Divorce and Finances: How to Make Smart Financial Decisions in the Midst of Uncertainty

 Stephanie McCullough
April 17, 2019

Divorce and Finances:
How to Make Smart Financial Decisions in the Midst of Uncertainty

Stephanie McCullough, Founder and CEO of Sofia Financial, has seen a lot of clients who are dealing with divorce. While the advice below applies to anyone going through a period of uncertainty, it’s especially important for those navigating divorce and finances.

This article originally appeared on sofiafinancial.com.

Hands holding a phone with a computer, calculator and newspaper

Uncertainty. How do we live with it? Human beings don’t like not knowing what comes next. We look for explanations and predictions. We are drawn to people and stories that profess to tell us what will happen—but no one can predict the future.

However, you can make good decisions if you focus on the right things. Since this article is specifically about money, let’s review what you do and don’t control in that area.

What do you not control? Here are just a few: markets, the economy, politics, inflation, government policy. These take up the majority of the headlines so it’s easy to get stuck focusing on them.

I’ve been hearing a lot of worry, angst, and even panic in the past couple of months from clients and friends. They tell me they feel like they need to do something. However, while it’s true that activity can relieve anxiety, it needs to be the right action.

Inaction and Reaction

We’ve all known people who act too quickly when they’re stressed, and make terrible choices based on a feeling of the moment. Others procrastinate or fall victim to paralysis by analysis, afraid to make any Control Device With the Word "Settings"decision as in the following example.

Steven was only 40 years old when he pulled all his retirement money out of the market.  Because this happened before the crash of 2008, over the next several months he felt he had made a smart move. However, since then, he’s been waiting for the perfect time to reinvest back into the market. He’s still waiting. Had he not sold in a panic but rode through the big downturn and the subsequent recovery, his account could easily be twice as big by now – or even higher.

The Right Action

Relieve stress by doing something you can control. Even a small step can make a world of difference in your emotions and outlook, as in this example.

Simone called me in early December of 2008. “Tell me again why I’m not supposed to sell?” she asked. We reviewed her long-term goals, and the fact that she had at least 20 years before she was going to retire. We talked about market cycles and research findings that show the single greatest determinant of how much money people have in their 401(k) when they retire is not which funds they choose or how the markets perform, it’s how much they put in. She felt better, but since she wanted to do something, she increased her contribution level to her 401(k), which not only helped her future self, she felt better, too.

Mathematician, John Allen Paulos, wrote “Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security.” With these wise words in mind, here are three steps you can implement today to help you plan for the future.

Get the Big PicturePicture of nature against a background of nature

  • Take a deep breath. Remind yourself that crises come and go. Don’t make impulsive decisions based on today’s feelings.
  • Reduce distractions. Stop constantly reading the headlines, checking the stock market and visiting social media.
  • Write down your long-term goals. What do you want in life, and why?

Make a Plan

Take the unknown into account. While no one likes to think about what could go wrong (illness, layoffs, divorce, death), if you put measures into place now, the inevitable emotional trauma does not have to be compounded by financial hardship for you and your loved ones.
Get real about your situation today. Identify where you could scale back spending. Separate essentials from discretionary items, so you know which levers to pull in a crisis.

Person writing in a notebookDo something that directly supports your long-term goals. A positive step feels good and restores a sense of control over your life.

Plan for future uncertainty. Create an emergency fund account. Make an appointment to update your will and powers of attorney. Double-check the beneficiary designations on your life insurance and IRAs/401(k)’s.

My clients often say to me “I want to make smart financial decisions.” Luckily, information and strategies are available. Start by embracing uncertainty to help you formulate a plan that not only feels good now, but also empowers your future self to have more options.

Stephanie McCullough is a Divorceify Professional. To learn more about her financial advisory practice, visit her profile.

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