Budgeting is one of the most popular New Year resolutions in North America. Spending wisely, tracking daily expenses, and avoiding costly credit cards are on everyone’s agenda in January.
Regrettably, all this enthusiasm evaporates by the middle of the month. Why? Lack of specific financial goals and no practical knowledge about budgeting are the culprits to blame. Alas, not only can budgeting improve your bottom line but also it can effectively become a life changing exercise. And, it does not cost much!
Unlike many people out there, I enjoy budgets and cash flow analysis. I dive deep into your bank and credit card statements in order to categorize and rationalize expenses. It’s akin to reading a good mystery book or solving a puzzle about someone’s life. It actually compares to studying one’s medical records, so much it is revealed. Like a blood test, cash flow analysis can explain current issues and identify the problems that have not yet occurred. Did you know, that poor budgeting and regular overspending could eventually lead to a divorce?
Often, financial mess is simply a reflection of poor lifestyle choices. Bad habits translate into unjustified overspending. Many people don’t realize that cutting cigarettes and alcohol ($400/month) can buy them a luxury car; eliminating junk food and drive-through breakfasts ($350), fancy clothing; curbing TV (and lengthy commercials with it), time for self-education. Better car, clothes and good books can help to find a better job or a better partner.
As a divorce financial analyst, I help clients with their financial statements – namely, Form 13.1 Financial Statement (Property and Support Claims). I analyze and dissect bank and credit card statements, categorize expenses and rationalize each and every item.
I can tell apart between two people with the same income and their ability to fulfill spousal support obligations; all based on their personal life circumstances. The end findings can be astonishing!
Budget 1: Thomas & Sandra settle on a lower amount
- Thomas’s income: $100,000/year, IT Consultant;
- Sandra’s part-time income: $30,000/year, part-time librarian
- Spousal Support Advisory Guidelines: $1,105 – $1794 per month
The proposed monthly middle range spousal support of $1,449/month seemed to Thomas next to impossible. Thomas’s family lawyer retained FAIRSPLIT to do a thorough budget analysis, which revealed that Thomas’s commute from Guelph to Markham is costing him $1270/month: 407 ETR, excessive wear and tear on the car, higher insurance, and gas.
To get this high paying IT job, Thomas had to take a program, which ended up costing him a little fortune. He financed his tuition costs via student loans and credit cards; so now he is obligated to pay $830/month for the next 7 years.
On the other hand, Sandra has very low commute costs and no childcare expenses, as she works close to home. Her pension plan at work is very generous for her income, whereas Thomas has to contribute 7% of his earnings to fund his retirement.
All of these financial insights, quantified and summarized into a comprehensive report, showed to both spouses that a more manageable (for Thomas) amount of $950 of monthly spousal support, was sufficient for Sandra to pay her bills and even save $100 for a rainy day thanks to a higher non-taxable child tax benefit.
Budget 2: Derek and Mary settle on a higher amount
- Derek’s income: $100,000/year, Sales Manager;
- Mary’s income: $45,000/year, Administrative Assistant;
- Spousal Support Advisory Guidelines: $545 – $1416 per month
Mary has to commute to work, save for her retirement, and pay rent. She can’t possibly see how would she survive on $922/month (mid.range SSAG). Even the high end of SSAG, $1,416/month, seemed low.
Fairsplit illustrated Derek that once tax deduction is taken, the $1500 gross monthly spousal support is effectively equivalent to a $880 net. Our lifestyle analysis had revealed several ongoing expenses Derek thought little about; excessive banking fees, payment protector insurances on several credit cards, and daily take-outs from restaurants. All totalled to a $1,100/month on average.
Then, we compared $880 vs. $1,100, and were able to show the client that some reasonable budget cuts will easily free up money to pay necessary spousal support.