When you were engaged in your marriage (we were going to say “happily
married” but you may have not been), you most likely had some type
of a financial system. Perhaps one of you paid all the bills while the
other spouse was hands-off or perhaps you both handled the budget and
finances as a team. There’s a pretty good chance that you fell into
one of the above categories or something similar.
We are huge supporters of following a budget, whether someone is single,
married, or divorced. Over the years, as we have helped our clients navigate
divorce process, we realized just how important it is for them to follow a budget
after they are divorced. However, too many people do it all wrong because
they either don’t adopt a budget or the one that they do follow
is extremely limited in scope.
Taking Control of Your Financial Health
You probably have a good idea of how much money you earn every week, bi-weekly,
or every month – a budget won’t teach you anything new here.
But when you create a budget, it can help you better-understand and reign-in
your spending. It can help you analyze your spending behaviors, and it
can help you take control of your financial health.
Many people have a mental block about their finances. They can mistakenly
believe that what they don’t know won’t hurt them. But by
developing a budget, you can be a lot better at managing the money that
you do have rolling in. Whether you track your budget on a notepad, apps,
websites, or spreadsheets, it’s critical that you understand your
cash flow, which refers to the money that’s coming in and going out.
You know that you need a budget, but realize that you need more than a
traditional budget that takes into consideration what’s coming in
and what’s going out. What you need to improve your finances goes
much deeper than that.
Ideally, you’ll develop a deep understanding of your expenses, and
this includes your essential and non-essential expenses, your discretionary
spending (think dining out, alcohol, tobacco, entertainment expenses,
Starbucks, etc.), and so on. You also want to take into consideration
your short and long-term goals, for example, if you want to save for the
future and you’re self-employed or a freelancer, you may need to
open up an IRA account.
Post-Divorce Budgeting Tips
Traditionally, when someone created a budget, they’d take into consideration
their income, expenses, and taxes. They may have included a Christmas
or vacation stash and then hoped they’d have something leftover
for “fun activities” like going to the movies or Disney Land.
While it’s satisfying to leave “money on the table,”
you have to remember that it also leaves money in your wallet where you
can spend it on non-essential items.
When you budget, you want to do it both realistically and responsibly.
This means planning for your monthly expenses like the rent or mortgage,
utility bills, the cellphone bill, auto insurance, life insurance, health
insurance, credit cards, and auto loans, but it also means planning for
things like college, vacations, investing, and retirement. When you plan
for these long-term, bigger goals, it increases the likelihood of you
meeting your future financial needs.
What is the key here? It’s to understand your spending behaviors
and to learn how to monitor your income and expenditures in a responsible
way that helps build a strong financial future. No matter your financial
circumstances (whether you’re struggling, just getting by, or have
plenty of money to live on), you should create a healthy and realistic
budget after your divorce is finalized.
Tip #1: Write Down Your Essential Expenses
The first step in the post-divorce budgeting process is to write down all
of your essential expenses – that’s it! Which bills are essential
for your survival? These typically include housing, utilities, cellphone,
insurance, food, gasoline, and childcare so you can work, etc.
Your essential expenses do NOT include cable, alcohol, cigarettes, Netflix,
dining out, Starbucks, magazine subscriptions, and other non-essential
expenses. Trust us, you can survive quite well without any of them! To
really improve your financial health and wellness, you want to get a grip
on these unnecessary expenses – it’s a crucial step.
Tip # 2: Know Exactly How Much is Coming In
Too many people look at their total income before taxes and deductions
and think that’s what they’re going to live off of, but that’s
not how it works. For W2 employees, taxes, Social Security, sometimes
child support, health insurance, etc. are taken out of their checks before
they are paid.
When creating a budget, you have to know your net income (what you take
home after all of these deductions); this is vital. If you have an additional
source of income, like a side hustle or selling things on eBay, that can
help you out.
Tip #3: Talk to a Pro
One of the BEST things you can do to improve your financial situation is
to meet with a financial professional for guidance. Not only will he or
she keep you accountable, but they can help control your spending and
direct your funds to retirement and investments that will build your financial
portfolio over the long-term.
Here’s some more good advice: “We recommend the popular 50/30/20
budget. In it, you spend roughly 50% of your after-tax dollars on necessities,
no more than 30% on wants, and at least 20% on savings and debt repayment.
“We like the simplicity of this plan. Over the long term, someone
who follows these guidelines will have manageable debt, room to indulge
occasionally, and savings to pay irregular or unexpected expenses and
retire comfortably,” according to
We hope you found this article helpful. If you’re looking for divorce
contact Claery & Hammond, LLP for a
free case evaluation!