There is a lot of financial upheaval that happens as couples navigate their divorce and move into the new reality that is to follow. The financial situation gets much more complicated because now there are two homes to run and usually no additional resources to manage the added costs. Often financial problems are part of the challenges that have led to the breakdown of the marriage. In many families it is one spouse who has managed the family finances and with the divorce the other spouse is going to be required to manage their own finances, sometimes really for the first time in their lives. In this week’s blog I explore some budgeting basics, some considerations for getting your financial situation under control, and some possible resources to consider to help you along the way.
Budgeting Basics. Budgeting is a simple concept. We identify what money we have coming in, what expenses we have going out, and at the end of the day the money coming in must be greater than the money going out.
Money coming in. The starting point for a budget is determining how much money you have to work with. This begins with your revenue from all sources including your employment income, rental income, other business income, and any income from other resources such as passive income from investments, retirement, etc. As part of the divorce proceedings there is often child support and spousal support which will be additional income to the receiving spouse and an expense to budget for the spouse paying support. To be in a position to budget it is important to gain a quick understanding of what support will look like both on a short term and long term basis. If the income that was sustaining the family while in one home was barely covering the household expenses, both spouses might find it difficult or even impossible to fathom how they will manage with this monthly amount they will each be left with.
Money going out. The next step is figuring out all of your expenses. These expenses include housing, food, utilities, cell phone, medical, clothing, entertainment, insurance, transportation, childcare, installment payments and others. It is a really good idea to work with an expense template that helps you think of everything as it is important to have a clear understanding of all expenses including both those that are incurred regularly and those that might come around more infrequently such as annual dues, renewals, taxes etc. As you work through your expenses you will find that some of these expenses are essential and fixed and others are more discretionary and may fluctuate. As part of looking at your expenses you may also want to keep in mind goals and aspirations and being able to set aside money for investments, retirement, etc.
Reconciling the two. It might take a little time before the financial picture is clear as you may need to wait for the Court to make a support determination, or you may be moving into a new living situation where some of the financial numbers are in flux. Once you have firm numbers on what income you will have to work with as well as some clear figures regarding what all your expenses will be, the next question is does it result in having more income than expenses. If the answer is yes then the financial picture is workable. If there are more expenses than income, then there is a problem unless there are other funds able to help with covering any shortfall. Ideally, there will not be a shortfall as it is not a good long term plan to deplete savings or take on debt to cover ongoing living expenses. If there is not enough money to go around there are a few ways to address it.
Ways to Arrive at a balanced budget: Generate more income. One way of solving a budget deficit is bringing more money into the equation. If you are not working full time, or if overtime is available, you can consider increasing your work hours. You can explore if there are any job opportunities that will pay you more. You can explore taking on a second job or some supplemental work. Having to work too much can significantly impact your quality of life, but if you are able to find a way to generate more income you might avoid having to cut some things out of your budget which is the next option.
Cutting Costs. The next option to get to a balanced budget is finding a way to reduce your monthly expenses. This is where you will size up those expenses that are essential and those that are more discretionary. Your rent might be a set amount, where the money you spend going out to eat is more discretionary. You can eat at home more. You can cut back your streaming services, your Starbucks, and your entertainment expenses. You can also explore moving to somewhere that charges lower rent. You can try to cut your utility costs. You can spend less on trips and gifts. You can trade in your vehicle for one that does not cost as much. There are all sorts of things that you can do to try to reduce your costs so that they can be covered by the amount of income available.
Getting financial planning assistance. For many, all of this might be standard practice and you are already comfortable in setting up and managing your budget. Many of you may have always left the finances to be dealt with by your spouse so it is a shock to the system to suddenly now be responsible for doing so. This can further add to the stressfulness of the divorce. Getting yourself to a place where you understand your financial picture and understand your budget are crucial for starting to remove this added stress. Once you understand your financial picture it is all the more important to make adjustments if the expenses are exceeding the income available. If this is all too much, there are a number of options that are available to help with getting things set up.
Apps There are a number of convenient budgeting apps that you can find online. These apps will walk you through setting up your budget and will help you keep tabs on how you are doing. Some of them are designed to help you set savings goals and provide suggestions on better managing your money. One example is YNAB. This app costs about $15 a month ($9 if you pay for a year) and helps you with all of this budgeting stuff. If you are overwhelmed by the thought of setting it all up yourself, there are also professionals that you can turn to. They unfortunately, will be a bit more expensive than subscribing to an app.
Budgeting Professionals. There are a number of professionals that will help you with managing your finances. There are Money Coaches who focus on helping people set up budgets and develop plans to accomplish whatever their financial goals are. There are Financial Planners who will also work with clients regarding budgeting. Many Financial Planners will help clients invest and plan for their future but might not provide services regarding budgeting. You will want to check with the professional to see what services they provide. The plan with many of these professionals is to get you set up with a budget and the tools and resources you need to stay on track and then leave you to thereafter manage it yourself. These professionals can provide as much hand holding as you need but will come at a price that will need to be covered by the pot of money at your disposal.
One of the great stressors in divorce is sorting out the finances of it all. The sooner you can set to work figuring out what the financial picture looks like and then figuring out how to successfully manage it, the sooner you can leave some of this stress behind. A big part of that is taking control of your finances, figuring out a realistic budget, and then making adjustments to assure that more income is coming in then is going out. If figuring out all this is more than you can handle, consider getting some help, either through a budgeting app, or through hiring a professional who will help you get your finances in order. Taking control of your budget is a big step in being able and ready to move forward with the next chapter.