I am convinced the most hated word in all of finance is “budget”. As a financial advisor and Certified Divorce Financial Analyst, this is a topic I discuss regularly with my clients, and the reactions and responses are the same over and over again.
“I don’t have a budget”
“We created one when we first got married but haven’t updated it since”
“My budget is in my head”
“I just know I spending less than I’m bringing in each month” or “I just know I’m spending more than I’m bringing in each month”
Uncomfortable shifting in your chair…
Avoidance of eye contact…
You get the point!
While having a budget, cash flow, or spending plan is essential to the financial success of every individual, only a third of people actually have a personal finance plan they actively work off of. This can be one of the most important, and most frightening steps to undertake when going through a divorce or separation. Maybe you are going from two incomes to one, your significant other managed the finances, or you have simply buried your head in the sand when it comes to your money.
So where do you start to get a grasp on what your new financial situation will look like? It’s time to put you in charge of your money instead of letting your money run the show! Plus, if you are going through a formal divorce, you will need this information for your financial affidavit, so let’s make this process a little easier for you!
Step 1: Before you start your divorce process
Even if you haven’t filed yet or are simply thinking about leaving, budgeting is the first place to start. This puts knowledge in your hands about the current state of your finances and allows you to do something different prior to separation. For example, if you don’t have a little nest egg to help you get by after separation, this gives you a chance to start setting funds aside in preparation for leaving. Maybe you take a little portion from each paycheck or sell some personal items to bank a little extra cash.
Step 2: Start with the basics
What are the basic living expenses that you have? Rent, mortgage, property taxes, utilities, cell phone, internet, car payments, repairs or maintenance, gas, food, insurance (home, health, auto, life), prescriptions or co-pays, personal care items, debt payments and childcare are a great place to start. How much do you need to get by each month?
Step 3: Look at your past expenses
From there, I recommend pulling your past credit or debit card statements, or looking at your receipts if you pay in cash. Most people don’t have an accurate idea of what they are actually spending in each category per month. This can be a helpful way to expand off of your basic budget. Perhaps you have a gym membership, subscriptions, streaming service, entertainment, gifting, charitable giving, children’s extracurriculars, and dining out. If you are in a financial place of saving, how much are you putting into a savings, retirement or investment account each month? What are the other expenses that you consistently have and how much are they?
Step 4: Write it down
Use a spreadsheet, a piece of paper or an online template to actually write down and document what your new budget will look like AFTER your separation. Did you know that you are 42% more likely to achieve your goals if you write them down? So get writing!
Step 5: Trim back
Where can you cut expenses? Where can you save more? Your future self will thank you for addressing this and doing something about it. Do you go into the gas station and spend $10 on snacks and a soda every time you go? Do you go out to eat multiple times a week? Are you paying for cable that you don’t actually need? This is different for everyone but I highly encourage you to take a close look at this and find areas that you are unconsciously spending and bring that into conscious choice.
Step 5: Make a plan for debt repayment
If you have debt, it can feel debilitating. Going through a formal divorce, debt will get split but preparing ahead of time and knowing your options will be important. Can you setup a plan for a debt snowball or debt avalanche to get those debts paid down? Is consolidation an option for high interest debts? Depending on the type of debt, this may not be an option and it may not be the best choice. For example, you may not want to consolidate certain school debts as they may eliminate forgiveness options. Due to the complexities of this topic, be sure to consult with a professional regarding your options prior to making any decisions.
Step 6: Practice
There is no better time than now to start. Anything new takes time to adjust to, like going to the gym consistently or eating differently, so you might as well start practicing. Michael Jordan didn’t become the best by sitting on the sidelines. Oprah didn’t become the best by sitting in the audience. So start practicing and executing on your plan!
This can feel like a daunting and tedious task, but once you have a grasp on what your financials look like, you will be more confident in your decisions and direction post-separation. If you still feel overwhelmed and need additional support in taking empowered action, do not be afraid to seek the help of a licensed financial advisor, financial coach or free financial aid or credit counseling organizations attached to non-profits.
Finances, or the fear of finances, are never a reason to stay in an unhealthy situation. If you feel like you can’t leave due to your financial situation or financial abuse, please seek resources locally for help.
When it comes to finances, you get to be empowered and you get to be in charge. Let’s turn the B word of finances from the most hated word to the most powerful word in separation.
Nicole Tilot, MBA, CDFA®, RICP®, FIC, is a financial advisor based in Wisconsin and Colorado. She is the founder of the life insurance start-up Appease.
