Budgeting with your spouse or partner can be overwhelming. But budgeting is one of the most important parts of successful money management. Budgeting can save you money and enable you to spend your money on things that really matter, such as buying a home, traveling, or saving for retirement.
How can budgeting increase your wealth?
If you and your spouse earn a regular, dependable paycheck, budgeting can increase your wealth. Budgeting helps you identify income deficiencies and expose excessive spending. This is important because wealth accumulation requires earning more and spending less. Having a budget help you differentiate between needs and wants. With a budget, couples can track their spending and make adjustments as needed.
For example, if you want to save 20 percent of your income, but your spending habits only allow for 10 percent savings, a budget will help you make a change. You are going to have to cut some of your variable or discretionary expenses to allow you to save 20 percent of your income. When you spend on something you don’t need, it prevents you from building wealth.
A budget will help you accumulate wealth through investing. It will also help you track your investments which is critical to know that you are on the right track. With a budget, you can take small steps toward wealth. You start by setting realistic goals. When you stick to your budget you will be able to reach them.
What are the basics of budgeting?
If you and your spouse are new to budgeting, you should start with understanding the basics. At the most basic level, a budget is a financial plan. Your budget takes your income and expenses into account. Setting a budget will also help you estimate how much you will make and spend each month. Successful budgeting differentiates between needs and wants. Needs are must-have expenses such as food and housing. Wants are optional such as dining out or hobbies.
Basic budgeting starts with creating a plan. Your budget is designed to help you stick to your plan. Through having a budget you and your spouse can save and reach your financial goals. Budgeting is an ongoing process. If you want to succeed, you need to make budgeting a lifelong commitment. Review and adjust your budget if you have a financial windfall or a financial setback.
Couples who want to get started with budgeting should understand the following:
- Fixed expenses – For budgeting reasons, fixed expenses are the costs that are predictable. Fixed expenses can be forecasted with confidence because they don’t vary month-to-month. Generally, fixed expenses make up the largest portion of your budget. Some of the typically fixed expenses are housing (rent, mortgage, property tax), food, debt (credit card, car payments, and insurance.
- Variable or discretionary expenses – Variable expenses complicate budgeting because they are unpredictable. Couples can estimate variable expenses, but it can be above or below expectations. Some of the possible variable expenses are utilities, dining out, home or car repairs.
- Total expenses – When you add fixed and variable expenses, you get total household expenses.
- Total income – Your total income is the total amount of money you and your spouse earn each month. Examples of income are investment returns, retirement accounts, salaries, and wages.
- Disposable income – Your disposable income is the income available to save or invest after paying (or tax deductions) your taxes. Couples can calculate disposable income by subtracting income taxes from income.
What is the 50 30 20 (or 50 20 30) budget rule?
The 50 30 20 budget rule will help you reach your personal finance goals. The rule recommends that you spend 50 percent of your monthly after-tax income on must-have expenses. According to this rule, you would spend 30 percent of your income on your wants, and save 20 percent of your income.
The 50 30 20 budgeting rule:
- 50% – Must have needs: food, housing, utilities, insurance, debt payments
- 30% – Wants: hobbies, eating out, shopping
- 20% – Savings
Does the 50 30 20 budget rule include 401k?
Your 401k is part of the 20 percent savings budget category. The 50 30 20 budgeting rule requires that you save 20 percent of your income.
The benefits of budgeting
Your budget allows you to plan and control your financial life as a couple. The two of you together can track where you spend money. Budgeting enables you to take charge of the course of your finances together.
If you or your spouse have never created a budget before, I am here to help. For many couples, budgeting is a touchy subject, but it doesn’t have to be. Not only budgeting is doable for couples, but you can also enjoy it together. Before you start creating a budget with your spouse, remember that a budget is just a plan for your money. And, like all plans, budgeting needs to be planned, adjusted, and reviewed periodically to make sure that you reach your financial goals.
Here are my top budgeting tips for couples:
List all of your combined income
Budgeting begins with understanding how much money you have incoming each month to pay all of your expenses. Your income is the most important line item in your budget. How much you can afford to spend as a couple depends on your total monthly income.
Start listing all of your expected income when you begin creating your budget. Take a careful inventory of all sources of your combined expected income. Look at your income weekly, monthly, quarterly, and yearly. Some of your income may be the same each month, such as your paycheck from your full-time job. But you might have other income from side-hustles, selling online, or working in a part-time or seasonal job.
Income can come from many different sources. Make sure you include all possible income sources like:
- Full-time job income
- Tax refunds
- Side-hustle money
- Dividend income
- Rental property income
Once you have listed all of your combined income sources, write down how much money you expect to receive from each income source. After you have added all of your expected income, you will have a clear picture of your household’s total income. Start your budget with this number at the top. Remember that your expenses should NOT exceed your income.
List Joint Household Expenses
After listing your total household income, it’s time to list all of your expected expenses. There are various constant monthly expenses. They are the same amount each month; there are no surprises. You know how much you spend each month on insurance, food, utilities, rent, or mortgage. All of these are recurring expenses that you have to expect each month. You can sort all of your recurring expenses into twelve standard household budgeting categories.
Here are the most common household budgeting categories:
- Debt repayment
- Personal Care
- Household supplies
Grouping your expenses into categories is a great way to keep your budget organized. It also helps you understand how the majority of your money is spent. List each expense under the relevant category. For example, your “Debt repayment” category could include student loans, credit cards, and car loans.
Even if an expense doesn’t occur each month, you can still list it in your standard list of expenses.
Estimate how much money you will spend on each expense category
Even though you have recurring expenses, the total cost may change. So, it makes sense to review your expenses every time you create a new budget. Estimating all of your expenses clarifies what can be reduced in your budget to free up cash to meet your financial goals.
The most efficient way to estimate your expenses is to calculate the average of what you’ve spent in the previous twelve months. For instance, you can calculate the average you have spent on groceries in the past year to get an estimate for the coming month.
With some expenses, you’ll know the exact amount from billing statements. Other expenses you have to limit based on your budget. This is true for expenses like dining out, Christmas and birthday gifts. You need to set a budgeted amount you can afford to spend on these line items. The most important part of this section of your budget is to come up with realistic amounts that you can both afford.
Add these estimates and subtract it from your total combined estimated income. If it exceeds your expected income, you have work to do. It would be best if you reduced some of your expenses. And, if your expenses are less than your income, allocate the extra cash to paying down debt and saving.
Set a Savings Goal
Saving money can difficult, especially if you fail to set goals. A great way to start is to set small goals and then build up to larger ones. This is a great way to stop feeling like a failure.
A good measurement to use when setting your savings goal is your living expenses. Many personal finance experts recommend having a six-month emergency fund saved. This means saving enough money to live off of for six months. While this may seem like an impossible goal, start by saving a week of living expenses and increase from there.
Automate Saving Money
Many banks, payroll programs, and budgeting apps let you automatically deposit a certain amount of money into a savings account. Automatically putting money into your savings account should help with optimizing your finances.
Some debit and credit cards will even round up to the next dollar whenever you make a purchase. For instance, if you buy a soda for $1.20, $.80 would be automatically deposited into your savings account. Check with your bank or card issuer to see if they offer this or a similar feature.
Sell Your Extra Stuff
Almost everyone has extra stuff that they either don’t want or don’t use. Electronics, clothing, or sporting equipment are only a few examples of stuff we may want to get rid of. By selling things you don’t need, you not only declutter your life but also make some extra money.
Garage sales can be good places to sell small items. Consignment stores will pay cash for gently used clothing, and pawnshops will take most electronics and other valuables. You might even be able to find a friend or family member that is interested in buying your unneeded items.
Take Advantage of Coupons
When trying to stay on budget, you should use coupons as often as possible. There are many mobile apps for iOS and Android that make locating deals simple:
SavingStar is an app that offers coupons and gives you cash back on groceries.
Flipp is an app that makes it easy to find weekly ads and coupons for your favorite local stores.
Paribus is an app that finds refunds from online retailers when the price of something you purchased drops. Paribus is currently only available for iOS, but an Android app is coming soon.
GoodRx is an app that helps you find deals on your prescriptions and compare prices of local pharmacies.
Stick to a Shopping List
Don’t go shopping without a list. And this is important if it’s not on the shopping list, don’t buy it. This is a great way to avoid making impulse purchases that you don’t really need. Also, with a shopping list, you don’t have to worry about forgetting stuff.
Pack a Lunch
Eating out, even if it’s just fast food, can easily get expensive. You could potentially save hundreds of dollars a year by bringing a packed lunch to work instead.
A great way to save money is to buy store brands or generic products. Generic products are the same as name brand products but at a big discount. By choosing generic food, medicine, and toiletries, you can decrease your monthly expenses.
Save by Going to Your Local Library
Before you rent a new movie or buy another book, make sure you check your local library. Most libraries now stock digital items such as audiobooks and e-books, and your library may even have computer software you can check-out.
Follow Your Budget
It’s important to have a budget, but it’s also important to follow it. While it might be easy to fit small purchases into your budget, you must also follow your budget when it comes to large purchases.
Hopper is an app that helps you track flight and hotel prices so that you can get the best deal. When trying to stay on budget, it is important to keep vacations as cheap as possible.
Track Spending and Find an Accountability Partner
The hardest part of following a budget is tracking your spending and staying accountable. In the end, you need to see if you’re staying within your budget.
There are several ways that you can effectively track your spending with your spouse:
- Shared spreadsheet or templates: You can house your budget spreadsheet on Dropbox or Google Drive so that you and your spouse have access to reference or edit it at any time. You can log your expenses as they occur or have a set time each day to do so.
- There are several mobile apps on the market that can help make this easier. You can connect your debit cards and bank account to track your spending. As a bonus feature, these apps will categorize your expenses for you, alerting you when you’re nearing your budgeted amount.
- Goodbudget is an app for creating a personal budget and tracking your spending.
- Debt Payoff Planner is an app that will help you stay on track if you want to lower or pay off your debt.
- You can also find a friend or family member who needs some financial accountability. Working together as a team, you can think of new budgeting ideas and make sure you both adhere to your goals. With a little help, budgeting could be easier than you think.
Whichever method you use to track your spending and to stay on budget, you’ll need to be consistent about tracking your spending if it’s not being done automatically by an app.
Schedule monthly budget meetings
If you want to succeed at budgeting as a couple, you need to schedule monthly budget meetings. Each month you should discuss, tweaked, and revise your budget as needed. The only way to make sure that this happens regularly is to schedule monthly budget meetings with your spouse. Your budget meeting’s goal should be to review your income and spending and make adjustments as required.
Your budget meetings should be fun and relaxing (cook a nice dinner!) and go over your bills and expenses. This way, your money is allocated in advance. You can also talk about upcoming expenses. By the end of your budget meeting, the two of you should agree on what the upcoming budget will be, and it should be in writing.
Don’t be afraid to talk about your budget at any time. Talk about your income and expenses as needed. You should be in constant communication with your partner about your finances and spending. There should be no surprises about your monthly budget. Couples that make budgeting work understand that it is a normal part of their lives.
Rules of Thumb for Successful Budgeting for Couples
After you both understand how to budget, you’ll need to keep in mind and work together on a few things to make it work:
- Be proactive instead of reactive with your cash – The best approach is to create your budget working together with your spouse before you get paid. It is ineffective to wait until after you have your income to create your budget. Budgeting is a plan, and it is the most effective if it is done in advance.
- Adjust your budget every time you get paid – If you get paid monthly, budget monthly, but if you get paid twice a month, budget accordingly. A corresponding budget to your income allows you to align your expenses with your income and avoid overspending. If you are aware of each others’ pay dates, you’ll know when to expect income.
- Never budget for more expenses than your income – You budget to help you stay within your financial means—most couples who fail to budget overspend. If you recognize that your expenses exceed your income, the two of you should sit down and take a long hard look at where you can cut expenses. It would be best if you also looked at ways to increase your incomes.
- Track your expenses consistently – No expense should be a surprise to the other in your relationship. Working together is the only way that you will be able to see your performance and progress toward the plan. You have to have a clear understanding of all of the expenses you both have. Keep track of all irregular expenses.
- For successful budgeting, you need a plan, you both agree on – Once you have both agreed to a budget, don’t deviate from it. The only way you should change your budget is if you discussed it and both agreed to the change. When you work in agreement, you can avoid conflict. It will also help you maintain trust with your partner about your finances. If you don’t honor your agreement (i.e., your budget) you made together, it won’t work in the long run.
- Review your spending regularly – It’s critical to review and make changes if necessary. Talk about your spending, review your bank statements together. Work with each other; don’t make it an argument.
- Discuss your long-term goals – Sticking your budget will help you reach your goals and dreams. Talk about your dreams regularly to help you get there together. Do you want to start a business? Do you want to travel more? Do you want to retire with a million dollars? These are important conversations you should have. Create specific categories within your budget to allocate money for your long-term goals.
- Listen and communicate with your spouse – Effective communication is the foundation of success in a relationship and in budgeting together as a couple. There may be times when you disagree on your financial choices. It is important to get past the disagreements and listen to your partner. Communicate your own point of view, and come to a mutual agreement. Remember, to succeed in budgeting; you are much more likely to succeed working together as a team.