How Newly Single Women Can Create Financial Plan

Divorced and newly widowed women had best beware. There are hundreds of so-called financial advisers ready to help you spend your divorce settlement or life insurance proceeds. Some do not have your best interests at heart.

These advisers--a few are nothing more than scam artists--prey on the suddenly single because they know that women in this position often feel helpless and incapable of dealing with their financial affairs. And feelings of helplessness aren’t limited to the unsophisticated. Even savvy, well-educated women can be overwhelmed by the prospect of investing and handling complex family finances alone.

That’s why Ann B. Diamond tells women that the first thing they should do after a death or divorce is “nothing.”

“After the trauma, let yourself settle down for six months to a year. Don’t rush into any major decision,” she says.

Diamond, a New York-based certified financial counselor who conducts Citibank’s “Money Matters for Women” seminars, maintains that women should stick their money into safe, liquid investments such as Treasury bills and short-term certificates of deposit until they figure out an investment plan.

They should also establish credit and formulate their financial goals, other advisers suggest. That way, when they’re ready, they will be in a good position to rebuild their financial lives.

The first step, establishing credit, should be started quickly because the process takes time. To qualify for any substantial loan, individuals usually need a credit history going back at least a year.

The easiest way to establish credit is to get a credit card. People who open accounts at major banks--and don’t immediately start bouncing checks--are likely to be offered a credit card without asking. They should use it, and pay off the balance before the end of the grace period. That avoids interest charges and shows that they pay their bills on time.

Having a credit history is like having life insurance. If all goes well, you may never have to use it, but it’s good in an emergency.

The next step is to set financial goals. Do you want a house? A new car? Retirement security? A substantial emergency fund? The ability to pay for a child’s college education? Individual goals often depend on whether the person is alone or has dependents, on their financial resources and their ability to budget and save.

Individuals should be careful to set realistic goals. Unrealistic goals make people feel like they aren’t progressing, which discourages them from following their overall plan. Of course, it’s also possible to set goals too low, but it’s relatively simple to revise a plan for higher goals.

Finally, newly single women must figure out an investment plan, following a few rules of thumb.

The first is to diversify. Whatever the long-term financial goals, a portion of a person’s assets should be “liquid”--easy to get your hands on in a hurry. Liquid investments include checking and savings accounts and short-term Treasury bills.

If most of an individual’s financial goals are long-term--saving for retirement or a college fund that won’t be used for a decade--liquid assets may be a small part of the total. But those who will need their savings in five years or so could keep the bulk of their money in relatively safe and liquid investments.

A portion of any portfolio should be dedicated to longer-term pursuits. Depending on how they feel about risk, individuals may want to put this in medium and long-term certificates of deposit, mortgage securities, municipal bonds or stocks.

By and large, investments in corporate stocks tend to do best over time, but stock prices are volatile over the short term. Only those who are comfortable with such ups and downs should consider this market.

In time, many women will gain enough confidence and sophistication to experiment with complex and high-risk ventures--stock options, commodities, limited partnerships--with some small portion of their investments. But before they do, they should understand all the risks and gamble only with money they can afford to lose.