus on your nest egg.
Adjusting to a divorce can be challenging on many levels. If you're smart about tweaking your budget, you'll help alleviate some of the financial stress you might otherwise encounter.
