Alison on Money
What to do when someone ‘shows you the money’
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“A divorce,” once noted Margaret Atwood, “is like an amputation: you survive it, but there’s less of you.” This usually means financially too.
But a friend of a colleague here at Metro, is exiting her marriage with a slightly fatter wallet, $20,000 to be exact. And now she’s wondering what to do with it.
Confession. After my own divorce eons ago I bought a red telephone and a sexy green Karmann Ghia. However, with the wisdom of time at my disposal, I’d suggest something different.
First of all, take a breath; park the $20,000 in a short term GIC or high interest savings account for at least a couple of months until the emotional dust settles a bit.
Second, after a windfall of any kind, ask the question, “Who are you?” Spending, saving and investing is entirely dependent on your personality and situation. A young, safely employed, debt-less divorcee with no kids could justify a fab trip, a killer new wardrobe or cool wheels.
On the other hand, debt, dependents and dreams might steer you in a different path. Let’s say you have sizeable RRSP (registered retirement savings plan) contribution room. Deploying most of the funds to retirement savings might yield a nice refund next year, which could then be used to pay down debt.
If kids are in the picture dividing the money up between an RRSP and an RESP (registered education savings plan) would provide a smaller tax refund but the RESP deposit will attract a 20 per cent government grant.
Now to dreams! I always advise those receiving a windfall to do a little dreaming about the future. It could be more education, a home or even a business. A few years back one reader took a chunk of her divorce settlement and bought a commercial grade sewing machine, cutting table and fitting dummy. She now has a internet business custom sewing for hard-to-fit folk.
If you have kids you might want to indulge their dreams also. But take care with this because spending to assuage the pain of divorce is a temporary bandage at best.
Next week, I’ll offer a few ideas for investing the windfall.