Building a Budget
Developing a household budget isn’t just about dollars and cents; it’s also a reflection of your values and goals. Talking about money with your spouse or partner might be more difficult than talking about many other topics because how you relate to money is a reflection of your background and life experiences. Few people were taught about money at home or in school and therefore feel insecure about how to manage their financial lives. All of those factors create a situation that’s ripe for misunderstandings and arguments. So, how do you develop a budget that both works for the present day and supports your future financial goals?
Your individual attitudes about money
The first step to developing a budget that you both can live with is communication. Don’t dive right into your bills, instead share with one another your early experiences with money. What was it like to grow up in your household? Did you always have everything you needed and therefore never really thought much about money, or were times tight and there was a lot of stress about how the bills were going to get paid? Or, maybe it was somewhere in between. People tend to replicate the thoughts and feelings about money that they experienced in their family of origin. Others may take the opposite tact, deciding that since they didn’t like how they were raised with regards to money they are going to make a fresh start.
People also tend to fall somewhere along the Saver-Spender continuum, and it is not uncommon to find that your significant other identifies on the other end of the spectrum than you do. That’s not necessarily a bad thing, as two Savers may miss out on life’s opportunities in order to keep saving their pennies for that dreaded “rainy day” to arrive, while two Spenders might enjoy today so much that they are left with little or no savings when a financial emergency springs up. What is important in a Spender/Saver relationship is to acknowledge and honor that aspect of your partner and realize that they are not there to sabotage you – a Saver is going to work to keep you on track to reach your long-term goals, and a Spender is going to make sure that you enjoy yourself for a bit today.
You may also enter into this relationship with varying amounts of debt. Debt, even so-called “good” debt like student loans, may make you feel like you can’t pull your weight financially in your relationship because you have such a large amount of money to pay off from the past. Talking openly about the debts that you are repaying will allow you and your significant other to know what you are working with in regards to available income.
Your combined financial goals
Once you understand each other’s “money personality” take more time to talk about your goals for the future. When you were single you may have developed a sense of what you wanted your life to look like in the future. Now that you are coupled with another person you may need to alter that original vision. Your partner most likely had his or her own vision of the future too. Creating a new combined vision for the future may prove to be richer than the one you initially thought. What type of career do you each want? Where do you want to live and what does your dream home look like? How do you want to spend your vacation time? Do you envision having a family and what does that look like for each of you? At what age would you like to retire and what would you like your retirement to look like?
Getting down to the dollars and cents
After you have developed a firm understanding of your individual and combined values and goals around money then it is time to build a household budget that you both can maintain. Start this process by tracking your cash flow for one or more months. Begin with your combined income: How much do you each make? Do you both have salaried jobs with predictable incomes, or is one or more of you self-employed with payments that come in waves? With predictable salaried jobs it is easier to plan how you will spend your income from month to month. With income that comes in waves, it is even more important to track your cash flow for multiple months. Take your combined income and divide it by the number of months that you counted to arrive at your average monthly income.
Create a plan to “pay yourself first.” This is will set you on the right path to achieve the financial goals you identified. Take advantage of your employer’s 401(k) if there is one. If you don’t have a 401(k), open an IRA. Then open a savings account to begin saving for emergencies. You may also want to open separate accounts to save for a vacation, a new car, or even a house. Creating an automatic transfer into the various accounts will help you to save without having to think about it.
Then, look at your debt obligations. Do you have student loans, car loans or keep a balance on your credit cards? Not only is it important to stay current on your debt obligations, it is also important to pay those debts down so that you can work towards your goals. Make debt payment a priority in your cash flow.
Finally, look at your monthly expenses like rent, groceries, transportation costs, and entertainment. If you are coming up short at the end of the month then take each expense category and compare your spending to your values and financial goals. Is what you are spending on meals out, for example, getting in the way of saving for a vacation? Ask yourself, “Does this spending help us achieve our goals?” This will give you clues on where to trim your budget. Don’t forget to pay attention to categories that don’t come up every month like insurance, tax payments, gifts, or charitable contributions. Track these over a number of months then divide to come up with the average monthly amount that you spend in each category. Make sure that you leave that amount in your checking account for when the bill or occasion arrives.
Putting it all together
Once you set up a household budget you may find that one member of the couple performs more of the daily and monthly bookkeeping tasks. Make sure that the other one is following along with how you are doing financially. Set regular times, either weekly or monthly, to check in and discuss how you are saving and spending.
If you disagree on how much you are spending in any category then revisit your earlier conversations on your attitudes and goals. You will probably find that one of you in spending in accordance with a value that one of you holds but the other does not. You might also see that you are spending in accordance with your Saver-Spender personality. If possible, carve some room out of your monthly budget and come up with an amount for each of you to spend however you please. The Spender’s prerogative to “enjoy life today” may be hemmed in a bit, and at the same time the Saver might be encouraged to break loose from the shackles of worrying about tomorrow. Taking time to resolve the big picture issues will allow the dollars will more easily fall into place.