How to get your financial life back in order after life transitions.
No one knows how disruptive life can be better than women in transition. Whether it’s widowhood or divorce, getting a job or losing one, moving into a house or out of one, women in transition are well acquainted with life’s surprises. “While it’s not fun to think about, addressing the finances is one of the first things you should do” following a transition, says Michelle Brownstein, vice president of private client services at Personal Capital in San Francisco. “Sitting there frozen for months or years on end after a transition can really hurt.” Here's some expert investment advice for women in transition to help you get your financial life back in order.
First, pause and regroup emotionally.
Women in transition often feel compelled to act, but sometimes it’s better to do nothing – at least not right away, says Walter Wisniewski, founder, CEO, and president of Arcadia Wealth Management. Emotions and investing can be a dangerous mix. “The ability to recognize when you’re having an emotional reaction with money is very powerful,” says Allison Vanaski, a senior financial planner and vice president of Investments at Arcadia Wealth Management. She and Wisniewski encourage women in transition to take time to let their emotions settle after a major life transition before trying to handle your investments.
Give yourself a timeline.
“No one should put a timeline on their grief,” Brownstein says, but the longer you wait to address your investments, “the more risk you’re taking on.” This could be the opportunity risk of keeping money on the sidelines, or investment risk from letting it remain in too aggressive of a strategy. Ideally, you should attend to your investments within one year of any transition. If you still don’t feel in the right emotional state to be making long-term financial decisions by then, ask a financial advisor for a short-term strategy while you get your bearings.
Don’t sign anything right away.
The biggest thing ShirleyAnn Robertson, a financial advisor with Prudential in Schaumberg, Illinois, stresses for women in transition is, “Do not commit yourself to a new contract until you’re clear about how long your transition will take to resolve.” If you lock yourself into a seven-year contract, for instance, then find your divorce requires you to pay up tomorrow, you may get hit with early withdrawal penalties. “Give yourself that year to understand what the obligations and the financial implications” of your transition are before committing to anything new, Robertson says.
Get your priorities in order.
It’d be nice if we could schedule major life upheavals the way we schedule dates, Robertson says. “I’ll take this one at 4:05 on Tuesday, and that one at 10:30 on Thursday, thanks.” Unfortunately life doesn’t work that way. When you get hit with more than one transition simultaneously, first determine which one takes precedence, Robertson says. Usually it’s the one with a deadline, like getting handed a buyout package at work and 30 days to review it. Divorce, however, can take a back burner. “If you jump too fast (after a divorce), you might end up creating tax implications for yourself,” she says.
Figure out where you stand legally and financially.
The first piece of the financial puzzle for women in transition is figuring out where you stand both financially and legally, Brownstein says. What are you entitled to receive? What new assets and liabilities will you have after the dust has settled? If you inherited a house, for instance, you have a new asset but also potentially a new liability if said house came with a mortgage or HOA fees. You may need to collaborate with an attorney and/or financial advisor to get everything straight. “It’s impossible to put an investment strategy together if you don't have a good handle on where you are today,” Brownstein says.
Evaluate your cash flow.
It’s also hard to plan for tomorrow until you know today is taken care of. The first thing Wisniewski and Vanaski talk about with women in transition is “how to stay alive today.” What are your current sources of income, and are they enough to cover your day-to-day expenses? “Make sure you have a list of every account and understand how the money is held,” Vanaski says. “Is it in a retirement account you can’t touch until you’re 60? Or can you access it today?”
Decide where you want to go.
Every financial plan needs a starting point and a finish line. If the first step for women in transition is figuring out where you are today, the second step is deciding where you want to go, Brownstein says. What are your financial goals? How have they changed (if at all) after your transition? Make sure to include a timeline for when you want to accomplish each goal, as well as what it’ll require financially. These two elements will help you create your investment strategy.
Create a new investment strategy.
Now it’s time to draw the line that will get you from today to your future goals. If you’ve never invested before, start with your target allocation (your mix of stocks, bonds and cash), then fill it in with index funds, Brownstein says. Your allocation is based on your timeline and risk tolerance, which may have changed post-transition. If you now have more assets than you need, you could use a less aggressive strategy to reach your goals. If you have fewer assets after the transition, however, you may need to use more growth-oriented investments to make up ground, she says.
Don’t feel guilty about claiming an inheritance.
Guilt is a common emotion for women in transition who receive an inheritance, Brownstein says. There’s often a feeling of not wanting to do wrong by the gift a loved one left to you. This can lead to the false notion that inherited investments should be left as received. But if someone cared enough about you to leave you an inheritance, they would have wanted you to use that gift to make your life more comfortable, Brownstein says. “It’s OK to make adjustments so those inherited investments line up with your life because what was appropriate for the person who had the assets originally may not be appropriate for you.”
Educate yourself.
Whether you DIY or seek professional help, being an educated consumer is essential for women in transition. “Educate yourself about the types of investments available to you and if they’re a good fit,” Vanaski says. Be careful of any that use the word “guaranteed” or make promises that seem too good to be true because they probably are. Being educated isn’t just knowing how to invest; it’s also knowing who is giving you advice, Vanaski adds. Women in transition are frequent targets of investment scams. Vet the credentials of any advisor or so-called expert you work with on sites like brokercheck.org or adviserinfo.sec.gov.
Take care of the little things.
For women in transition, it’s not just about realigning your investment strategy, says Sonya Ranker, a certified divorce financial analyst and certified financial planner at Questmont Strategic Wealth Advisors. “It’s about the little things that come after,” like making sure your beneficiaries have been changed to reflect your new lifestyle. If the people in your life have changed, the names on your financial accounts probably should, too. Check your will, powers of attorney and insurance documents to make sure the right people are listed on each.
Make sure you’re never caught off guard again.
After you’ve been blindsided by one financial transition, it’s time to make sure it never happens again. The best way to prepare for financial disruptions is to understand all the elements of your finances. “What part of your financial world do you feel uncomfortable or intimidated by?” Robertson asks. Is it your cash flow? How to invest? Identify the piece of the puzzle that’s not clear to you, then find a professional you can respect and trust who will help you fit it into place, she says.
Get guidance from trusted professionals.
Investing is an emotional endeavor in the best of times, and unanticipated transitions are seldom the best of times. When emotions are running high, having an objective expert to guide you can be invaluable. Even alpha women just need someone to tell us what to do sometimes, Robertson says. A trusted financial advisor, lawyer, accountant or all of the above can help you through this transition and make sure you’re ready financially for whatever life throws at you next.
Investment advice for women in transition.
Here are 13 investment tips for women in transition:
- First, pause and regroup emotionally.
- Give yourself a timeline.
- Don't sign anything right away.
- Get your priorities in order.
- Figure out where you stand legally and financially.
- Evaluate your cash flow.
- Decide where you want to go.
- Create a new investment strategy.
- Don't feel guilty about claiming an inheritance.
- Educate yourself.
- Take care of the little things.
- Make sure you're never caught off guard again.
- Get guidance from trusted professionals.
Originally seen on US News