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.
In our last post, we introduced the idea of the three primary buckets – Needs, Wants and Worries.
But just what should go into each bucket? This post is all about what I believe should be counted as Needs:
These are the fundamentals, the basic requirements you have to maintain safety and security.
No luxuries, or anything that could be considered optional.
Either on mortgage or rental payments. Also things like home repairs or maintenance, but not renovations or improvements.
We’re talking about things like basic food and drinks and toiletries. No alcohol, tobacco or any other Wants.
Including electricity, gas, water, internet (yeah, it’s a Need in this day and age I believe), basic mobile phone plan.
If anyone still has a home phone then it would sit in this category.
4) Minimum Ongoing Debt Repayments
Be it the minimum monthly repayment on your credit card(s), or the monthly lease repayment, these Need to be paid each month.
So petrol and basic vehicle expenses (registration, petrol, maintenance), and public transport fares.
6) ‘Reasonable’ Kids Expenses
The ‘reasonable’ bit is the hard one, especially when you’re going through a divorce. The temptation is to help soften the blow of what’s going on by over-spending on your kid’s lives, which is totally natural.
But we’re talking ‘Needs’, so there are quite a few ideas I’d encourage you to re-visit.
Take school fees for instance.
Many, many people see private school fees as a Need, but I’m not one of them.
I believe they belong in the Wants column, which has caused a surprising amount of consternation in the past.
I’m not saying you shouldn’t send your kids to private school – that’s totally your decision and if your budget can support it, fantastic – but what I AM saying is that doing so is an optional expense that properly belongs in the Wants column.
That makes it easier to balance your budget, and easier to determine what you need to do to achieve that laudable goal.
It can also help people revisit the costs – financial and personal – of their preferred option.
Like I said, it can be a controversial position!
To keep the miser train running, let’s talk extra-curricular’s.
I feel that one extra-curricular activity per child is a good guideline here. However, many people spend more money in this category and it’s terribly difficult to wind back kid’s social lives – especially when things are so difficult at home.
What I would say – and not (just) because I’m a miser – is that if additional expenses are going to cause you financial anxiety, then your kids distress at seeing you under pressure is going to undo any of the benefits of additional activities.
Could include any life, income protection, car, home and contents insurance expenses.
These can add up over the course of the year, so it’s important you review these expenses and policies each year to make sure they’re not unbalancing your budget.
The ‘Ideal’ Ratio
In an ideal world – ah, the ideal world – 60% of your budget should be going towards your Needs.
Put another way, for every $1,000 of income you receive each month, ideally no more than $600 would be going towards these expenses.
In our next post we’ll address some of the things that could go into your Wants and Worries buckets.