Money can’t buy you love but it sure can make life easier. Unfortunately though, there’s almost always less money after divorce and that can be a challenge. There are some tips however for how to make managing your money after divorce easy.
It starts with budgeting. This is important because knowing what you’re spending and what’s coming up means you can make realistic decisions about your lifestyle. Since housing costs are usually the biggest part of anyone’s budget, it means being able to make smart choices about where to live after you and your spouse separate.
If you’ve never handled the household accounts, learning this can seem a bit like learning a foreign language. Even if you were the one paying the bills, this can still be a transition because most of us have a bunch of emotions and judgments tied up with our money.
I had the opportunity recently to talk with Todd Curtis, Chief Customer Officer over at YNAB.com for my Conversations About Divorce podcast. YNAB is You Need A Budget – an awesome budgeting and tracking tool with a ton of education, tutorials and support forums. I promise you, he’s very realistic, down-to-earth and not at all judgmental about money struggles.
If you enjoy listening to podcasts then please consider subscribing in iTunes to Conversations About Divorce. Don’t like podcasts? No worries … it’s not the same but keep reading.
And btw, YNAB offers a free 34-day trial, is free to college students and if you use this link, you’ll get a discount on the purchase price.
Tracking Is Not The Same As Budgeting
Recording your expenditures is great but it’s not the same as budgeting. Tracking gives you a solid record of what you’ve spent, where your money is going but it’s about what has already happened and you can’t change those decisions.
Budgeting is about taking the tracking information and looking forward so you can make better decisions about your future spending. For example, if you were simply tracking your current spending, you might be excited by the $300 surplus in your checking account and feel comfortable going out and splurging on some new home furnishings, a new outfit or concert tickets for your favorite band. Budgeting however would tell you that your car registration is due next month and all of a sudden much of that $300 is spoken for.
Tracking a full year’s worth of expenses will make budgeting much easier because you’ll have a record of all those annual, or quarterly expenses that can sidetrack your budget.
Budgeting Can Be Scary
When you take your tracking information and look at where you are spending your dollars each month, it’s difficult to deny the hard truths. Most of us start to see trends and habits we don’t like or weren’t aware of, things we don’t want to see. That kind of self-examination can scare some people away.
The flip side to that however is that old adage, knowledge is power. Knowing your spending habits gives you the power to make different choices. “It is only when you begin to understand your spending habits that you can really take control and make different decisions,” says Todd Curtis.
Budgeting Is Not Restrictive
One reason people avoid budgeting is a sense that it is restrictive. It stops them from spending their money where they want. It’s regulating them.
Curtis suggests shifting that perspective because it’s you that creates the budget. “It’s really purposely, intentionally looking at your money and aligning it more closely with your priorities. The cutting back will happen naturally because you see that it doesn’t meet your goals.”
It’s OK To Guess
Starting a budget means starting with what you know. If you’ve not been handling the household accounts, that may mean that you have little idea how much you spend on utilities or even that there are separate water and sewer bills. If you know you’re going to be moving out from the marital home to somewhere smaller, then many of your monthly expenses may be unknown. And that’s OK.
Curtis says that people should not to let the unknown stop them from getting started. Your spending is going to vary from month to month and each month you go through and tweak your budget for new data, it will get better and better. So if you know that you will have an expense coming up, it’s OK to include that in your budget as a guess and that guess could be based on what friends spend, it could be based on a figure for your current home adjusted because your new home is smaller.
This one is particularly relevant for people going through divorce. Here in Colorado as part of the legal process, people are required to submit a budget and it’s a task I’ve seen lots of people struggle with. If there’s time, I tell people to start tracking their expenses a.s.a.p. Otherwise, we sit down and work through all the different sections – housing, utilities, food, transportation, medical, children – and we make estimates. You do the best you can.
Budgeting Creates Certainty
When you are actively budgeting, and that means each month looking at what you’ve spent, what expenses are coming up and allocating your dollars accordingly, when an expense comes up, you’ll know you can afford it.
“Knowing that and knowing that with confidence gives you much more of a feeling of control and reduces anxiety about the whole process,” said Curtis. For me, that feeling is about feeling like an adult, like a grown-up being smart about my money.
Change Will Happen
I think starting to budget is much like changing your eating habits. I’ve worked with a nutritionist on several occasions. We start with a food diary where I simply have to record what I’m eating and they always impress on me, not to make any changes. Well, it doesn’t matter because simply by the process of writing down my food intake, I make changes, start pulling back on bad habits I’ve let sneak back into my eating.
Tracking your spending strikes me the same. Spending decisions are not made in isolation. each one impacts another.
“If you’re not tracking your spending, it’s harder to see the collective impact of all those decisions and so it’s harder to make good decisions,” said Curtis.
Downloading Isn’t Cheating
So if tracking your expenses is like counting calories, if you automate that by connecting your bank account and credit card to your budgeting software, isn’t that cheating?
Curtis says no. He maintains that writing down dates, vendors and amounts doesn’t have value. It’s a task that consumes time that could be better spent. It’s time that is better spent categorizing the expense and comparing it to your budget. Curtis says the important part about budgeting is your interaction – it’s you making it a priority on a regular basis to compare what you’ve budgeted to what’s been spent and making revisions for the future.
You Still Need To Reconcile
Showing my age and my mindset, I’ve always reconciled my bank statement against my records even when the only option was using the charts that printed on the back of your bank statement. And yes, I have been known to do this task while on vacation but that was a long time ago. However, it’s such a discipline for me that I won’t use any financial software that doesn’t include a reconciliation function. But is this me being obsessive?
Curtis says no. Phew. Reconciling is important and the good news is that with automatic downloads it is much easier and less time-consuming. It’s important because you are constantly making spending decisions and making good decisions starts with knowing the correct amount you have available to you. That’s a combination of the data from your bank as well as any uncleared transactions, such as checks you’ve written that haven’t been cashed.
There are three reasons for reconciling with your bank and credit card company. First, this process will help you identify any unauthorized transactions and to report them promptly which can be critical in getting them reimbursed to you. Second, if you see unexpected charges from your institution, you can find out what they are for and ask about a waiver – I’m a big believer in that. Lastly, you may identify that you’re still paying for an expense for your STBX like their car insurance being wrapped up with yours, or that the cable from your last home is still being charged to you.
When you are in transition, it becomes especially important to reconcile and to do it on a timely basis.
Budgeting Can Be Fun
What’s important to remember about budgeting is that those spending goals are yours, not anyone else’s even if it is your mother’s/father’s/spouse’s voice you hear inside your head while you’re doing your monthly budgeting. When you don’t have much discretionary income, there’s undeniably less flexibility but the goals are still yours.
There’s a sense of personal satisfaction that comes when you’re meeting your goals. There’s peace of mind that comes when you know you have enough money to pay your bills. That can mean feeling less anxiety and sleeping easier.
And when you’ve set a goal for some discretionary spending, like a fun vacation trip or a new laptop, it gives you a framework for making decisions about other temptations. Do I want this new tool/kitchen appliance/tech gadget more than that dinner out while the kids and I are on vacation? That makes it easier to say no or to say yes without feeling guilty.
Regardless of how disciplined you’ve been about budgeting, the reality is that there will be setbacks. There will always be an unanticipated, unavoidable expense and this is not a reflection on you. It’s just life.
You handle the unexpected by looking at your other budget categories to see where you could take those dollars from and how you can make it up in the next month. It may mean putting the expense on your credit card and having to pay it off month by month.
Curtis says don’t get discouraged, because the more you work with budgeting the better you’ll get and if you get into a real mess, you can always start over.
Todd Curtis is Chief Customer Officer with YNAB – You Need A Budget – which offers budgeting software and consumer education. YNAB offers a free 34-day trial, is free to college students and if you use this link, you’ll get a discount on the purchase price.