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 covered off the big three buckets we use to categorise expenses at a high level.
We covered a bit of ground on what constitutes a Need, and I managed to not upset too many people by calling private school fees a Want, instead of Need!
This post is all about the next big headline category – Wants.
These are the extra’s that make life more enjoyable. We don’t need them to live a safe and secure life, but they add enjoyment, satisfaction and fun to our lives.
Now, to be really, really clear – there’s nothing wrong with spending money on these things!
That’s a really important point – many, many people think we’re going to castigate them for spending money on things they want in their lives.
However – we are going to show you the impact of habitually over-spending in this area.
Because spending money on Wants isn’t the problem – it’s doing it unconsciously, and excessively where people get into trouble.
Over-spending on Wants can compromise your ability to meet all of your Needs (which should be priority number 1), and also contribute – so much! – to financial Worries.
Some things that fit into this bucket:
Any housing expenses that are more than 30% of your income.
Spending more than 30% of your income suggests that your housing situation is a little beyond your means – which isn’t a problem (until it is, of course), but that additional spend is, generally, an optional expense rather than a necessary cost.
2) Private School Fees
I talked about this in my last post, so I’m assuming you’re still reading this and haven’t thrown it away, while calling me some sort of fool!
3) Phone and Device Upgrades
As in the latest and greatest device plans. We want that latest model – we very rarely need it.
4) Eating Out
This always feels a little sacrilegious to write, especially in Melbourne, but yes, those coffees and snacks and meals out are discretionary expenses, optional additions that enhance your life.
Which isn’t to say you shouldn’t buy a coffee because <deep, patronising voice> ‘a coffee day translates to an Aston Martin over 375 years’.
Just that it’s all a matter of balance.
Those items that are above and beyond what we need. Think…organic quinoa compared to brown rice…! Or beer…cigarettes…that bottle of wine.
6) Most Clothing Expenses
Though we’re generally reluctant to admit it, most people don’t need very many new items of clothing on a regular basis.
These count as a Want, be they international or domestic, albeit an investment that I think is well worth the cost!
Extraneous travel expenses, so things like Uber charges, or upgrades, are optional expenses.
9) Club memberships
Think football or golf club memberships – though they enhance your life (unless you’re an Essendon supporter) – are an optional extra.
You’ll see that in a few of these cases it’s the costs above the basic level that count as Wants.
Which is fairly intuitive I think – most people know that they’re not living a monastic life predicated on merely fulfilling their financial Needs.
This portion of your budget should, in that mythical Ideal world, be no more than 20% of your total, net income.
It also shouldn’t be substantially below 15% for a prolonged period, because that will just translate to an unhappy life if done for too long.
Which means that for every $1,000 of income, you could aim to be spending between $150 and $200 on things you Want.
Our next post will be all about the third headline category – the financial Worries in your life.