There are two reasons family law will always be a busy area of practice. The reasons are that there are two subjects we do not teach in school: conflict resolution and money management. If people could manage their money or the conflict in their lives, the divorce business would be in for a major downturn.
Practical financial advice is hard to come by. And we say this with some authority because we have been looking for professionals who understand household finance. Yes, there are thousands of publications out there that will tell you how to ladder certificates of deposit or dollar cost average your way into index funds. But, how much you spend on a car or an apartment often determines whether you have any money to invest at all.
Ironically, we found some sensible and practical advice in the September, 2009 issue of Glamour Magazine. No kidding. Wedged in between Jessica Simpson’s views on men and three flat belly secrets we found an article by Sophia Banay supported by a woman named Galia Gichon who founded something called “Down to Earth Finance.” The magazine is worth buying for all of the advice but the segment we particularly liked was the part discussing how to budget a $50,000 income. Gichon breaks down expenses into four categories. She takes the budget and converts to monthly income of about $4150. She appears to allow for income taxes although that number is not discussed. But her breakdown is divided between:
Fixed expenses that don’t change monthly $1665 a month
Discretionary living expenses $830-970 a month
Retirement savings $417 a month minimum
General Savings $140-280 a month
Gichon comments that fixed expenses including rent, utilities and car payments should not consume more than 60% of your net income (gross income less income taxes). She suggests that rent or mortgage payments should not exceed half of the fixed expense budget, although this can be a tough assignment in many urban parts of this country. But if that is where life takes you, the answer may be that you don’t drive the same car or limit your discretionary expenses.
Obviously, it is also possible to forego general savings, especially in a world where you are already saving for retirement. The article suggests that discretionary expenses be limited to 30% of net pay. This is where the weak tend to falter at the altar of clothing stores, restaurants and Starbucks. Another contributor to the article, Maria Bartiromo of Closing Bell on CNBC sagely offers that you allow yourself a day before making any major discretionary purchase. Time afford perspective and you may actually discover that television is almost as enjoyable on the 30 inch flat screen even though the 42 inch beckons.
The article also addresses the subject of debt. In the past the standard advice is that you need to save three to six months income to cover you for the “rainy day” of illness or unemployment. Today, consumer credit may fill in the gap, but we are finding that many people are already using their cards to fund expenses they can’t afford long before the rain day ever comes. These are folks who simply cannot survive if a crisis emerges because they are already deep in high rate debt.
The goal is to budget but before you can intelligently budget you must first be thoroughly familiar with what you bring home and what you currently spend. It is not a pretty task but people who want to have money when they stop working had better address the question sooner rather than later no matter what their marital status.