Welcome (back) to our Six Stones series. Our financial adviser, Jordan, is sharing as many tips, ideas and advice for people going through a divorce as a humble blog will allow. He’s staying away from specific financial advice – it’s all general advice over here, be sure to get personal financial advice before doing anything – but we hope you find some useful information in here as you navigate through/out of your divorce.
Our last post was all about the first steps in our Budgeting process, which is all about gathering the data you need to make the best decisions you can.
Our Explore process helps you to collect all of that information and sort it into useful ‘buckets’ and summaries.
Once gathered, it’s time to Analyse that information.
Now – a quick note: This is a fairly detailed section, so please get in touch with any questions. I’ve deliberately aimed for more detail, because I know some of the big guides in the market are quite generic. I want you to be able to take this information and use it with your own situation right away.
When we’re working with people directly, we’ll pull apart the data from the Explore stage, analysing where money is going and how it compares with some standard benchmarks.
We’ll also work to categorise each item into their separate Needs, Wants or Worries baskets.
This helps us really dig into somebody’s cashflow to find any issues or concerns that might be in there.
There’s nothing magical about this process – it’s simply taking a good hard look at the data you’ve diligently gathered.
And it’s something you can do quite easily too.
It’s important to sit down, without any distractions (no TV, friends or other people around, after the kids have gone to bed, etc) to analyse your own data.
There’s no guilt here, no judgement – all we’re trying to do is get a clear idea of your financial truth. Sure, that might be a stack of negatives now, but that’s ok too!
We’re drawing a line under what’s gone on before, so honesty is way, way more important than embarrassment.
So, here’s how to tackle it:
1. Interrogate the data (in a nice way).
Pull it apart.
All of the numbers are connected and it’s really empowering to get a feel for where the money has been going.
I like to work in percentages (which I find by dividing an expense, or group, by the total figure) because I find that 15% on hats/furs is clearer in my brain than $1,500 on hats/furs.
(As an example. I don’t buy hats and/or furs.)
Anyway, take all of the transactions in your list or spreadsheet, and allocate them into the three big buckets.
What were Needs, what were Wants, and what went towards Worries, or caused you Worry?
(If you’re working along with our Budget Tool, you’ll see that it does this for you automatically).
Worries, remember, are those things that you are concerned about and you’re trying to manage – maybe an extra credit card repayment or a parking fine, or anything that’s a) causing you stress and b) you’re doing something about.
Then add up the total in these buckets, and divide that by the entire amount that was spent.
You’ll then end up with three figures which should add up to 100% – X% / Y% / Z%.
I think comparisons with other people are one of the critical flaws in modern society.
But – in this case it’s worth running a quick comparison between what you’re currently doing, and our Ideal ratio.
Now – this Ideal ratio is, for the vast majority of people, including you most likely – well and truly removed from reality.
That’s ok, remember we’re just getting an idea of your current situation. To put it another way – we’re just painting the start line. It’s the accuracy that’s most important, not the colour.
So – take your ratio and compare it to our Ideal one:
60% on Needs / 20% on Wants / 20% on Worries.
Is there a variance? (I’d be surprised if there wasn’t).
Does it ring true?
(Again, our Budget Tool does this for you).
3. Ask yourself some questions
The final step here is to really examine your own feelings about these expenses.
A lot of people – the majority, I’d wager – spend their money without any real consciousness. It just flows through their fingers.
Which means that taking the time to actually assess your options and make an informed decision is kind of weird.
But I encourage you – urge you – to do so. (I’ve written before about how you can make better financial decisions).
And one of the ways you can do that is by asking yourself some questions about what’s gone on before:
Do you feel they were worth it?
Do you remember all of the expenses?
Was there something going on at the time that influenced a decision you regret?
Most people know, in their gut, when they should have maybe done something differently – do you feel that about any of these transactions?
After all, in my experience, most people know what should be going on.
But it’s easier to ignore it year in, year out.
Not anymore. Now the data you’ve gathered in Explore is staring at you, demanding analysis.
This Analyse phase is a really, really powerful step, so be sure to work through it.
It’s not necessarily fun – but you also won’t have to do it again.
Once that’s all done, you can start answering some of the more important ‘mechanical’ questions, like:
– How much is being spent on housing costs like rent or the mortgage;
– What’s the split between the Needs and Wants in the expenses;
– Are there any extraordinary expenses – and will they be repeated;
– What are the ‘non-negotiables’ that have to stay in the budget.
Now you’re really coming to grips with your money.
And congratulations to you for taking these first steps.
It’s not always a comfortable process – but by owning your decisions and taking that step towards analysing your current money habits, you’re moving towards real Cash Confidence.
The final step of clarifying your Now is the Diagnose phase – which we’ll cover in our next post.