October 26, 2017

Episode 5: The ”B” Word with Karen Chellew and Catherine Shanahan

In this episode, we talk about the “B" word - BUDGET. Mention the word “budget” and reactions can vary from wide-eyed to confusion to sheer panic, but rarely do you receive a positive reaction. Mention the words, "lifestyle analysis,” and the responding look can be very similar. However, when going through the process of divorce, these two concepts are critical components before, during, and after divorce.

How many of us even think of our lives as “lifestyles?” When dating the person who became your spouse, it might have been the difference in lifestyle that was part of the attraction. Here’s this person that you really like and they’re bringing something new into your world. You get married, and now you’re faced with aligning your lifestyles, creating a new shared lifestyle together. Sometimes, your lifestyles are too incompatible for the long run, and you head for divorce.

Lifestyle is an important aspect to consider, especially when we have to make shifts in our budget.

Lifestyle Analysis vs. Budget

What is a “lifestyle analysis” and how does it relate to a budget? Your lifestyle is the way you’ve become accustomed to living. Do you dine out a lot? How large is your marital home? What car do you drive and what are its maintenance costs? Do you take family vacations, attend events, have a cleaning service? When going through a divorce, one of the first questions you’ll need to answer is what is your financial need regarding support, what is the lifestyle you’re accustomed to living, and how will those two factors work together.

Your budget is made up of the items and expenses you need to maintain a household. What are your expenses? What is the income you need for your cash flow? What are the “extras” that come up? Budget is a critical component before, during, and after divorce because the court system, your mediator, or anyone assisting you through the process will use your budget as a guide for what your needs truly are. Other factors -- if you're a business owner or receive bonuses from your employer -- aren't as apparent as a paycheck, so the ability to recreate your expense list and know your lifestyle is really important. It'll help them make sure you have what you need moving forward.

Know also that if you lived on a shoestring budget during your marriage, that shoestring is going to get a little thinner, especially during the divorce process. Prepare your budget based on a household income of one, especially until your support is decided and starts coming in. Even after all of this, if you can’t meet your budget, maybe you can negotiate a raise with your employer or arrange a loan from a family member to tide you over.

There’s no question; your money mindset has to change in divorce.

Put It on Paper

Committing your budget to paper will help you think through the process, and you’ll have it to keep you accountable. Laying it out like this will help you know exactly what you need, helping you know how to adjust, even helping you decide what type of job to get. Some of the categories you’ll encounter as you prepare your financials for divorce are:

  • Food Expense: groceries, toiletries, cleaning supplies, and casual dining out.
  • Auto Expense: car payment, gasoline, maintenance
  • Clothing Expense: shoes, clothing purchases that are necessities, repairs/alterations, and related items
  • Laundry Expense: cost of laundry service, dry cleaning
  • School Expense: tuition, supplies, field trips, lunch money, dues, tutors, locker rentals, arts & crafts supplies
  • Entertainment Expense: fine dining, sporting events, concerts, movies, theater, vacations
  • Incidental Expenses: cosmetics, hair and nail appointments, books, magazines, business dues, memberships, pets, donations, gifts, hobbies, and other outstanding payments
  • Home Appliance Expenses
  • Savings Accounts (ideal goal is to save 10% of your annual income)
  • College Tuition Savings

Rule of Thumb on Percentages

A typical household budget breaks out like this:


A good exercise is to take your monthly income and adjust it to each of these categories and percentages to help you see how your current situation fits.

Making It Work

Catherine was working with a client who realized she was going to have to make some changes. Her monthly deficit was $200. Looking over her numbers, Catherine noticed her cleaning service was costing the client $400 per month for two visits. Rather than lose her cleaning lady, whose service she valued, she decided to cut down to one time per month and have her teenage children chip in and help her the rest of the month.

Are you used to going out in large groups, where the check is usually split equally? Talk with the person who organized the outing ahead of time. Share with them that you want to continue to go out, but you’re anxious about chipping in. Ask if they’d mind if you have your own check. Who knows, this might make the others happy or relieved as well.

You might be single with no kids but used to treating your nephews and nieces all the time. You all look forward to treating them to a nice dinner out but know you can’t continue to pay for these outings. Instead, invite them to your home and ask everyone to bring a dish, moving the sole burden off of you but continuing a good time together.

It’s important, especially when dealing with the stress of divorce, to continue to do some of the things that make you happy, that help you relax and forget your troubles for a little while. The worst thing you can do is isolate yourself. All it takes is a little time and sometimes a little courage to prepare beforehand. Your family and friends will understand. Making these small personal adjustments is hard, but it helps bring your budget in line without completely missing out on these extras of life.

Get Advice from a Financial Advisor

Your cash settlement, alimony and child support comes in. You’re set, right? No, you can't rely on that forever. When those payments start coming in, you're likely still upset about the divorce, even after a year or two. It’s ok to treat yourself with a little splurge – buy yourself that handbag or ring you’ve had your eye on – and then sit down and get that budget on paper and live by it. Do it now, because when your children turn 18, what will you do? Plan now to be ready for the future.

The most important thing people forget is that your alimony is taxable. The IRS will not wait to get paid. Immediately set aside at least 20% pay your taxes quarterly or by April 15 of each tax year.

You Can Do This

All of this may sound like a lot of work, and it may be, especially if you're not accustomed to thinking in these terms. However, the alternative can be very expensive and overwhelming if you do not take these steps now.

Get Our Budget Worksheet

Email us at info@divorceusolutions.com and mention this podcast episode and we'll send you a complete copy of our budget worksheet so you can get started right away.

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