Creating a Reasonable Post-Divorce Budget
Finances will be different after your divorce, and creating a budget can seem daunting. There are many worksheets available to help you in your planning, and there are also accountants who specialize in helping divorced people adjust to a new financial situation. But even if you do reach out to an expert, you are going to have to do some number crunching.
Start with the Big Picture
Think about what’s most important to you, much as you did when thinking about your divorce settlement. What expenses are non-negotiables? What income can you count on? What would you like to do or have the skills to do, if you needed to increase your income?
Keep in mind, your non-negotiable expenses may include a roof over your head and food in your children’s belly, but you may have to be open to change: depending on your income, you may have to consider downsizing, and the kids may have to give up the Haagen-Dazs ice cream in exchange for a store brand. Reasonable expectations and the willingness to adjust should be part of your big picture.
List Income and Expenses
Think about every form of income that you will be receiving. This may include:
- Your own salary
- Freelance or independent income
- Child support
- Dividends/interest
- Pension/retirement distribution
- Social Security
- Rental income or other investment income
Calculate your expected income by month and year. For the variable income streams, such as freelance, rental income, etc., choose a value that represents a reasonable expectation, not an overly optimistic one. Being a little pessimistic (for instance, allowing for a couple of slow months in your side gig) may actually help you budget more conservatively and avoid coming up short.
Then calculate your expenses, starting with the necessities:
- Mortgage
- Loans
- Local taxes
- Insurance (health, home, life, auto, etc.)
- Education
- Food
- Child support or other required payments
This is not an exhaustive list of necessities, so look closely at whatever else in your life is non-negotiable. Once you have a pretty good list of necessary expenses, calculate other expenses, such as clothing, entertainment, landscaping, cleaning service, vacations, gifts, and other costs that could be reduced or eliminated if necessary.
Add up your income and expenses and compare them. If you find that your expenses exceed your income, this is where budgeting comes in.
Create a Budget and Adjust As Needed
Looking at the items in the “necessities” list, how much money will you have left over after they are all paid? This is your discretionary income, and this is what you will have to budget.
Look at each of your other expenses and budget a certain amount for each category (clothing, dining out, etc.). Looking at what you’ve spent before, what reasonable percentage could you decrease it by? Do this for each of the categories. This will be an estimate at first and may be adjusted later.
Once you have your expenses budgeted to at or below your expected income, start tracking all your outlays for the next few months. This way you can adjust your budget to be more accurate and realistic.
Get Creative
But what if you’re still having trouble living within your means? Get creative. As I said in the beginning, downsizing or buying less expensive versions of things can really save a lot of money. But you could also consider increasing your income. Think about ways you could make more money – start a side business? Pick up more hours? Set up an online store to sell items you’re no longer using?
Brainstorm with some friends. They may see things in you that you never thought of. Friends often see our strengths and our value better than we see it ourselves, especially after a difficult experience such as divorce.
You don’t have to struggle and suffer because you’re divorced. There may be a period of financial adjustment that is difficult, but with a little creativity, discipline, and positive thinking, you can provide a comfortable life for yourself and your family.