The New Normal: It’s not the latest Hollywood blockbuster, but a term often used to describe the reality of how life unfolds after a major upheaval, like a divorce. Adjusting to this new reality involves making many changes and facing new challenges, such as coming to an understanding that the natural consequence of many marital splits is the financial upheaval for both parties involved. At a time when so many aspects of life may be beyond your control, managing your budget post-divorce doesn’t have to be.
When setting up a new budget post-divorce, it is important to know your new net monthly income from all sources. The net part needs to be stressed because this is the true amount of cash you will have to work with after taxes and other deductions such as support payments. If there is a significant change in your overall monthly income as a result of a divorce settlement, it could mean a material change in your tax bracket, as well as your eligibility for certain tax benefits. It would be a good idea, therefore, to meet with a tax specialist to understand the full impact of any arrangement on your monthly cash flow. If it’s possible to have this meeting before or during your settlement negotiations all the better, so you’ll know what number you’re truly working with.
The most successful budgets are based on quality information. If at all possible, take precautions by tracking your spending patterns early. Tracking gives you real numbers to work from, not best guesses. Tracking will also identify habits and give an idea where your focus should be. Methods can be as simple as pen and paper or a basic spreadsheet, and there are numerous online tools and apps available as well. A consultation with an accredited credit counsellor or financial advisor may be beneficial to the process by offering an independent assessment of your situation. A second, objective viewpoint may identify opportunities or challenges you may have missed.
Especially important in your budgeting is to account for irregular and seasonal expenses, or those items that don’t happen predictably in the way a mortgage payment or groceries do. These are things that don’t happen every month, and more often than not seem to pop up as a surprise, such as school supplies, pet expenses, or household maintenance. A look back at the last year’s cancelled cheques or credit card statements will reveal many of these expenses, as will a calendar for birthdays and other occasions. Take a year’s worth of this history and divide the total by your annual number of paycheques. The result is the goal amount to be put aside each pay, with the understanding that in the early months following a split, the full amount may not be immediately possible. Best efforts count too, though, so put aside whatever you can in the short term until your situation allows for the full amount later on.
Another vital part of any post-divorce budget is creating an emergency fund. The idea of saving might seem out of reach in the early days after a divorce when there are demands on every dollar, but any little bit you can put aside will ultimately add up. While the common rule of thumb is to have between 3 and 6 months of living expenses tucked away, most minor emergencies, like a household or vehicle repair, can likely be handled with $500 – $1,000. Start small, and you’ll soon see results. Remember to pay yourself first by having a fixed amount automatically deducted each month from your net income and directed into a separate, secure savings account. Don’t make it too easy to access these funds as they are for true emergencies.
An often overlooked part of the budgeting process in the wake of a marital split is goal setting. Take time to think about what you want for yourself and your future, in the short term (6 to 12 months), the medium term (3 to 5 years) and the long term (10 years+). Setting realistic goals and putting dollar amounts to them will help you regain a sense of control, relieve some stress, and give you focus for your budgeting.
For many, this may be the first time they’ve ever thought about goals on their own terms, independently of another person. That can be an exciting and liberating, or scary and overwhelming proposition. If it is the latter, take your time. No one is checking your homework here. Embrace the possibilities. Just going through the exercise can help establish a new sense of self and help you set your financial priorities.
If children are involved, this is a great opportunity to share some age appropriate information with them about determining needs versus wants, setting priorities and making choices. This can help take some of the emotion out of the situation and can help children learn about money with a positive attitude. Again, remember to have your savings for goals deducted automatically each pay or month and you will soon see the amounts start to grow.
Any major life change can be extremely emotional, particularly a divorce, but good budgeting can help take some of that emotional energy out of the process. Understanding your new numbers, taking charge of your savings and setting new goals are all opportunities to make your New Normal more comfortable and free of stress.
[su_heading style=”default” size=”13″ align=”left” margin=”20″ class=””]Anne Arbour is the Credit Counselling Society’s Financial Educator for the Greater Toronto Area. Anne has over 20 years combined experience in facilitation and financial services, including operating her own small business financing company. Anne graduated with an MBA from York University – Schulich School of Business. She is passionate about promoting financial literacy in her community, about meeting new people and building strong working relationships. The Credit Counselling Society is a non-profit organization dedicated to helping consumers manage their money and debt better.
CCS provides free, confidential credit counselling, debt repayment options, budgeting assistance and financial education.
To contact the Credit Counselling Society please visit www.nomoredebts.org or phone 1-888-527-8999.[/su_heading]