Budgeting and Investing for Divorced Women

As a private money manager and advisor, I have worked with many divorced women in budgeting and investing as they embrace their new lives. Whether they are still working or are coming away from the divorce with a lump sum of money or both, I find that the task of knowing what you can spend and what you need for income both short-term and long-term can feel daunting.

I wrote this article to offer a framework for budgeting and investing. This is not financial or investment advice, since each individual divorce is unique, and every person comes from a different place concerning their spending habits, past money story, expectations and experience.

 The essence of a budget

 LIMITED, particularly used in the context of spending, is a dirty word that no one wants to hear when it comes to a budget. I don’t use the word limited. I use the words cash flow. A budget is a cash flow analysis that considers income, spending and savings.

Assuming your divorce settlement is all your money, it is imperative that the money be wisely managed.  This means that we must account for not only the basics of spending, but your lifestyle analysis as well.  This should also consider any future lifestyle expenditures like international travel, additional real estate purchases, business capital or assisting a family member, to name a few.

If you and your financial advisor conclude through a thorough financial analysis that you do not have enough capital to comfortably live your life, the budged must be revised and the choices are:

• • Go back to work (earn income.)
  • Find a way to lower your expenses.

These might not seem like choices you want to hear. They can feel very uncomfortable and intimidating. They can also cause anger and resentment, as maybe you didn’t have this issue prior to your divorce. That said, information is power, and just knowing your situation can help you make the best financial decisions.

Our clients with budgets are revisited annually and typically adjusted. Many clients ask for additional funds through the year for lifestyle items like car purchases, roof repair, large expenditures, and other not previously budgeted items.

The goal is for you to live off your investment earnings whether that means dividends, distributions or capital gains.

As a financial advisor, I avoid systematically withdrawing principal and interest for my clients. Why? Because we can’t predict what the future holds. That said, it is crucial to financially empower my clients, and make sure they have confidence in their financial picture.

 

 

The essence of investing

Many financial advisors advocate asset allocation, which is buying many investments with less correlation (less risk) to provide more stable returns in any economic environment. This approach is a “not to lose” strategy because if you get a single digit return, you more than likely will not bother to make changes.

The true test of investment planning is that your portfolio grows in addition to your drawdowns (withdraws).  This way your money continues outpace spending, inflation, taxes and other unforeseen expenses.

 

The benefits of dividend investing

Dividend investing can be particularly beneficial for divorced women for several reasons. Here are some key advantages:

1. Steady Income Stream:

Dividends provide a reliable source of income, which can be crucial for financial stability after a divorce. This consistent cash flow can help cover living expenses, pay bills, or fund retirement.

 

2. Financial Independence:

Investing in dividend-paying stocks can empower divorced women to take control of their financial futures. It encourages independence by building a portfolio that generates income without relying solely on employment.

 

3. Long-Term Wealth Building:

Dividend investing is a strategy that can help build long-term wealth. Reinvesting dividends can compound growth over time, which can be particularly beneficial for those who may need to rebuild their financial resources post-divorce.

 

4. Tax Advantages:

Depending on the jurisdiction, qualified dividends may be taxed at a lower rate than regular income, which can enhance overall returns and improve financial outcomes.

 

5. Diversification:

Dividend stocks are often well-established companies with stable earnings, which can add a layer of security to an investment portfolio. This diversification can reduce risk and provide more stable returns.

6. Financial Literacy and Confidence:

Engaging in dividend investing can enhance financial literacy and boost confidence in managing personal finances, which can be especially empowering for women who may have previously relied on a partner for financial decisions.

7. Flexibility:

Dividend investing allows for flexibility in how one approaches financial goals. Investors can choose to reinvest dividends for growth or take them as income, adapting to changing needs over time.

 

8. Community and Resources:

Many communities and organizations offer resources and support for women in finance. Engaging with these can provide valuable education, networking opportunities, and mentorship, making the investing process less daunting.  One great organization with free resources is “Purse Strings.” I also have a customized budget worksheet available for free. Please email me for a copy at: Craig@RichmanCM.com.

9. Legacy Planning:

Investing in dividends can also be part of a broader estate planning strategy. It enables divorced women to build assets that can be passed down to children or beneficiaries, securing their financial legacy.

 

We recommend having a portfolio of 20 to 25 stocks. Having hundreds of securities pretty much guarantees average performance at best.  We specialize in this area because we are committed to providing needed income to our divorced clients. Other components of our portfolios include growth stocks, ETFs and real estate.

In closing, getting divorced and then budgeting and/or investing for the first time (or the first time in a long time) on your own can feel intimidating. Helping women overcome that emotion, empower themselves, and find peace when it comes to their financial situation has been my niche for over 30 years. I’d love to talk if you’d like to set up a consultation.

Since 1979, Craig Richman has been working to help protect and consult with his clients on their financial issues. In 1998, Craig joined Commonwealth Financial Network®, a Registered Investment Adviser–broker/dealer that helps independent advisers like us serve their clients.

Craig has always worked closely with his clients, and he started to notice a trend: a lot of women were coming to him facing financial upheaval as a result of divorce or another transition. To better help his clients, he became a Certified Divorce Financial Analyst® (CDFA®) in 2014. This helps him better understand the financial implications of divorce and separation on his clients.

Craig is known for being responsive to the needs of his clients and for seeking out additional learning and professional development opportunities to help him become a better financial consultant and resource. He received his undergraduate degree from Florida Atlantic University in Boca Raton. He holds the Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) certifications from The American College in Bryn Mawr, Pennsylvania. Craig went on to earn the Accredited Investment Fiduciary Analyst® (AIFA®) designation from the Center for Fiduciary Studies and the University of Pittsburgh’s Joseph M. Katz Graduate School of Business. To help his clients better manage their portfolios, Craig has completed the dividend analyst course from Morningstar, Inc.