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 few posts have been all about the Explore and Analyse phases of our Budgeting process. Which can be summarised as:
Collect your data;
Examine your data.
This next step in defining your current situation is about taking that data and diagnosing any potential issues.
Which brings us to the real nitty-gritty.
Your research in the Explore phase would have resulted in a bottom line figure – a surplus (good!) or a deficit (less good…).
It’s quite common to feel guilt about the result, especially a deficit, but try to ignore that impulse.
You’ve been through an immense change and – often – you’re having to take control of your (reduced) finances for the first time. It’s time to learn and develop, not judge and criticise.
This isn’t about berating your past self, or for feeling guilty about what’s gone before. You’ve already started down the unusual and extraordinary road of Cash Confidence – so be proud of that, not ashamed of ancient history.
Instead, what we’re trying to do here is identify what’s driven the result.
Past the Bottom Line
When you’re looking at your own budget, look past the bottom line surplus or deficit and try to find three or four items that dominate the numbers above it.
Maybe there were a few more nights out – with the drinks, dinner, more drinks, Uber combo adding up.
Or your car blowing up really punched a hole in the budget.
Maybe you’ve been caught by the escalating costs of transport, utilities or health insurance we’re all seeing.
Maybe the great neighbourhood you’re living in is coming at an unexpectedly high cost.
Whatever they are, write them down.
Our Budget Tool provides some space for this.
Specifically, there’s space for you to:
Identify your Top 10 expenses, and what they represent as a proportion of your budget;
Work through what changes you might look to make;
What impact those changes could have;
Flag 10 things you’d like to change – and what a difference that might make to your budget.
Another Decision – Negotiables
Then – and here’s the real trick – really think about whether or not you’re happy to keep up those habits at the cost of your financial confidence.
Because if you are – sweet, you’ve defined your ‘non-negotiables’. These will form the foundation stones of where your money could be going.
But what you’ll also find is that these non-negotiables need to fit into your financial capacity.
They simply have to.
It’s an unavoidable fact of life that you can’t keep spending more than you receive without hitting a solid brick wall of unpleasantness.
So make really, really sure about these non-negotiables (the next step is working out what that capacity is, so you may come back and revisit this soon).
Numbers are Numbers
Or, maybe you can’t really do anything about these dominant numbers.
Maybe you’re stuck with a mortgage on a house you can’t sell and clear the loan. I hope not – the stress involved in that can be horrendous. (This leads into one of our ‘big questions’ during the property settlement – should you keep the family home?)
Maybe there are some personal or medical expenses, for you or your family, that can’t be budged.
If that’s the case, then we’ll need to work hard with your new budget to make sure they’re taken care of, while also hitting your other goals.
Now we’re talking about compromise, priorities and choices.
Budgeting After Your Divorce
In the best cases, there is no issue here.
The budget is already showing a surplus, and it’s simply a discussion of how much should be saved each month – or spent!
But for many people coming out of divorce, this is NOT the case.
Often their income has dropped – for the breadwinner, because their financial responsibility extends to another household; for the homemaker, because they now need to fund their own household.
And at the same time, their expenses have probably skyrocketed.
Whereas they were in one house before, with one set of costs now they’re in two different homes, paying two different mortgages/sets of rent, two different electricity bills, council rates, gas bills – almost doubling their cost of living from before.
Same income, higher expenses does not generally translate to a budget surplus.
To me, that makes the argument for managing your money even more powerful. If you can find areas you can save, or reduce, or manage through this process then two things will happen:
1) You’ll improve your overall situation, which will alleviate – by degrees – the stress and unease you’re carrying;
2) You’ll gradually – bit by bit – build confidence in yourself, and your ability to take control of your life.
This second outcome is tremendously powerful for those of you who’s confidence has been rocked by the experience of your divorce.
I hope that these three steps – Explore, Analyse and Diagnose – have helped you to clearly define your ‘Now’, your current position.
The next step is to start structuring your ‘Future’ – or how you want things to be.