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 my last post, I talked about a few of the things you shouldn’t bother doing with your budget.
Now we’re into the guts of Managing Your Money – the 3 B’s of Money Management, which are:
Budgeting – identifying where your money is currently going, and where you’d like it to be going.
Banking – how you should structure your accounts to maximse the chances of achieving your goals.
Better – being aware of how you’re performing to plan into the future – and knowing when to make any required adjustments.
Which is a nice and simple structure. The next couple of posts are all about the first step – Budgeting.
I know, I just said “don’t bother budgeting”.
And I meant it.
Don’t bother tracking every dollar in a spreadsheet for the rest of your days. I mean, I like spreadsheets and that sounds awful to me.
No, this ‘Budget’ is slightly different – I’m talking about a simple process to get an idea of where your money is going now.
Then we’ll work out where your money could be going.
You’ll note could, not should.
Remember – not your parent…
The most important thing to do when you’re starting again is to get a really clear idea of what’s going on now.
Not how things used to be before your divorce, but how your current reality is. Perhaps your income has dropped, sharply, or your expenses have exploded.
Or, likely, both.
Which makes this a little harder – but it also makes managing your money even more important.
This can be a little confronting, because it can feel like a really big project. But I’ll take you through how we recommend you break it down to make it easier to work through.
Because it’s so important that it’s a true and accurate reflection of what’s going on now.
Not a list of good intentions, best wishes, hopeful thinking or ‘could-dos’.
It can be tough, but a little bit of honesty here makes a HUGE difference.
We use three steps to help people diagnose their Now:
First, we need to get a grasp on where your money’s going now.
There are a few ways to do this:
– You can gather all the bills and invoices you’ve paid, all the receipts for your expenses and every other record of expenditure over the last 12 months and compile them into a single summary.
– You can go to your online banking, download a .CSV of all the transactions on all your accounts and with a bit of tidying, have a spreadsheet summarising the results.
– There are some apps you can use that will collate this information for you. Much simpler, though at a small cost.
For me, I’d go the second option as it’s easier and Excel makes it a doddle. But if you’re not a slave to the spreadsheet then the first option would work well too.
(If you are comfortable with a spreadsheet, then I recommend downloading our Budget Tool, which we use when working with our direct clients.)
The how doesn’t matter – what’s most important is that you can have a list of where your money has gone in the last 12 months.
Living in the Age of Tap and Go makes this a bit easier than it used to be, but it’s still going to take some time and effort.
But it’s effort that will be rewarded many, many times over – so get cracking!
Our Budgeting Tool
We have prepared a Budget Tool to help you with this process – you can download it for free from here.
It captures your Income Information as well as the Expenses, so gives us a much more detailed picture of your Money Flow.
A quick note here – if you’re not using empirical data to assemble your budget (maybe you don’t have access to it, maybe you’re not sure how to wrangle it into a spreadsheet), it’s not really an issue.
So long as you are as honest and conservative in your estimates as possible.
So instead of “there’s no way I spend more than $100 a month on wine”, think “I reckon I spent $100 on wine last month – 4 of those $25 bottles – so let’s use $110 for my wine expenditure estimate”.
Another way to put it – always under-estimate your income and over-estimate your expenses.
Thinking like this – consciously, conservatively and in a detailed way – is a habit well worth building.
Now that you’ve got your ‘data’ gathered and collected in one, handy place, the next step is Analysing it – which is the topic of our next post.