Have you ever filled out a budget for your family? I get the impression from having represented families in divorce cases that most people do not do a family budget. It would seem to me that the main reason why people do not budget on a consistent or even sporadic basis is that budgeting can seem to be restrictive. Instead of spending money where you think it is necessary or where it feels good in the moment, budgeting forces you to place money in certain “piles” ahead of time. Each pile can be used to fund a certain endeavor for the family- childcare, medical bills, groceries, rent/mortgage, etc. If there is any money left over then that is what goes towards fun for the family.
I would balk at this characterization of budgeting. On the contrary, budgeting doesn’t restrict freedom when it comes to using money. Budgeting lifts the burden on your shoulders of having to spend money wisely. Instead, you are given the freedom to live your life without concern for how you spend money. The reason being is that you have already allocated every dollar you earn to a certain cause. Live by the budget and you don’t have to worry about how you spend your money.
Those of you who live month to month or even week to week know how stressful it can be at the end of a month. Figuring out whether you have money to pay the next month’s mortgage or rent payment is enough to cause you to bite all your fingernails off. At other times of the month a decision may have to be made about whether to spend a couple dollars on the light bill or groceries. To be in this position is unenviable. The needs of your family may go beyond starting a budget.
However, for many families like this, you may find that starting to do a budget will allow you to use your money more wisely. I’ve heard from families that budgeting feels like you’ve gotten a raise. The reason being is that money that was previously spent on things that don’t make much of a difference to a family can now be used to fund an extracurricular activity for the kids or to buy that new air conditioning unit that the family has badly needed. While you may not be able to get a raise right now, I bet you can find a few extra dollars in your budget by drilling down deep and seeing where your money goes each month.
That is the essence of budgeting. Organizing and planning are in and of themselves just fine, but if you can use those tools to help your family become better managed and happier then you have done something wholly good for your family. I know from personal experience and from the experiences of clients that budgets are good and helpful. Your circumstances may differ from mine but both of our families could use a little more intentionality in our spending. No better time to put this rule to use than when you are going through a difficult divorce.
What goals do you have for yourself and your family from a financial perspective?
The first step to starting a budget should be to take a good, long look at your financial goals. For some of us this may mean that you need to establish some financial goals. What do you want to do in the short term? If you are about to start a divorce case that first goal may just be to make it out alive with the clothes on your back. That is a worthwhile goal. Many people have difficult experiences in divorce in no small part due to the fact that they begin their case with no goal in mind. Before you file for divorce you need to figure out what you want to accomplish. Do not wander into a divorce.
Next step would be to figure out some long term financial goals for yourself. As much as it may feel like it, your divorce is not going to define the rest of your life. In a relatively short amount of time your divorce will be done and over with. After that, you have the rest of your life to concern yourself with the goals of building wealth, eliminating debt, sending your kids to college and having the ability to be generous with those around you.
The importance of each goal should be ranked. What goals are ones that you absolutely cannot negotiate on? Is it essential for you to be able to send your children to college debt-free? What about ensuring that you can pay for your elderly mother’s long term care insurance premiums? Whatever your most important goals are you should write them down and put them in order. That way you will know what to focus on in your divorce case. Just as importantly you will be able to help your attorney focus on those goals, as well.
The first thing you can do to improve your chances of meeting these goals would be to establish a budget for yourself and start to live off of that budget. Right now your finances will be as tight as at any time in your life moving forward. There is a small chance that your income could increase during your divorce case, but the odds aren’t good since your divorce is likely only to last for a few months. When your income remains the same and the expenditures you are running into increase that is a recipe for tight budgets.
What are the monthly expenses you have and how can your income counteract those expenses?
A budget starts and stops with two things: your income and your “out-go” (expenses). If you can figure out these two figures and then subtract one from the other that the amount of money that you have in excess to spend on a variety of items. If you are in the beginning phases of a divorce case those items likely include attorney’s fees and the various expenses that are associated with a divorce.
In today’s day and age you will not suffer from lack of options on how to establish a budget. The old tried and true method of writing down a budget with pen and paper is one that I would recommend especially when you are first trying to establish the budget. You are bound to make mistakes in the creation of your budget at least early on. Having a pen means that you can quickly scratch through a mistake and insert the correct figures.
Or, you can utilize any number of online budgeting tools, spreadsheets and some combination of the two. These allow you to have a cleaner and neater looking budget but if you are not the most computer savvy person you may run into issues of getting the spreadsheet to look the way you want it to. Either option that we just covered has its advantages and disadvantages. You may want to try to do both before settling on one option that works better for you.
What are the different sources of income that you have? Many of us have one job that we have worked for years. It doesn’t take a rocket scientist to figure out that this job is the source of 100% of your income. For others, you may have multiple sources of income. Your main job, side jobs, contract jobs and gig jobs (Uber driver, Door dash delivery, etc.) could all count towards your income each month. You need to look back on your past six months of income and establish a minimum income for yourself. If your income varies from month to month you should be conservative and assume that your income will be the lowest amount that you have earned in that time.
Next, you need to get a firm idea about what your monthly expenses are. If you are a spouse who has moved from your marital residence and is now renting an apartment you should take into consider rent, utilities and other costs of your new living arrangement. You may also have attorney’s fees to pay and other costs associated with the divorce. Once your divorce is over with you can simply remove these divorce related expenses and create a new budget at that point.
Now that you have created your first, basic budget you need to sit back and take a hard loo at it. You need to do a basic comparison of your income and your expenses. Obviously, spending less than what you earn each month is the only way to get ahead financially. If you cannot do that, you cannot pay down debt or save for retirement. Your options at that point are very limited. While it is not a good thing to be unable to save money, it is better to find this out now rather than to live for months on end bleeding money.
If you find out that you spend more monthly than you earn, it is time for you to make some adjustments to the budget. You should start by removing any costs and expenses that are non-essentials. Gym memberships, entertainment expenses, “fun stuff” for your kids. These are expenses that you cannot afford- at least not right now. Maybe these items can return to your budget at a later date. As for now, they need to be removed or you will not be able to make it financially in the short or long term.
Keep an eye on your budget from that moment forward
You cannot make a budget and then let it collect dust. You need to constantly review, update and fine tune your budget. As you get more used to budgeting and are better able to anticipate what you will need to budget for these changes will need to be made less and less frequently. However, that doesn’t mean that you shouldn’t review the budget with regularity to ensure that you are staying close to your plan and are on track to meet your short term financial goals.
Budgeting should be an every day thing. You can create your monthly budget at the end of the preceding month but you should keep an eye on the budget on a daily basis if for no other reason than to keep yourself accountable. This is the sort of discipline that you may have been lacking which led to your being in an unenviable situation to begin with. It is not a good idea to start budgeting around the holidays or other times when you know that your attention will be diverted elsewhere. Like most resolutions, make a point to begin budgeting after the New Year.
You also need to have a serious discussion with yourself about what your needs are and what your wants are. If you have never been too adept at distinguishing between the two now is a good time to learn the difference. You can also give yourself the chance to receive awards for sticking to the budget and eliminating excessive spending. That doesn’t mean that you should treat yourself to a vacation but a meal out or a trip to the movies is a reasonable gift to give yourself. Credit cards are the bane of the budgeter’s existence. This is one area where your spending can absolutely get out of control. Consider closing credit card accounts (if allowed by the court) or simply cutting credit cards up so you are not tempted to use them during the divorce.
Questions about today’s blog post? Contact the Law Office of Bryan Fagan
If you have any questions about the material in today’s blog post please contact the Law Office of Bryan Fagan. Our office offers free of charge consultations six days a week with our licensed family law attorneys. These consultations are a great opportunity to meet with a lawyer and ask direct questions about your specific circumstances.