By Mark Bordelove
It is a fact of life these days that one out of two couples who get married will wind up getting divorced. Even though people are waiting longer because of careers or other reasons it still does not seem to positively affect the statistics. When divorce happens, we as planners have quite a job. We are hand holders, amateur psychologists, and provider of tough love if that is what the situation calls for. Our clients need straight talk regarding their finances.
My friend Cheryl was in a bad marriage. When we sat down to discuss planning and her situation she said to me very ominously, "Coming out of this divorce, one thing I know for sure is that he will never ever be able to support his daughter." She has been absolutely correct.
Cheryl has a very stable job and makes good income. She is definitely not afraid to work and put the time in. What she needed was a plan because as she said to me, "I have no idea what I'm doing and nobody to help me." Her company gave her the basics of planning, but she needed a plan. I began the process by helping her dive into the details. She had never focused on investments or the bills. I wanted her immediately to focus on the future and educating herself. We did a deep dive into all facets of her financial life over a period of several weeks and started to implement an action plan.
At the time of the divorce her ex had a ton of debt that was jointly shared but his parents actually paid it off. Had that not happened, I would have suggested she attack this first because it was non-deductible credit card debt.
We focused on budgeting. Where was her money actually going? Was she focusing on maximizing where and how her dollars were being used? The budgeting process is usually an eye opener because people think they have more left over than they did. It requires time to drill down into the weeds to really see where the money goes. She realized after this exercise that there are dollars going out that did not have to go out or could scale back certain spots. A good example of this was the 4 times a week carry out for her and her daughter. This expense turned out to be one of her largest monthly expenses and she never had thought about it. Two other examples of expenses that she realized she needed to try and manage better were the weekly cleaning lady and the weekly nail appointment. She realized she could cut those down and still not feel like it was a major sacrifice for her or her home.
Cheryl needed to start back up with her 401(k). We obviously know the benefits of contributing. Once she saw she had the discretionary dollars to contribute, she got started contributing again. The advice I gave was to pick a percentage that she felt comfortable starting with but to remember it is a fluid situation and can be adjusted up or down.
Cheryl needed to build up her cash in the bank. I call that bucket the “sleep well at night” piece. She would start to allocate a few dollars from each check for emergency funds. I told her she should get that back up to 6 months of reserves, which is a general rule of thumb. I made it clear liquidity is a priority in case home repairs are necessary, for example.
The next goal to start working on was a college plan. She felt it was important to start working on this and contributing for her daughter's education. My advice was to pick a small number she would be comfortable with. I advised not to go to big. She should not sacrifice her security and future to make sure the daughter does not have loans. She came up with a number she was comfortable and started contributing monthly to the account. She saw some growth out of the investment but more importantly for her, she felt she was contributing to her daughter’s future and for her emotionally, which was a big event.
The last thing we talked about was that she wanted to be able to take an annual get-away with her girlfriends. We discussed allocating dollars monthly for this expense. After a year, Cheryl and the girls went on this trip. When she got home, she told me those was the best dollars she allocated in the process. It has been an annual event ever since.
To be able to juggle career and family life is not easy for anyone. Cheryl was determined after her divorce to educate herself on her finances. She committed the time and energy to being part of the process. Her success financially has been the result of a lot of hard work and sacrifice. I am proud of her for how far she has come.
A happy ending for a great person.
About the author: Mark Bordelove
Mark Bordelove became a licensed financial advisor in 2000 and co-founded Bordelove Foster Wealth Management in 2009. A devoted husband and father, Mark has also completed two Ironman competitions
Mark Bordelove offers securities and advisory services through LPL Financial, a registered investment adviser, member FINRA/SIPC. Mark Bordelove and LPL Financial are not affiliated with Jim Cramer or TheStreet. This material was prepared by Mark Bordelove. This is a hypothetical situation based on real-life examples. Names and circumstances have been changed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your financial adviser prior to investing.