Building a Budget - Making Sense of Your Expenses

Step one in the cash flow analysis is to build a realistic and complete budget in a separate home and including all your potential individual expenses

Key Considerations When Building Your Budget

• Future-focused, but consider historical spending
• Include your anticipated individual expenses for you and the kids when they are with you
• Can feel like an overwhelming process
• Do your research to look into unknown costs moving forward
• Break out direct expenses for the children
• Could work on it together with your spouse or on your own

There are a few common ways that people go about building a budget

• If you have a really good understanding of your monthly expenses, you may be able to easily pull a budget together without guidance
• Use historical information to estimate future expenses
• Research will likely be needed in some categories

Later in the analysis, once you are comparing your budgets against income, you may need to cut back on spending but the first budget should be in line with the standard of living during the marriage

Specific Categories of Expenses

Fixed costs are essential living expenses that stay relatively stable month-to-month and annually. There are four main categories of fixed expenses.

1. Housing
2. Transportation
3. Medical/Dental Costs
4. Debt Payments

Variable costs or discretionary expenses are more variable and potentially more controllable; they may be irregular and hard to plan for

• Groceries/Household Expenses/Dining Out
• Clothes
• Haircuts/personal care (like facials, nails, massage, etc.)
• Dry cleaning/tailor
• Gifts for holidays and birthdays
• Pet expenses
• Religious obligations
• Charitable contributions
• Tax Preparation
• Life Insurance or disability insurance
• EntertainmentTravel
• Savings

If you have children, their expenses need to be included in the budgeting process as well.  Two types of child-related expenses to include in your budget:

• Inherent kids’ expenses that are built into your individual budget because they cannot be separated out from your individual expenses, like groceries or home related costs
• Direct kids’ expenses can be separated out and are clearly only for the children, like extra curricular or school related costs

Beware of expenses that are actually deductions from your income (like medical insurance premiums and retirement) and shouldn't be double-counted in your budget

You can find a Budget Template (both PDF and Excel versions) on PartWise that should help you navigate this process.