It might seem like the furthest thing from importance or it could feel like a crushing weight. For women enduring divorce or the death of a spouse, money concerns can come with a sharp edge, whether seen or unseen, real or imagined. With a good plan and some good advice, that concern can become a source of strength and stability.
To understand your cash flow, there are three main questions to answer.
- Where does money need to go?
- Where is money coming from?
- What other liquid assets do I have?
Answering these three questions will set you on the right path.
Expenses are the first concern when mapping your cash flow. These can be broken down into three categories: Immediate, One-Time, and On-Going.
To sort these appropriately, and to track everything, we advise sitting down with a pen (or computer) and making three columns, headed by those categories. Under each, write corresponding expenses.
Immediate expenses are those that are essential for your current health and safety. These may include moving expenses if you need a new living arrangement, transportation costs, food, and others that affect your well being in the near term.
These expenses are those that can typically not be paid on installments and must come from immediate cash on hand. They are the expenses that must be addressed first and foremost.
One-time expenses are those that relate specifically to the changing situation you are facing. These may include attorney fees, funeral arrangements, security deposits or anything you’ll only have to take care of one-time because of your situation.
These expenses are generally only those associated directly with divorce proceedings or the death of a spouse. Some one-time living expenses may be included here, also.
Ongoing expenses are usually predictable because of a standard payment schedule. They include mortgages, credit cards, subscriptions, utility bills, cellular and Internet service, memberships, and leases.
It is important to note, in this case, which are essential and which are luxury items. If needed, some ongoing expenses may be eliminated by simple termination of service and others may require a buyout or cancellation fee. Make note of which ongoing expenses can be easily and inexpensively terminated in the event that such action is necessary.
Remember: Preparation in these matters is almost always preferable to reaction.
WHERE IS MONEY COMING FROM?
Now that you’ve identified where money must go, it’s time to assess how it flows in. For this exercise, it will also be helpful to list out each item with as much detail as is available.
Begin with all sources of income. Anything that brings money into the household is to be considered. Paychecks, investment dividends, business profits, trust funds, and others should all be listed. For the widowed, a life insurance policy should also be listed as it is a source of income.
It is important to list not only your own incomes, but those of your spouse as well. Your aim is to draw an accurate picture of how much income is generated by the entire household. In the case of a spouse’s death, the importance is to understand by how much the household income will be reduced.
Next, list with each source the amount that each generates. Be as accurate as possible. If you have access to records, use them to find exact amounts. You may find that you don’t know as much about the inflow of cash as you’d thought you did.
In another column, make note of when each of these sources pays out. Do they come in weekly, monthly, or yearly? What date can income be expected from each source?
Another important factor with income sources is the duration of the payment. For instance, life insurance may come in a lump sum, while an annuity will have an amortization date, payments from an employer last as long as employment is maintained, and Social Security payments are made until death.
The final consideration with income sources is the tax consideration. Make sure you understand the tax liabilities associated with each source and make note of those that require action to keep taxes current.
WHAT OTHER LIQUID ASSETS DO I HAVE?
To have the total picture of the resources available in your household, you must also know which liquid assets exist as well. A liquid asset is cash on hand or an asset that can be readily converted to cash
First, find out all assets that are available. Checking and savings accounts are the most common liquid assets and should be easily accessible. However, don’t forget about stocks, bonds, money market accounts, and mutual funds. All these are considered liquid assets and should be added to the list.
Determine the value of each liquid asset and make note of it.
You also need to understand the access details of each account. Is it a joint or solo account? Is there anyone else, besides you or your spouse who could access the asset? Are there accounts to which you have no access or are unsure how to gain access?
As with income sources, make yourself aware of the tax considerations of each asset. Liquidating some assets now may incur tax penalties that could be avoided later. Each asset type may have differing and sometimes complex tax implications. Enlisting the help of a professional is especially advisable in situations where large numbers of liquid assets are present.
As we move ahead, knowing where the money comes from, where it must go, and what else exists in the cash flow picture can be of vital importance.
The exercise of writing everything down serves not only to inform, but can also allay some of the fears that come along with an uncertain journey.
Now that you’ve done a bit of work in finding exactly where you are and in understanding your household cash flow, it’s time to take some time for yourself. We’ll address your time for time out in our next chapter.