As a divorce CPA in College Station and Houston, I often help clients estimate their cash flow needs for their new normal life after divorce. When I do this, it is accurate. (But, of course, you would expect that from a CPA!) When they create their own budget, it is often wrong.
Here are some tips to correctly figure out your cash flow needs whether during or after your divorce or even if you are not getting a divorce.
#1 Create a list of 12 months of expenses. You can get the number for monthly expenses by dividing that by 12. Always start with a whole year to capture everything.
#2 Your list needs to include expenses that repeat every month, items that repeat only a few times a year, items that occur only once a year and items that occur only once every few years.
#3 Get copies an entire year’s worth of all your bank statements and credit cards. Use every item to add up your expenses in various categories. This is a long and tedious task. But it results in the most accurate information.
#4 If tip #3 made you shout “No Way!” then take the dangerous short cut and use 3 months of statements. But know your risks. You will multiply your monthly expenses by 4 to get a full year. Watch out for those twice a year expenses that fall into those 3 months you chose. Don’t multiply them by 4. I had a client who did that and her budget ended up way, way too high.
#5 If you use less than 12 months of data, comb through your statements and find the expenses that did not fall into those 3 months you chose. Add those missing costs in.
#6 Remember to budget an amount for monthly savings. Stuff breaks, stuff falls apart. You will need that savings to avoid charging car repairs on your credit cards.
I have created a good spreadsheet for this exercise. If you want a copy, send me an email with the words “Budget Spreadsheet” in the subject line. I’ll send you one – free.
[…] if you are considering divorce, you financially pretend you already are there. First you have to figure out your post divorce cash flow. Then you have to actually live on less income for a while. Try it out for a month. Eat out less. […]