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Getting Savvy about Saving, Budgeting During Divorce

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According to Ginita Wall, CPA, CFP® in her seminar “Second Saturday: What Women Need to Know About Divorce” in the first year after divorce, a wife’s standard of living may drop almost 27 percent while the husband’s may increase by as much as 10 percent.  Like me, you might ask yourself how is that possible when divorce is set up to be equitable?

What I have found to be consistent about “divorce equity” is that, at some point during the divorce process, each side will believe that divorce is not fair, and after years of marriage, “equity” is hard to agree upon. Women tell me it’s very hard not getting side-tracked by strong emotions when a stranger is determining the equitable division of “stuff”. While it is just stuff, it has defined your life in many ways.

I experienced that feeling, and am grateful it has evolved from a bad memory to a learning opportunity that now helps me help others. Aristotle may have proclaimed “the law is reason, free from passion,” but divorce is not. To help with this, I offer my advice that I hope will help others with the emotional, as well as the financial:

  • Prepare yourself with the understanding that “equitable distribution” does not always equate to a 50/50 division. When too much emotion takes over, it can cause your divorce tab to go up, as you and your soon-to-be-ex rack up hourly attorney fees fighting over possessions. This is one time your head must overrule your heart!
  • Develop a strong support system so that you will have the emotional support you need to get you through the divorce. There will be difficult moments even in "easy" divorces.
  • Find your fight song! Find something that can motivate you when the chips are down. For me it was the song "Watch Me Shine" by Joanna Pacitti from the Legally Blonde Soundtrack. No matter how bad my day was, this song put me in the right frame of mind to move myself forward.
  • Last, and most importantly, it’s time to define yourself as a strong, independent single woman. On that point, let’s get that started with some real-life financial basics on saving and budgeting.

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Saving
If saving comes easily for you, great...keep saving! But if you don’t have a “savings” mentality, never fear -- you can start now with some simple advice: Spend less than you make.

Easy, right? Sometimes even simple advice, like spend less than you make can be “deceptively hard” in practice, as pointed out by Ginita Wall in her article "Prince Charming Doesn’t Live Here Anymore." She equates that phrase to the standard dieting advice, "Eat less and exercise more."

Wall suggests if you aren’t a saver, the first step to saving is budgeting. In her article, she offers some straight-forward budgeting tips that are worth highlighting below:

Budgeting
To start budgeting I would recommend an online search of a phrase like “create a monthly budget.” You will have pages of resources that pop up. Peruse the list and find the resource that you like most. Don’t get lost in the volume of resources. Find something you like and go with it. If you prefer to write your own spreadsheet, make columns on paper and list at the top of each column the budget category that applies to you. If you need a template, there are plenty of free budget templates online, just search “budget template.”

Step #1: Start with consistent monthly expense categories

  • Mortgage or rent, car payment or other installment loans, credit card payments, insurance, utilities, groceries, gasoline, savings and investments

Step #2: Add categories where you tend to spend monthly, but expenses vary from month. Be sure to including categories that are uniquely yours.

  • Repair expenses, clothing, health expenses, personal/ beauty care, books/magazines, entertainment, gifts, charity, hobby expenses, taxes, pet expenses, miscellaneous

Step #3: Add each expense from the last twelve months to one of your budget categories.

  • Go through your electronic banking or checkbook for the past year and list each check in it’s proper category or column.
  • If you have kept credit card statements include each purchase in a spending category instead of just lumping all those purchases under “credit cards.”
  • Once all your expenses are in categories or columns, add each category up to see where you spent your money. Don’t be surprised if you find yourself shocked or surprised. My “Aha moment” came when I saw the total spent in drive-thru fast food for my family!

Budget Decision-Making
Look at your categories and intentionally decide where you must cut back, where you can cut back, and where your expenses might need to be increased. Adjust the numbers as needed in the categories until you find the combination that makes the most sense for you. Divide your revised categories (columns) by twelve and that will give you your preliminary monthly budget.

Wall advises to “adjust and readjust” your figures until your monthly budget equals your monthly income. It may take some work, but stay the course, and complete the task. She advocates for allocating as much as you can to your savings and investments, which I agree with, with one exception.

If you are carrying high interest debt (e.g. if your credit card has a 24.9% interest rate), it makes sense to use as much as you can to pay off that debt as quickly as possible even at the expense of an investment account. What you could do, to start the savings habit, is to take $5 -10 a pay and put that in a savings account. That small act will establish a behavioral pattern for the new habit of savings. After the high interest debt is paid off, you can contribute more to your savings.

Another nice surprise, you will start feeling great as you see your savings account balance grow. There is a real sense of accomplishment and pride that will come with money in the bank...a joy that is just as great as how you feel wearing that pair of $300 designer shoes. Here’s the difference, what you feel about the shoes wears off as time passes, but your feelings may tend to escalate over time as you continue to watch your money grow.

 When Expenses Exceed Income
What should you do if your expenses are exceeding your income? First, don’t panic or view this activity as wasted time or a lost cause. The work above will empower you to make better choices and take more competent action. Effective budgeting forces hard decision-making -- decisions that you are completely capable of making if you stick with this action plan. You now must decide what is most important to you and what you can do without.

Remember:  Not deciding is a decision to do nothing. To do nothing at this point will change nothing. This is where real change occurs if you are willing to make some hard choices. Put on your fight song and push yourself forward.

Repeat the Process Monthly

  • Each month categorize your checking and credit purchases just like you did for the year when you started the budgeting process.
  • Then prepare a four-column spreadsheet to summarize your month and give you feedback to continue your financial progress.
  • If you repeatedly go over your monthly budget, you must adjust your spending habits or find a way to increase your income to accommodate your spending level.

 Four-column worksheet (Example):

BUDGET CATEGORIES BUDGET EXPENSES ACTUAL EXPENSES OVER/UNDER BUDGET w/EXPLANATION
Mortgage $1,000 $1,000 On Budget - Look to see if I qualify for interest rate reduction
Gifts $100 $150 $50 over - Flowers to 3 funderals in addition to 2 birthday gifts
Entertainment $200 $140 $60 under – stayed in more b/c
weather bad, used buy 1 get 1 50% off coupon when eating out with bestie, no morning coffee drive thru

 Knowing month-by-month where and why you are over or under budget is a key component to making strides toward the financial freedom you need to become a truly independent, savvy single lady.

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