Leah Hadley [00:00:01]:
Welcome to Intentional Divorce Insights. I'm Leah Hadley, certified divorce financial analyst, accredited financial counselor, and the founder of Intentional Divorce Solutions. I'll be your guide through the complexities of divorce finance and emotional wellness. Join me as we uncover practical tips and empowering insights to help you navigate your divorce with clarity and intention.
Leah Hadley [00:00:24]:
Hi, friends. Welcome back to Intentional Divorce Insights. I'm Leah Hadley, and as always, I am so glad that you are here with me today during my office hours for the Empowered Sisterhood. The other day, someone asked me a question that I thought many people could relate to, and it would make a good topic for a podcast. So here we go. The question was, what's the difference between saving and investing? And in particular, this person was curious to know where to start after divorce specifically. And this is actually a question that I get a lot. You know, when to start investing.
Leah Hadley [00:01:04]:
What's the difference between saving and investing when you're coming out of a divorce? There is so much financial change that is happening all at once. You're trying to rebuild your life. You're getting clarity on your money. You're figuring out where to put your focus. So this episode is really about breaking it down in very simple, clear terms to talk about what really is saving, what investing is, and most importantly, how you can confidently decide whether to save or to invest and that kind of thing. So by the end of the conversation, my goal for you is to feel less overwhelmed and more empowered, really, in the next step that you're taking. But before we get into the specifics, let's start by getting real about what happens financially after a divorce. For many, divorce creates what I have referred to in the past as a financial reset.
Leah Hadley [00:02:02]:
Suddenly, your income might be lower or at least different, your expenses are likely different, and your goals for the future may actually look nothing like they looked before. Right. Your individual goals may be very different from what your joint goals were. As an example, you know, things that I see all the time adjusting to living on one income instead of two, managing child or spousal support responsibilities or the responsibility of how to handle it if you're receiving it, other kinds of responsibilities, right? Like maybe you're taking on your mortgage responsibility for the first time, or being responsible for the bills, making the investment decisions. There's a lot of change that happens. And on top of that, there's often a lot of emotional weight around money after divorce. Whether that's fear, shame, guilt, I see it all completely normal. A lot of change, Right.
Leah Hadley [00:02:59]:
And if you're feeling any of that right now, I just really want you to know that you are not alone. I want to clear up this confusion around the difference between saving and investing. I know that there are times when the words are used interchangeably, but they're really not interchangeable. And so understanding the difference can make it a lot easier to know when to do which, right? So saving money is really about keeping it safe and accessible, right? For the short term, if you think about it, it's like your financial safety net. It's the money that you can get access to quickly if you have car trouble or an unexpected medical bill, even if you just have to cover a couple months of living expenses. Let's say maybe there was a job loss or an inability to work for a period of time. Investing, on the other hand, is money that you're putting to work for the long term. It's not for next month's bills.
Leah Hadley [00:03:59]:
It's not for that car repair. It's for those goals that are years, maybe even decades away. So things like building wealth to leave your legacy for planning for retirement, planning for college education for your children, things like that. Now, here's what's important to understand. You really do need to have both savings. Is that like, stability? Right. It's that strong foundation. But investing really gets your money working harder for you.
Leah Hadley [00:04:31]:
It gets your money growing right? After a divorce. I will say that it is very common for rebuilding your savings to be the priority. It's common for people to have to deplete maybe a portion or all of their savings through the divorce process. Okay? And so for a lot of people, the first focus and the priority is really about building that safety net so you can feel financially confident, so you can feel secure. I think one of the reasons this question also comes up so much is because we get so many mixed messages when it comes to money, right? There are a lot of people out there in the financial industry that are going to tell you invest as soon as possible. And absolutely. I've seen the graphs. And all of that time in the market is powerful, right? You know, if you look at the last, you know, if you had started investing in your 20s versus your 30s versus your 40s versus your 50s, when you're planning for retirement, if you've seen any of those charts, what you will see is it just takes a whole lot less money if you start early.
Leah Hadley [00:05:35]:
Now, with that being said, that doesn't necessarily mean that it's the right time for you to invest right now. On the other hand, you may have people in your life who are very nervous about Investing and are like, just save everything, wait till you feel like you're ready. But the truth is that the longer that your money stays in cash, inflation is quietly eating away at its value every year.
Leah Hadley [00:06:02]:
Right?
Leah Hadley [00:06:03]:
And so one of the things we talked a lot about during office hours was the importance of maintaining purchasing power, especially when it comes to, you know, preparing for retirement and living in retirement.
Leah Hadley [00:06:14]:
Right.
Leah Hadley [00:06:16]:
Here is just a really simple framework that I want to walk through that can kind of help you decide where you should be, whether you should focus on saving, investing, or both. Right. So to start with, do you have emergency savings? Okay. Do you have some money that you can pull from if something unplanned or unexpected occurs? If you don't, that's going to be your starting point. Okay. You want to build up that emergency savings. Now, typically we start with looking at what is a goal of three months of emergency expenses. Now, mind you, when we're talking about emergency, those are going to be your non discretionary, right? So let's say you spend $5,000 a month on non discretionary expenses.
Leah Hadley [00:07:03]:
That first goal we're looking at is going to be three months. Three times 5,000 will give you 15,000. That's going to get you to that emergency savings goal. Now, over time, a lot of times we're working with our clients on getting to that six months or even a year if they have a variable compensation or, you know, just don't have a lot of other options as far as leaning on or having stability in income. Sometimes we're looking at longer or larger amounts in emergency savings to cover a longer period of time. Right? But that's first and foremost, the most important, important thing is to make sure you have some savings. And I always encourage people just get started, like if you don't have savings at all, figure out what you can do. Even if it's $25 a week, just get started.
Leah Hadley [00:07:48]:
The most important thing is to get started, right? But you do want to get in the habit of saving consistently. And then once you are feeling good, like you've made some progress, you have some savings, you can deal with the car problem that comes up, right? Want to get really clear on your goals. The question often comes up for me when I'm working with clients who are potentially buying their first home, right? Like saving for a down payment, that sort of thing. And a lot of times they're asking about, you know, should I be investing this money in order to grow it faster? Well, that's going to depend on the time horizon.
Leah Hadley [00:08:21]:
Right.
Leah Hadley [00:08:22]:
So one of the big things that we're looking at in terms of investment strategy is how long are those funds going to be invested? Well, if you're only looking at maybe, you know, buying that home in the next two, three, four years, that's not going to give you enough time to actually have that money working harder for you. In an investment accountant, you are really going to want to protect it better than that. So you know that even if the market's down, you have your nest egg that you've saved and are ready to put toward that house right now. On the other hand, if you're looking at planning for retirement and you're 10, 15, 20 years down the road from retirement, you're going to want that money working harder for you.
Leah Hadley [00:09:00]:
Right?
Leah Hadley [00:09:00]:
So that's why it's so important to really get clear on your goals and getting specific, Right. Like how far off is that new car purchase, how far off is that home purchase purchase? Right. I've been planning a kitchen remodel for a while, finally getting that started, which I'm very excited about, but I never knew exactly how long or when I was going to do it. So I ended up just putting that money in savings, you know, a high yield savings account. So it's still earning some interest. But I didn't want to have the risk in the market because what if I wanted to get started on that kitchen remodel sooner? You know, I had the funds set aside in a way that I wasn't taking any risk with them.
Leah Hadley [00:09:38]:
Right.
Leah Hadley [00:09:39]:
But that's why the goals matter so much, because that's going to really help us to determine whether or not a savings investing or combined strategy makes the most sense right now. When it comes to investing, sometimes we just have people start small if you're completely new doing something again. Now, a lot of times the first place that somebody's going to start investing well would be with their employer's retirement plan. That's very common. We do really encourage people, especially if your employer has a match available to you, that you would take advantage of, that employee benefit really is part of your compensation. And so basically, if you're not taking advantage of it, you're giving up some of your compensation.
Leah Hadley [00:10:21]:
Right.
Leah Hadley [00:10:22]:
So however you get started, whether it's with an employer plan or with a brokerage account on your own or a retirement account on your own, doing something, just getting started is really important. And then you can build on that. So even, like I said, with the savings strategy, right. Putting $25 a week, maybe with your investment strategy, you're putting $50 a month, right? You can start small. Now one of the things that we're often working with people post divorce is kind of repositioning their portfolio to be in alignment with their individual goals. Right now let's say that you have significant amount of money sitting in cash. Maybe you sold a house or a business or something and you're new to investing in the market. We might recommend a strategy where you're putting a portion of that money into the market every month rather than doing it all at once.
Leah Hadley [00:11:16]:
And that gives you time to really build up the confidence. It does what we call dollar cost averaging, which means when the market's up, you're getting less shares and the the market's down, you're getting more shares, but you're investing the same amount, right? So over time you would get a better return that way. It's really, really important that you are continuing to revisit and adjust your strategy. Your life is going to change, your goals are going to change completely.
Leah Hadley [00:11:45]:
Fine, right?
Leah Hadley [00:11:46]:
Your financial plan should evolve as well. So it's important to revisit your goals and your plan regularly to make sure it's still in alignment. Does it still make sense to save X dollars? Or maybe I don't need as much in my emergency savings, or maybe I need more in my emergency savings. Worked with a couple of clients recently where they're having additional children and so we're looking at increasing their emergency savings because we know that their non discretionary expenses are going up every month. Right now the opposite is true with some of our clients and as well where we see them downsizing or maybe their kids are going off to college, things like that, where now their non discretionary expenses are going down every month. And so we don't need as much in emergency savings.
Leah Hadley [00:12:32]:
Right.
Leah Hadley [00:12:33]:
And so making those adjustments is really important. Here's an example of a client that I was working with. She came to me many years ago after a difficult divorce and she had quite a bit of savings but had no idea how to manage it. She was feeling scared about investing and making investment decisions because she just didn't feel like she knew enough. And honestly she was very afraid of making a mistake. So what we did was just like what I was talking about before where we took that lump sum of money and put a little bit in the market at a time. In her particular case, we were doing $1,000 a month and it took a while to get that money invested, which is fine. Now, fast forward many years later, she now has a very strong savings cushion, her investment account is growing and more importantly, she's feeling more confident in control of her money.
Leah Hadley [00:13:26]:
She took consistent, deliberate steps, right? It's not about having it all figured out right away, but building confidence in each step that you're taking can really help you to feel in control of your money. Now, if this conversation is really hitting home for you, it's something you want to explore more. I do want to invite you to check out our upcoming free webinar series. It's called the Empowered Money Series and it's a three part series that is really designed to build confidence with your money. So no matter where you are starting from, we're going to be talking about important things like what does it mean to be intentional with your money? How do you create a financial plan that you're actually going to stick to? How do you build that financial confidence? Remember, it's completely free and the link to register will be in the show notes, so be sure to check that out and join us. And even if you're not available at the times that it's scheduled to join us live, you can always watch the recording. So just go ahead and register. We'll send you out the recording so that way you'll get that information.
Leah Hadley [00:14:30]:
Remember, rebuilding your financial life after divorce. It's not about doing everything at once. It's about making progress, right? Taking those intentional steps and really building a financial foundation for yourself and that that strategic plan over time. I do want to thank you for joining me for the Intentional Divorce Insights podcast. If you found the episode to be helpful, please consider consider sharing it with somebody who needs to hear it. And don't forget to subscribe so that you never miss an episode.
Leah Hadley [00:15:06]:
Thank you for joining me on Intentional Divorce Insights. It's a privilege to share this time with you. I hope each episode offers valuable guidance.
Leah Hadley [00:15:13]:
To navigate your journey.
Leah Hadley [00:15:15]:
If you find our content helpful, please leave a review to help others discover the benefits of intentional decision making in divorce. Until next time, take care and continue to embrace your path with intention.
