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 two posts have been all about categorising what’s a Need and what’s a Want in your budget.
The third of the headline categories is what’s left and what’s bothering you – your Worries.
This part of your budget is the portion going towards paying off things that are worrying you – like debts, fines, chunky expenses, paying people back, that kind of thing.
And then, we talk about what you should be doing with what’s left after your Needs, Wants and Worries have been taken care of.
What’s worrying you about your money will be different to every person you know. And your experience through, and after, the divorce will also shape your mindset when thinking about money.
But, in my experience, there are some common areas that induce stress and anxiety for people.
Be they small, like a parking fine or a store card, or medium, like a five-figure credit card or car loan, or large, like a big tax debt or a mortgage, debts can be ongoing source of stress.
Best case scenario, the payments are sucking up part of your income. Worse case, you’ve fallen behind and feel nervous about answering the phone in case it’s another debt collector.
Worst case, you’re worried about being evicted by the bank.
Debt’s can be tremendously stressful – and we cover this more in our ‘Improve’ module – but by allocating a dedicated portion of your monthly budget towards them, you can slowly take back control.
Because that’s also a side-effect of debt they don’t tell you about – you’re giving up control of your money in return for something now.
And that transfer of control often – normally – outlives the utility of what you spent the money on.
Think of the chunky bills that you know come up each year, but that you have to scramble to pay – car registration, annual insurance premiums, land tax, house rates, etc.
You may not have the cash handy, so you have to reach for the credit card to get rid of it. Which you do, but then you’ve got this credit card to pay off.
What I prefer to see is people using this portion of their budget to prepare for those bills. By drip-feeding money towards these chunky obligations, you get to avoid Envelope Shock.
You’re sitting on the couch, watching TV. An ad for some direct life insurance policy comes on, and like the last hundred times, you almost ignore it.
Except this time it makes you wonder:
What would happen to my family if I got sick?
What would I do if one of the kids got sick?
God, what would we do?
That moment is a legitimate response to the very real possibility of one of life’s crummy bits affecting you.
By using your Worries amount to build a buffer, you start removing the financial fear from these questions (the other fears will always be there – that’s only natural).
And knowing that you have that buffer and have made other arrangements like having appropriate insurances and documentation in place, is a crucial part of feeling in control of your money – and having confidence in your ability to (financially) weather any storm.
That’s what makes Worries so powerful of course – it’s the way they take control out of your hands and give it to someone else.
I don’t like seeing that. I much prefer seeing people wrest back control of their money – and therefore their lives – so they can start feeling confident about their finances.
The Big Three
For many people, splitting expenses like this isn’t a huge leap from how they approach money now.
We all know the mortgage needs to be paid.
We all know that we wanted that extra suit, we didn’t need it.
And we all have those worries at the back of our mind that can make sleep that little bit harder to chase.
But by building a structure around these categories – and then automating it as much as possible, which we’ll cover later – you have the framework to help improve your financial decisions.
Learning this is the most powerful part of any Money Management system – and it’s the first lesson I’d like you to take on board.
A few points to remember:
– Try not to judge yourself for the decisions you’ve made in the past;
– You decide what’s a Need and what’s a Want. Though I have my opinions, this will be your budget so it’s important you set the terms;
– But – it’s a key part of life that you take responsibility for the consequences of your decisions.
o If you decide to over-allocate money towards your Wants, then you need to take on any issues that result from that;
o And if you decide to ignore your Worries, well, we all know what that kind of head-in-sand approach tends to achieve…
– Given enough time, a budget that’s always in deficit ends in disaster – and one that’s always in surplus ends in confidence;
We’ll leave the big three there for now – it’s time we moved to the 3 B’s of Money Management.
But first, a word about what not do to.