By: Joseph Goldy, CFP®
Discover the hidden financial dangers many newly independent women face after divorce. In this video, Certified Financial Planner™ Joe Goldy shares three vital strategies to prevent overspending, manage your finances, and secure your future. From creating a "fun money" account to working with a CFP, learn how to navigate your new financial landscape confidently. Don't miss out on these expert tips—subscribe for more insights!
Introduction: Welcome Back
Hi, Joe Goldy, Certified Financial Planner™ from Highland Financial Advisors. Welcome back to our series on helping newly independent women gain Financial Freedom. Uh, if you're new to the series, uh, I invite you to hit the Subscribe button down below, uh, to get notified every time we release a video just like this one.
Understanding the Hidden Danger Post-Divorce
So today, I want to talk briefly about the hidden danger that happens post-divorce. This sneaks up on many people, and I want to ensure it doesn't happen to you. So, we will go through three things to help you avoid this hidden danger. And what that is is overspending right after the divorce is complete.
This is something that a lot of people don't think about. Still, in my practice and much of what I've researched and read, this is widespread, especially for the person receiving alimony or getting a lump sum through the settlement.
Emotional Triggers Leading to Overspending
So, you know, many emotions are being felt post-divorce. You know, it could be feelings of being very happy that it's over, sadness that it's now complete and you're now on your own, or something in between. But for many people, whatever emotion you feel causes us to overspend.
You want to go out there and either celebrate if you're feeling pleased about the divorce being over or try to comfort yourself by spending if you're not feeling so great and are in a place of sadness. And I want to avoid, and what I would like you to avoid, is that temptation to overspend.
Three Ways to Avoid Overspending Post-Divorce
So, there are three ways to avoid that, especially if you're receiving alimony or a large lump sum through the settlement. You can feel very wealthy just post-divorce. It's so it could be a large sum of money that you're coming into.
We have to realize, and many people fail to realize, that money now has to last you for a while—potentially your lifetime. Most of the time, there is an end date for alimony.
1. Create a Fun Money Account
One of the first ways to counteract overspending post-divorce is to create what I call a fun money account. The whole idea here is to have a certain amount earmarked, dedicated, and set aside for having fun and bringing you joy and happiness. However, that may be.
For some people, it's going out and buying a new wardrobe; for others, it may be traveling alone or with your children, friends, and family. Whatever it is that brings you joy, that fun money account is money that is set aside expressly for that purpose. By having that set amount, it helps you avoid overspending.
If you don't have that set amount, it's very easy to overspend on all these things. But if you know you have that there, that's the purpose, the idea behind the fun money account. So that's the first way to counteract overspending.
2. Have a Detailed Cash Flow Plan
The second is having a very detailed cash flow and going through what your income and expenses are going to look like post-divorce. I am trying to project out what that will look like, maybe after alimony ends as well.
So again, right after a divorce, you're potentially coming into a large sum of money. It could be a lump sum or alimony, a combination of both, and child support if you're the spouse receiving these. And it is very easy to say, "Wow, you know, I'm flushed with cash right now," and not think 5, 10 years down the road.
So, when you go through your cash flow—and we have a very simple, easy-to-use cash flow template that I'll put a link to at the bottom of my video here in the comments down below—that's all you need: something straightforward to use that outlines all of your income sources and all of your expenses.
Here's the best part: Most states require this if you just finished a divorce and you're in New Jersey. In New Jersey, we have something called a Case Information Statement or CIS. One of the requirements for filling out the CIS is to have all your income and expenses laid out in detail. So, chances are 90% of your cash flow is already completed through that CIS exercise you had to go through during the divorce. So that should help.
So, cash flow—having that cash flow detailed and in front of you and projecting out—is important. That's number two, and it helps you avoid overspending.
3. Work with a Certified Financial Planner (CFP)
The third is that I'm slightly biased, but working with a Certified Financial Planner® is incredibly important. So, you can have friends and family, or you can maybe try to do it on your own, but post-divorce, when you're analyzing your cash flow or a weekly or monthly budget, you want that third-party, unbiased opinion to rely on.
You want that advice to help guide you and look for areas you may not be considering. Certain expenses go up when you're single: Cell phone bills and auto insurance—these things you're getting a discount on when you have multiple people on the plan. Some of these expenses are increasing now that you're alone, and it's important to know.
The other part of working with a CFP® or financial advisor is helping you build an emergency fund and develop a strategy to tackle any debt you may have post-divorce. This is important.
Another thing I often see with people I work with is that somebody usually wants to stay in the marital home. There are a lot of emotional ties to that, and especially if you have children, as a parent, you feel that you want to give them continuity in keeping the home going. Financially, it could be a risk to you, and you must think long and hard about all those expenses that go with maintaining and operating a home on an ongoing basis. This is where a CFP® can be beneficial: Does it make sense financially to keep the marital home?
One of the best things you can do for your children is to be financially secure yourself, and that's important.
Important Tax Considerations Post-Divorce
Something else that many people don't realize is that when you become divorced, whatever your marital status is, on December 31st of that year, that is how you're filing your taxes.
So, in the year of your divorce, you're no longer filing "Married Filing Jointly." You're now filing either as an individual person or head of household, whichever applies, and that changes your tax brackets, and it could mean an increase in the amount of taxes you're paying. So that's also something to be aware of.
Recap: Three Key Strategies to Prevent Overspending
To recap, the three ways to help from overspending—and again, this really is a hidden danger that many people don't even think about, but I see it time and time again with people I work with—is overspending post-divorce. So, how do we counteract that overspending?
Have a Fun Money Account: This is dedicated to spending money only on yourself, having a good time post-divorce, and helping alleviate stress and bring joy.
Review Your Cash Flow: Know where you stand from an income and expense standpoint and do your best to try to project out a few years, you know, post-alimony. If you're receiving alimony, you want to know when that income goes away: How will I make up that shortfall? So, having a good cash flow is very accurate.
Work with a Certified Financial Planner (CFP): It is essential to have unbiased advice and a trained professional looking out for your best interest and looking at where those financial risks may be.
So, I hope that helps. See you next time!
Joseph Goldy, CFP®, is a wealth advisor and CERTIFIED FINANCIAL PLANNER™ at Highland Financial Advisors, LLC, a fee-only fiduciary wealth advisory firm based in Wayne, New Jersey.
Joe specializes in working with newly independent women because of divorce or losing a spouse. He understands firsthand the value of having a clear financial picture pre- and post-divorce and a plan to restate goals as a single person. When he is not helping clients, Joe enjoys spending time with his two sons outdoors and volunteering to help raise money for Type 1 diabetes organizations.