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The (Almost) Magical Power of Budgeting

Budgeting – just reading that word may have made your eyes glaze over with boredom. It’s rare that clients come to us excited about the topic. But we know from experience that budgeting can be a powerful tool, especially in the context of a divorce.

The period between making the decision (or being informed of the decision) to divorce and actually settling the case can be a time during which you feel many things are out of your control. But the simple act of creating a budget may help you begin to regain a footing, and it’s often the first step toward taking control of your finances.

What Is a Budget? (And Why Do You Need One?)

We should start by defining what a budget is. For the purposes of our discussion, a budget is a list of priorities that guide how you use the money you take in. Having a clear understanding of where your money goes will help you make better decisions. Those decisions might be as small as whether to eat dinner out one night a week, or as big as whether to keep the house in your divorce settlement.

Your life is about to change. Knowing beforehand what adjustments you’ll need to make can keep you from finding yourself in a situation where your income no longer supports your spending. The oft-quoted phrase “knowledge is power” is absolutely true when it comes to budgeting.

Finally, having a budget can be a useful tool in your settlement negotiations. If you are asking for spousal maintenance[1] or a disproportionate share of the community assets[2], a budget showing why you are making the request may help bolster your argument.

How to Create Your Budget

There is a good chance you’ve either never created a household budget or haven’t made one in many years. The good news is that budgeting doesn’t have to be complex or difficult. Start with broad categories of expenses, which typically include:

  • Housing
  • Utilities
  • Living Expenses
  • Medical Expenses
  • Transportation
  • Personal Care
  • Child Expenses
  • Other/Miscellaneous[3] 

Budgeting for a life you aren’t yet leading takes some research. Begin with the expenses you’re sure about (like how much you pay to get your hair cut) and mark items for research (like rent on an apartment in the area where you want to live). Check your credit card statement and bank statements to see what regular expenses like cell phone bills generally cost in your household. And don’t forget to account for those expenses that only occur once or twice a year, like insurance premiums.

Are there debt payments that must be made? If so, include those in your budget. In this phase of the process, you are gathering information — you can expect to do a good amount of reading statements, searching the web, and making educated guesses.

Once you have most of your categories filled in, do a sanity check. Are you going to be spending more than you take in? If so, discuss your options with your attorney or financial professional. Can you ask for temporary maintenance?[4] If not, what expenses can be lowered or eliminated? Is it wise to ask your soon-to-be-ex-spouse to take on some of the community debt in exchange for assets? If you were previously a stay-at-home spouse, do you need to consider returning to work outside the home?

Another Tool

During your divorce, you’ll make dozens of decisions, and you will almost never have perfect knowledge or information on any of them. Budgeting can help make at least a few of these decisions less stressful and more reasoned. While budgeting is only one tool in your toolkit, it is often a vital one (and one that you can craft largely on your own).

If you’re feeling overwhelmed with financial decisions or the process of sorting out your finances, it might be a signal that you need to hire a financial professional to back you up. Your attorney may be able to refer you to someone they trust. Two types of professionals you might consider working with are a Certified Divorce Financial AnalystTM or CERTIFIED FINANCIAL PLANNERTM Professional. Visit https://institutedfa.com/find-a-cdfa to find a listing of CDFA® Professionals in your area, or www.letsmakeaplan.org to find a local CERTIFIED FINANCIAL PLANNER® Professional.

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[1] Sometimes called alimony

[2] These are assets legally owned in equal share by both spouses; this is what you will divide in your divorce

[3] You may request a budget worksheet directly from me by emailing scuddy@rwbaird.com

[4] These are support payments your ex-spouse would make to you for a finite period of time after your divorce is final.