Life after divorce – budgeting when you’re a single income household.
If you’re a single Mum or Dad, managing family finances can be difficult when you’re suddenly working with a single income. But there are some simple strategies you can put in place to ensure the bills are paid, enabling you to also put some money away.
The happy news is that divorce rates in Australia are in decline. But according to statistics in 2016, nearly half (47%) of divorces involved households with children under 18. And for Mums and Dads who suddenly find themselves trying to manage financially, it can be a steep learning curve to juggle all the household expenses on less income, regardless of how you work out with your ex-spouse who pays various costs for the children.
There is really only one way to get on top of your finances and that is to understand exactly what you earn and what you spend. Here are five things you must consider when you’re sorting out your finances.
1. Make a budget and stick to it
Firstly, do a comprehensive budget, with your outgoings mapped to your income. If you get paid monthly, then work out expenses on a monthly basis, similarly if you get paid fortnightly or weekly. Also plan out when any ‘big’ expenses are due. Download our free budget worksheet.
It can help to set up a dedicated ‘savings’ account that you can direct funds into regularly. Even small amounts will add up, and if you automate your savings, then they’ll go into your account without fail and you’ll be more successful.
2. Get on top of debt
If you can downgrade your car or downsize your home, then you can reduce some of your biggest liabilities which can be a great expense reliever.
Real estate is a good asset that can be used to your advantage over the course of your lifetime so it doesn’t make sense to exit the property market completely if you already have a home, but if you can find something less expensive – an apartment or townhouse, or a house in a different location, then you can make a big difference to your outgoings not just in the short-term, but in the long term too.
Consider consolidating debts – particularly if you have expensive finance like credit card debt or car finance. Consolidating debts means bundling all your debts together into one single debt. The advantage is that you’ll only make one repayment instead of several, and usually you’ll be able to secure finance at a lower interest rate than you’re already likely to be paying. Get professional advice to determine if this is the right strategy for you.
3. Sort out insurance
Forget the idea that you ‘can’t afford’ insurance. For single-income households ensuring that the sole income-earner is well protected for any kind of emergency is of utmost importance. Income protection, total and permanent disability and trauma insurance are three insurances you should definitely investigate. It’s important to realise that ‘generic’ cover in your mortgage or superannuation might not actually cover you for what you need and while tailored insurance does cost a little more, it’s worth it if you need to make a claim.
4. Save … as much and as often as you can
A ‘rainy day’ fund is a must – and it might take you a little while to build this up, but start where you are and keep growing your funds. Every deposit counts. A savings account is a great buffer for life’s unexpected events and means you can stay out of unnecessary debt.
5. Don’t forget your super
Try to keep adding to your super regularly, even if you’re feeling the squeeze on the household budget. You still need to plan for the time when you will stop working. It’s tempting to take a break from adding to your super, but you’ll be glad you didn’t when the time comes to retire.
Above all, educate yourself. The Australian Securities and Investments Commission (ASIC) has good resources that are freely available through its MoneySmart website – there is information from a range of topics such as managing your money and understanding the jargon as well as the terms and conditions of loans and credit, as well as insurance.
6. Consider setting up a managed fund.
You can start with as little as a few thousand dollars and most investments are earning more than bank savings accounts right now. A managed fund is designed to help you maximise your money’s earning potential and while it’s ideal for you to let your managed fund grow for a period of time, you can access funds if you need them.
A financial planner can help you work through your financial position and also understand what insurance cover you need. If you’re keen on making an investment to grow your money for the longer-term, a planner can assist with that too.
If you are in considerable financial duress, you can contact the national debt hotline.
This is general advice and should not be treated as personal advice. Russell Tym is an authorised representative of MoneyLink Financial Planning Pty Ltd ASFL No: 247360.
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