By: Joseph Goldy, CFP®
Going through a divorce can be an incredibly stressful and emotionally draining experience. In addition to dealing with the end of a marriage, there are practical and financial implications to navigate. One potential pitfall many divorcees find themselves in is overspending to cope with the changes and upheaval in their lives.
While the urge to spend money as a form of retail therapy or to maintain an unrealistic lifestyle may provide fleeting moments of comfort, succumbing to it can set you up for long-term financial hardship and instability. As a financial advisor specializing in helping divorcees get back on their feet, I've seen firsthand how overspending after a divorce can derail people's finances and extend the recovery process.
The Consequences of Post-Divorce Overspending
Overspending in the wake of a divorce often stems from a desire to fill an emotional void or maintain a lifestyle that is no longer feasible on a single income. However, racking up debt and depleting savings and assets can make an already difficult transition even more turbulent. It can lead to consequences such as:
Diminished ability to pay bills and meet financial obligations
Dwindling of retirement savings and investments
Difficulty securing loans or lines of credit due to damaged credit
Potential bankruptcy if debt levels become unmanageable
Inability to build an emergency fund or save for future goals
After a divorce, getting on solid financial footing is crucial for immediate stability and long-term security. Overspending can severely undermine those efforts.
Tips to Avoid the Overspending Trap
While it's perfectly normal to experience a range of emotions after a divorce, it's important not to let those emotions dictate your spending habits. Here are some strategies to help avoid the overspending trap:
Create a fun money account: Set aside a certain amount of money devoted to bringing you happiness after the divorce is finalized. Clothes shopping, travel, taking time off, going on a getaway with your children; whatever allows you to free your mind and celebrate the closure of your divorce is acceptable. Having a dedicated amount earmarked for fun makes you less likely to overspend.
Reassess your household cash flow and spending: Take a hard look at your new financial situation and create a realistic cash flow projection that accounts for your new income level and expenses. Identify areas where you can cut back and prioritize essential costs over discretionary spending. If you're the one receiving alimony, try to project out beyond when it ends to see the impact of that loss of income.
Build an emergency fund: A safety net of 3-6 months' living expenses can help you avoid debt if unexpected costs arise. Make building an emergency fund a top priority as you adjust to your new financial reality.
Seek support: The emotional toll of a divorce can be immense. Lean on your friends and family support system, or consider counseling or a support group. Having an outlet to process your emotions can make it easier to avoid using spending as a coping mechanism. One of the benefits of working with HIGHLAND is our vast professional network. Therapists, divorce coaches, career counselors, and mental health professionals are all part of our network for clients to draw on if needed.
Hold off on major purchases: Resist the urge to make large purchases like a new car or home immediately after your divorce. Give yourself time to adjust to your new financial situation before taking on significant new expenses or debt.
Consider working with a financial professional: A CERTIFIED FINANCIAL PLANNER™ who specializes in divorce can provide invaluable guidance as you navigate this major life transition. They can help you create a comprehensive financial plan, manage assets and debts, and make informed decisions about your future.
The period after a divorce can be rife with the temptation to overspend as a way to cope or maintain an unsustainable lifestyle. However, giving in to those impulses can severely jeopardize your long-term financial health and stability. By being mindful of your spending, seeking support, and focusing on building a solid financial foundation, you can emerge from this challenging life event in a stronger position to achieve your future goals.
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.