Creating a Budget After Divorce
Divorce can be a stressful time, and on top of everything else, you may find yourself now responsible for managing the household finances in a way that you haven’t before. Or perhaps you’ve always managed the finances, but now you’re doing it on less income. In any case, the first step to reducing the stress of the situation is to create a budget.
While it may be scary to think about creating a budget for living on your own, once you get clarity around it, you can start making decisions from a place of knowledge and understanding. You’ll know how to allocate your resources as they become available.
I like to break this into 3 major categories:
- Necessary monthly expenses – things you must spend your money on every month
- Necessary irregular expenses – things you must spend your money on, but it doesn’t happen every month
- Expenses that you have flexibility with
Necessary Monthly Expenses
This category is going to be those fixed expenses that you don’t have much flexibility with – rent/mortgage payment, utilities, car payment, health insurance, groceries, etc. This is the foundation of your budget, and the total of these expenses will likely remain fixed.
Whenever possible, automate these expenses so you don’t have to worry about whether or not they have been paid – not only is this a good financial tip, but when dealing with all of the other things that go along with coming out of the other side of divorce, paying bills is the last thing you should want to worry about!
Necessary Irregular Expenses
These are the expenses that come up occasionally or are not a set dollar amount but are still in the category of necessity – auto insurance, property tax, annual memberships (e.g. AAA), auto maintenance, gasoline, etc. Oftentimes, if we haven’t planned ahead for these expenses, they are what takes us from being in a healthy, comfortable financial position to feeling overwhelmed or in debt.
Total up these expenses and see what you spend on these items in a year. Then, divide that total by 12, and set aside that much each month into a savings account dedicated to these types of irregular expenses. That way, you’ll know that you’re prepared, which takes the stress out of the situation.
Expenses You Have Flexibility With
While you may not have much wiggle room with the rest of your budget, these expenses are the things you can splurge on when you’re able or get more creative with when things are tight. The beauty of getting clarity on your necessary expenses is that it gives you clarity on how much you have available to spend on everything else.
Expenses that fall into this category are things like clothing, sports, holidays/special occasions, eating out, entertainment, personal care, vacations, etc. These areas are often the most difficult to identify how much we’re actually spending. If managing the finances is new to you, it’s a good idea to track these expenses for several months to see how much you are spending and then make adjustments where necessary.
As with the irregular expenses, if some of these things are “every once in a while” items, total all of those up for the year, and set money aside each month in anticipation of the expense. The holidays are a perfect example of this type of expense – it can be a big line item, and you want to be sure you’re prepared.
Typically, the amount we save is what we’re left with after spending on all of the expenses we talked about. Consider “paying yourself first” with even a small amount of savings. If you don’t currently have an emergency fund of 3-6 months of expenses, this is a great place to start. Creating the habit of saving is what’s important, so even if the dollar amount is not huge, don’t worry, that can be adjusted over time.
Divorce is a time of tremendous transition, and it may take some time before you have a handle on your budget, and that’s okay. Remember to give yourself grace…practice, not perfection is the goal.