This is the seventh in a series of posts on ‘My Responsibilities’.
No-one likes to talk about money and I am going to break through that barrier and talk about it anyway. We talk about happiness yet are reluctant to admit the part money plays in that or its role in our sense of security, one of our basic needs.
To comprehend the financial impact of divorce, there are issues to be understood.
A. Where Does Money Come From?
- Superannuation, retirement funds, investments, savings.
- Earnings through employment, business.
- Government pensions, charity, inheritance
B. What Are Our Needs From Money?
- Essential Needs: Shelter, basic living costs.
- Non- Essential. Lifestyle, discretionary, savings, gifting, debt reduction.
C. How Much Money Is Enough?
Studies show increased stress in people who cannot meet essential needs. Above that, happiness levels rise to a point. Thereafter, increasing levels of income do not produce a greater level of happiness.
D. How Much Money Do I Need?
Approaching sixty, I would be happy if I owned my home, was debt-free, had adequate retirement funds to provide a comfortable lifestyle, with a little savings tucked away. I am not there yet.
E. What Is a Comfortable Lifestyle?
A basic lifestyle provides only for essentials. A modest lifestyle provides some non-essential items such as insurance, communication and owning your own car. A comfortable lifestyles allows some lifestyle choices such as occasional travel, entertainment and hobbies but nothing extravagant.
You need to account for higher costs in clothes and transport if working, additional costs if you have dependents, any house mortgage / debts, and amounts to put away in savings.
What Is The Impact Of Divorce?
I was travelling along earning a living, leading a comfortable lifestyle, and accumulating savings. After divorce it will be gone – the accumulated savings, the comfortable lifestyle, the means of earning a living.
(a) Depleted asset base
Approaching sixty, we had our house and investments for retirement. One important point to understand in divorce is that, even though one may have a sound ‘total asset’ base, as far as providing for living costs into the future, only those assets available for investment can be counted, not those funds tied up in the home. Come divorce, there are two houses to come out of our total asset pool, one for me, one for him.
The remainder of our assets are crumbling away in divorce costs, forced sale of investments in a poor economic climate, and the impact of the divorce on the business value. This depleted asset base will be halved and the resultant asset base for each will be about one fifth our original investment base. This is, looking at part A above, a catastrophic change to financial affairs for someone approaching retirement.
(b) Earnings through employment or business
My new asset base, if I retired today, would struggle to provide me with basic living costs throughout my retirement years. As that is distressing, I initially chose to continue with the business. After my epiphany, and wanting closure on our previous life, the business will now go. There goes the second source of money from part A above, the means of earning a living.
(c) Impact On Lifestyle
As a single person, my living costs are as much as three quarters of that of a couple, yet the financial ramifications of divorce will see me losing both my source of earnings and sound asset base.
I have pondered and researched these impacts. What I have learned is:
1) I am better off than many. After divorce, some end up with just their home, no home and / or mountains of debt.
2) What I previously thought was ‘comfortable’, was in fact a ‘luxury’ lifestyle, (though still not extravagant). What I previously thought were ‘essentials’ (such as owning a car and having insurance), are in fact discretionary.
3) Money does not make you happy. Inner peace makes you happy. However, there is a minimum money requirement for peace and happiness. If you don’t believe me, watch this closing movie scene where Will Smith finds himself out of the soup kitchens into secure employment.
How I plan to provide myself with a level of happiness that, for me, means a ‘comfortable’ lifestyle will be the topic of my next 2 posts.
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