Six financial mistakes newly single people make(Read article summary)
Your heart is broken, but you don't need your finances tattered as well.
When you're newly single, because of a break up with a long-term partner, a divorce, or death of a spouse, suddenly flying solo presents all sorts of challenges when you're least up for it. This can set the stage for costly mistakes.
Your heart is broken, but you don't need your finances tattered as well. Avoid these missteps some newly singles make.
Making Big Changes or Fixating on Details to Avoid Emotions
There are few times as emotional as right now. You just want the pain to be over. However, moving, changing jobs, jumping into a new relationship isn't the answer. "It won't give you the distance or distract you from the feelings of loss and grief," says Toni Coleman, a psychotherapist and relationship coach. Many experts say not to make any major decisions until 6-12 months after this type of life change.
If you happen to be going through a divorce, it's easy to get caught up on petty property battles like furniture or memorabilia. Let some stuff go. "This sucks up time and energy you and your lawyer should be spending on bigger items, like alimony, child support, or the house," says Carla Dearing, founding CEO of SUM180, an online financial planning service.
Failing to Adjust to the New Economic Reality
So often, people cling to their old lifestyle, rather than adapting to a new one. This can hold them back and keep them from moving forward in general, but also can be disastrous financially.
"They find themselves living a lifestyle they can't afford, which can lead to increased debt, not saving appropriately for retirement, canceling important insurance such as life and disability, and having no emergency fund," warns Ed Vargo, founder and private wealth manager of Burning River Advisory Group. "It's not business as usual. You will have to adjust your spending. Create a new budget."
Avoid the temptation to indulge in retail therapy to make yourself feel better.
Clinging to the Family Home
Yes, the house is home sweet home, but sometimes, particularly women, feel they need to keep the house – no matter what, because they lived there for years and it represents home for the children. The impulse is understandable. But accept the fact that the financial landscape is being redrawn and it may not make sense.
"Do the math. Then be brutally honest with yourself. Will you have enough future income to maintain the house? Remember, maintaining is more than just paying the mortgage," says Dearing. "It means covering utilities, upkeep with repairs, and more."
"Once you set aside your emotional attachment to the home, you may realize that moving to a small condo is best for your peace of mind."
Not Updating Shared Finances and Legal Matters
One of the biggest mistakes that haunts people for decades is not updating their beneficiary designations. A beneficiary designation determines who gets the money in an account in the event of your death. Most people don't know that a beneficiary designation trumps a will. "There are thousands of exes out there coming into big inheritances that were not intended for them after the break up," says Rebecca Schreiber, a certified financial planner and co-founder of Pure Financial Education. "You can change a beneficiary designation at any time, so make sure they are up to date."
Be swift to take each other off joint credit and bank accounts because owning joint property can create liability for both people based on one owner's negligence. "The more promptly such joint ownership can be undone, the better," says Benjamin Sullivan, a certified financial planner with Palisades Hudson Financial Group.
Also, if you receive part of your spouse's IRA, it's important that the money is immediately rolled over into your IRA or you could be subject to the 10% early withdrawal penalty, points out Ted Jenkins, co-CEO and founder of oXYGen Financial.
Similarly, you want to update wills, power of attorney, and insurance policies. Remember, the person who is named first on a car insurance policy is the one who keeps the auto insurance. The second named person needs to get a new policy as soon as one person moves from the home. "If not, the second person is not insured," says Lacey Langford, a financial counselor.
Failing to Set New Financial Goals
Get up to speed on your financial picture. Make sure you have access to all bank and investment account passwords and documents and recent tax returns. Check your credit reports for discrepancies. You've gone from two to one. This changes everything. Throw out your old financial playbook and create a new one. Decide what your want your future to look like. Now that retirement may be just you, your numbers will change.
How much will you need to live on your own? How can you save to meet the new figures? It's more expensive to live when you're single, compared to a team. The difference feels even greater when you're older and no longer employed and without options like working overtime to take up the slack.
Be conservative and greatly raise any projections you may have had for how much you need to retire. You may need to adjust when you retire too, or to work part-time in retirement.
What's key? "Don't stop saving," even when times get tough, says Vargo.
Playing Macho Man or Woman
This is no time to act like you can handle everything on your own. Turn to family, trusted friends and advisors for clarity and energy for the next steps you need to tackle. Says Dearing, "With your emotions all over the map, you need your trusted advisers to guide you toward decisions that honor your priorities and align with your long-term goals. It's okay to let your support network carry you a little bit just now."
This article first appeared in DealNews.