When it’s time to estimate your expenses as part of your budgeting process, you need to make lists. I hate lists. You may hate lists too. But you need to make lists. I encourage you to think of your expenses on a monthly basis, and I encourage you to think it through from both your perspective and that of your spouse, but that’s your call.
Household
You’ll pay rent or you’ll pay on your mortgage. Make sure you know whether insurance and taxes are included in your mortgage payment.
You’ll have to pay utilities. Power, gas, water, garbage collection, and telephone. Also think about cellular telephone, cable TV, satellite TV, and maybe fire dues.
You’ll have maintenance expenses. Think about repair costs, any maintenance contracts, lawn care, and pest control.
There are some things you’ll need for your house. The way I think of this is “the stuff you buy for your house at Wal-Mart.” Then you’ll have expenses for housekeeping, either do-it-yourself or from somebody else.
Finally, there’s food. Food you buy at the grocery store. Food you buy to eat outside the home. And prepared food you buy other places to eat at home.
Automobile
You may want to check out the information about this in Guy Stuff.
You’ll need to include the car payment and gas, of course. But don’t forget tires. Don’t forget oil, repairs, and any taxes you pay on the car.
Don’t forget car insurance. It’ll probably cost more after divorce, because you and your spouse may lose your multi-car discount.
Children
If you can skip this, you know it. If you need to include it, forge ahead. Fair warning for parents of small children: expenses grow with your kids.
I hate to pick on poor Marvin, but I have to share the conversation I had with Marvin and his wife Sissy one night. Sissy was reviewing with Marvin her expense budget for herself and their two children, one three years old and the other three months old. Marvin challenged her budgeted expense for diapers. “Well you won’t have to pay for diapers forever.”
I was the mediator. I was supposed to remain neutral. I sort of did. But it was all I could do to avoid laughing in poor Marvin’s face. Oh, the sweet innocence of young parents!
Those of you who have older children already know, of course, that Marvin and Sissy have a big surprise ahead of them. As children get older, clothes cost more. Food costs more. Toys cost more. School costs more. Nearly everything kids do becomes more expensive as they grow older. My theory is that the cost of children keeps rising until your youngest child (son or daughter) gets married. And the cost doesn’t stop then. It just begins to fall.
Okay, now what expenses do you need to include here? Think about expenses for preschool, kindergarten, and/or child care. Think about after-school care. Think about lunch money, school supplies, and fees. Think about tutoring. Think about extra-curricular activities, including sports, dance, music, art, etc. Think about summer camps. Think about entertainment.
Think about clothing and grooming. Think about the cost of health insurance, as well as the cost of incidental medical expenses — things like dental, medical copay, prescription drugs, eyeglasses, orthodontics, and counseling to the extent it’s not covered by health insurance.
Think gifts. There are the gifts you give your child at birthday, Christmas, or other special times, and there are the gifts you buy for your child to give to others. Think about bar mitzvah or bat mitzvah expenses. Think about saving for college.
If your child is old enough, think about automobile expenses. You’ll have all the same expenses for your child’s car that you have for your own, but figure three times the cost for auto insurance. And think about weddings.
Insurance
You’ll need to think health insurance, for you and for your children. If you can get insurance through your employer, you probably need to grab it. If that’s not an option, think about the cost of COBRA coverage.
Think about life insurance. Spouses who will receive support (usually wives) easily understand the need for insurance, because they can easily understand their financial dependence on the support payor (usually the husband).
It’s a little more difficult but no less important for support payors to understand why they may need insurance on the life of the support receiver when there are children involved. If the other parent died, what would that mean for you? A reduction in your ability to travel on business? A reduction in your mobility? Day care? Live-in help?
The other insurance you should consider is disability insurance. What’s the likelihood that you or your former spouse will be disabled? The companies that sell disability insurance say that an average 25 year old today has more than a 50/50 chance of being disabled for more than 90 days by the time he or she is 65. A little more than half of disability claims are due to illness, a little less than half due to injury.
Debts
You need to schedule here the payments you expect to make to retire debt you already owe now. (Payments for debts you will incur in the future should show up in their respective categories elsewhere.) You need to schedule payments on your major credit cards, of course, as well as any continuing balances on your gas company credit cards. Then come the department stores and specialty stores.
If you’ve borrowed money from a 401(k) or other retirement plan, think about the payments for it. And if you owe money on student loans or to your lawyer, make sure you schedule those payments as well.
Miscellaneous
Just as the name implies, this is a category for you to throw in everything that doesn’t show up somewhere else.
Think clothing, laundry and dry cleaning, and grooming. Think counseling, uninsured medical expenses (copay, eyeglasses, prescription drugs, dental, and orthodontic). Think gifts. Think expenses for pets, entertainment, hobbies, and health club or country club dues, and vacations.
Think about what it costs you to subscribe to publications and to your online service. Think about savings for contingency and contributions to your retirement plan. Think about donations to religious and charitable organizations.
When you’re finished, you can go to income if you want. If you’ve already estimated your income and thought through the taxes on it, you’re probably ready for the Moment of Truth.