In an on-going series about learning to manage money after divorce, guest blogger Suzanne Cramer guides us through creating a budget:
Now more that ever it is important to have a budget in place. As a single person your household relies solely on you to develop a budget and stick to it. Don’t keep yourself in the dark about where your money goes; find out by organizing your finances in a budget.
Developing and managing a budget is the biggest piece in your personal finance puzzle. A budget is an amazing organizational tool that helps you track spending habits, make adjustments, and get out of debt you may be in following a divorce.
Last month we discussed tracking expenses, the first step to successful budgeting. Now let’s take a look at the remaining steps in creating a budget.
The next step to a budget after tracking your expenses is to create categories for all of your expenses. Be sure to convert all yearly and quarterly expenses into monthly expenses. This will allow for easier tracking and eliminate the oops I forgot that mistake that often occurs in budgeting. Here’s a list of all the big guys you don’t want to forget:
- Cable or satellite
- Car payment
- Child care or support
- Credit card payments
- Eating out
- Electric and/or gas
- Gasoline and tolls
- Heating oil
- Household products
- Internet service
- Loan payments
- Mortgage or rent
- Pet care
- Trash removal
- Water and sewage
What’s coming in: Income
Budgets not only include monthly expense information, they also include your monthly income. For the purposes of a budget, you should look at your take-home pay (net pay) instead of your actual salary (gross pay). If you get paid every other week, multiply your take home pay by 26 and divide by 12 to get a monthly amount. If you get paid every week, multiply your take home pay by 52 and divide by 12 to get a monthly amount.
Sources of income may include:
- Salary and wages
- Bonuses, tips, and commission
- Child support and alimony
- Interest and dividends
- Social Security
- Pensions and profit sharing
- Rental income
- Public assistance
- Unemployment and disability
The next step is to find a budgeting tool that works for you. The prior three steps will give you all the information you need to set up your budget, now all you have to do is plug it all in! Here are a few budget planners to try:
- CareOne Budget Planner – free online tool
- Debt Diva’s Budget Planner – free printable planner
- Budget 5000 – free online software
- Mvelopes – online software and tools
- Budget estimator– simple, easy to use free spreadsheet from Get Rich Slowly
Are you in the red?
After you’ve recorded your information in your budget, the next step is to compare your income and your expenses. Add up your monthly income and add up your monthly expenses. If your income is greater than your expenses, you have a surplus that can be used to pay down existing debt or used for savings. If your income is less than your expenses, you have a deficit and will need to make some adjustments; earn additional income or cut expenses.
Remember, creating and managing a budget plays a crucial part in assuring your financial health and independence so make this a priority after your divorce. Delaying the creation of a budget post-divorce may keep you from achieving your goals. If you haven’t created a budget yet, get started today!