To ensure your finances stay or get back on track after divorce, creating a realistic budget is crucial. Here are some tips on how to do so.
1. Essential Expenses
Since divorce can dramatically change your financial situation, now is the time to figure out your monthly income and debts. The first step is to write down all of your absolutely essential expenses. For example, rent or mortgage, utilities, groceries, car payment, auto insurance, gas, credit card payments, school, daycare, etc. This does not include entertainment, such as Netflix or Cable.
2. Net Income
Next, it is crucial to calculate how much money you have coming in each month. This figure is the actual amount of money (net income) that is your take-home pay after deductions. Gross income, on the other hand, is the amount of money you make before taxes, social security, etc. is taken out. Knowing your net income will help you determine how much money is left over after essential expenses.
3. Other Expenses
Write down all of your expenses beyond the basic necessities. For instance, entertainment, eating out, beauty treatments, gifts, landscaping, gym membership, subscriptions, etc. Once you see them all in front of you, it can help you decide whether any can be given up if necessary.
4. Map Out Your Priorities
Either by yourself or with an accountant, evaluate your expenses to determine if you spend more than you bring in each month, then make some adjustments. For example, if you would like to save for your future, a vacation, college for your children, etc., an option is to cut back on services you can live without, such as subscriptions or dining out. Other things to consider include whether you will be downsizing to a smaller place, a different vehicle, or if you can supplement your income (e.g., taking on a side or part-time job). Keep in mind that the cuts you do make do not have to be permanent.
5. Avoid New Debt
Although it can be tempting to make impulsive purchases using credit cards rather than limiting spending, try not to give in to the temptation. If you spend more than you can afford, your future financial outlook can look much more glum for a longer period. Before purchasing something that is not on your shopping list, ask yourself if you really need it.
6. Create Healthy Spending Habits
Lifestyle post-divorce can be a challenging transition when you have to rely on a single salary. Continue to track and understand your spending habits, or else your money will disappear, and you will not know where it went.
Plan meals at the start of each week to avoid paying for the expensive convenience of takeout or fast food.
Wait a day or two before making a large purchase, so it is not done off of emotions.
Switch mobile providers if you can find a better deal.
Consider free physical fitness activities rather than spending money on a gym membership or personal trainer.
Make coffee at home or order black coffee when visiting a coffee shop.
Taking control of your finances and knowing what expenses you have coming up each month will help reduce stress and get you back on your feet much sooner. If you need legal advice, contact a divorce lawyer at Twyford Law today.