A Healthy Approach to Creating a Post-Divorce Budget
Dec. 23, 2015
Budgeting – the very mention of it – sends many people into something like anaphylactic shock. They stop breathing, rouge, and stare straight ahead, into the space where the abyss resides. There is something paralyzing, overwhelming and claustrophobic about the notion of being constrained by rules and limitations around spending. Feelings of deprivation may be aroused. Fear of lack, loss and the unknown can also be triggered.
One of the essential parts of divorce is budgeting. In order to arrive at the terms for settlement, clients must pull together their current marital budget as well as their anticipated post-divorce living expenses. A post-divorce budget provides important data of how the parties lived together and what will be needed to live separately.
In reviewing the actual definition of the word “budget” I looked at its synonyms. Most of the words that can stand in for budget have to do with cost-cutting and imply less quality, such as cheap, bargain-basement, low-end, inexpensive, dirt cheap, and perhaps best of all, el cheapo. What’s better than dressing up something unwanted in a foreign sounding cloak?
Furthermore, our common associations with the word budget have to do with such concepts like a 50 million dollar film budget or national budget – both of which have an unreal and an obtuse quality for most of us.
It’s no wonder we struggle to warm up to this word with its less-than, negative and vague connotations, particularly when it comes to the anticipation of a divorce budget. So let’s refrain. Because language is important when looking to relate to things we’d rather avoid, we need as much help as possible. If we introduce the notion of something more appealing, that invites a heightened sense of control and a movement towards what’s wanted, perhaps that would help.
Instead of budgeting what about estate management or financial governance? Try those on and see how they feel. Try out a few of your own. Situate yourself in a space of what is wanted and how you’d like to shape your relationship with your finances to create a satisfying and long term alliance.
Recently I met with Dan Jago, a financial planner at Main Street Wealth Management in Bedminster/Bernardsville, NJ. He works primarily with 30 and 40-somethings who are often brand new to financial planning. Dan initiates what is often their first conversation around budgeting, or if you prefer – financial governance – and he speaks to how he approaches it in a fresh and helpful manner which I appreciate. What follows is an outline of how people might begin this conversation (or inner dialogue) around this important topic, particularly regarding a divorce budget. I have integrated Dan’s input with my own.
What’s Happening? (preparing for A Post-Divorce Budget)
First, from a non-judgmental and non-critical stance, without an obligation to change a thing, take a look at what you are currently doing around money. What are your spending habits? Are you at Starbucks everyday? Do you pay bills online? Use auto-deposit for your paychecks? Mostly use cash? Rely on one or several credit cards? With a guide such as Dan, you can evaluate current spending patterns and habits and formulate your post-divorce budget.
Just as you would make someone’s acquaintance with politeness and curiosity, this is how I invite you to approach your current spending. Except in the Wild West of old, we typically don’t meet others with guns blazing, ready for a showdown. Approach you current spending as you would a potential long-term, dear friend. Softly.
What Would You Like to Be Happening?
When it comes to divorce, and establishing your current and post-divorce budget, it is easy to hone in on what’s wrong with what you’re doing, (and by implication, what’s wrong with you). Focus instead on what you want to create.
By shifting in this way, you involve a different part of your brain – a visionary part – which has the power to inspire. Take some time to dream. Helpful questions might include: What would it take for you to feel great about money? To feel secure? To feel content with your handling of your finances? What would you like to own, pay off, do, be able to give to your children, family, friends, community, etc.? What would you like to know for certain? How will your post-divorce budget be different from your current financial governance when it’s complete?
Once you have tapped into what you’d like, not only can dollars enter the equation, but so can current practices. Within the benevolent, sunny environment formed by focusing on what’s wanted, we are more equipped to turn to current habits and analyze what can be modified and built in order to bring forward what is desired. A plan is determined and set in motion.
Dan and I talked about a few concrete examples. Take Bob. Perhaps part of Bob’s plan is to save an additional $100 per month in his post-divorce budget so he can rent a ski house for a week in the winter. By reviewing Bob’s current habits, Dan and Bob identified that Bob stops in Starbucks every morning on his way to work, spending approximately $25 weekly on coffee concoctions. Bob enjoys the whole ritual of stopping there – it’s something that get’s him out of bed and on the road. So rather than asking that Bob forsake Starbucks and his weekday ritual, we might ask if Bob would be willing to switch some of the days out for less elaborate and costly coffee options. Maybe Mondays are the days when Bob orders his favorite drink. In consideration of his post-divorce budget and savings goal on Tuesday-Thursday he orders regular coffee, saving close to $15 per week simply by making this cost conscious modification.
This reasonably minor behavioral modification frees $64.50 per month, and gets Bob substantially toward his divorce budget and savings goal. He needs to find another $35.50 to reach the $100 goal.
Bob eats all of his lunches in the work cafeteria to build relationships with colleagues and enjoy the camaraderie of his mates. Although the cafeteria is subsidized, he spends an average of $8 per day on lunch. By simply carrying a water bottle and filling it at home and from the office water cooler, Bob can cut his weekly beverage costs of $8 per week, reducing his beverage spending by another $34.40, giving him $98.90 in his post-divorce budget (just $1.10 away from his goal).
What’s important about these modifications is that Bob kept the parts of his habits that served him and that he enjoyed and counted on. The changes he made didn’t change the substantive nature of his habits and supported all the structural and social benefits he currently enjoys within his post-divorce budget.
Bob wasn’t told to give up Starbucks or start eating at his desk. Such draconian measures were unnecessary to accomplish his goal. They would have felt more punishing than progressive. Once this is set in place, Bob arranges to have the additional $100 transferred directly from his automatic deposit into his savings or investment account. He doesn’t need to worry about it again, and his post-divorce budget supports his new goal. Now when Bob sips from his water bottle, he sometimes has an additional sense of pride and security that his daily actions are providing for his future.
Control – a Different Approach
By setting goals with a financial advisor for your post-divorce budget, and then refining your day-to-day habits to further those goals, you gain a sense of power over your current finances and future financial life.
When a financial planner focuses on budgeting, you are a participant, not a passive member in the process. In my experience, many financial professionals do not spend enough time working with clients’ spending habits, as they are focused on investment strategy rather than creating a necessary budget or post-divorce budget. Much about investing is confusing and overwhelming, particularly for people new to finance, and that can cause the relinquishing of control in favor of sheer hope that the person we’ve selected to manage our money is competent, at least. This has the same feel of riding a rollercoaster, eyes closed, praying the operator is sober and awake. No wonder we have anxiety around money and investing, and doubly so when the complexities of divorce are added to the mix! Developing an understanding of investing and the market is a significant undertaking, and not the easiest jumping off point for many of us.
Conversely, making a budget is a more straight-forward and plausible entry point in working with a professional. By entering a discovery phase of evaluating your current practices, you ally with your financial professional. Through actively aligning your daily life with your financial goals, you partner with your planner.
Once you begin to turn towards your finances, even in a small way, you will set in motion something with wings. This something, as you attend to it, will grow stronger and larger and ultimately take flight.
This blog was written with thanks to Dan J. Jago, AIF®, whose ideas and input were incorporated throughout. Dan can be reached at DJago@MSWealth.com or (908) 719-8700. His website is www.MSWealth.com.