Setting up a budget with your partner or spouse-to-be probably ranks right up there with cleaning the toilet or pulling a hangnail. Although it's likely one of the last things on your to-do list, setting up a joint budget is one of the first steps to getting your finances in order as a couple. While you may dread the idea of setting up a budget, the process can actually reduce anxiety.
If you are barely making ends meet, the consequences of not having a clear roadmap for how you'll spend your money each month could result in bad debt problems that expand into bankruptcy or foreclosure. Even couples who are in good financial shape can benefit from a budget, however. Without a budget, money-wary couples often focus on simply "spending less." That's a fine goal in the abstract, but in reality, that approach can cause unnecessary feelings of guilt for occasional indulgences. Instead of taking the "just spend less" route, use a budget to prioritise where you spend your money.
Setting up a budget as a couple isn't too different from setting one up individually, but there are added complexities--after all, there are two of you, and you probably don't spend your money in exactly the same way.
Just as when you set up a budget for yourself, what's arguably most important when embarking on this task as a couple is being reasonable. A budget is meant to help you see the big picture and plan how your money will be used. It isn't simply about helping you stay within spending boundaries. A joint budget is also a tool to ensure you agree on spending guidelines and to carve out money that's okay to spend on items that may not be absolute necessities.
Discuss Priorities
The first step is to figure out what each of you views as the most important uses of your money, and identify "must spend" items that cannot be cut. Outline short-, medium-, and long-term goals, and determine how much you want to save. Think about what each of you values. Would you rather live in a nicer home or be able to take more holidays? Would you rather buy premium foods or designer clothing? Start general--you'll hammer out specifics later, but it will be easier if you both have a broad sense of what you're trying to accomplish.
Track Your Spending
Before you start the actual budget, take some time to get a handle on where the two of you spend your money. (This may take a couple of months if you haven't been keeping track of your spending). There are several great Internet tools to help with this, such as lovemoney.com, which automatically tracks and categorises your transactions.
Or, you can track your spending the old-fashioned way--save all of your receipts, and make a list of your purchases in different categories at the end of each week (receipts can get out of hand if you wait until the end of the month).
If you put most of your charges on a credit card, taking a look at the statement can also give you a sense of where your money goes. Some credit-card companies also provide cardholders with a year-end statement summarising charges by category--for example, "Groceries," "Dining," and so on.
List Fixed Spending
Once you have your spending history to work with, lay out all of your financial obligations that are the same or similar each month, such as your rent or mortgage, utilities, phone bills, student loans, and any other regular payments. Also include any money you set aside for savings each month, either in a company retirement plan or individual account.
Listing your fixed monthly costs will give you a general sense of what you have left to spend each month, after the amounts you know you have to pay. Seeing all of your forced monthly payouts can also raise budgeting questions. Do you really want to tie up so much of your money on a premium cable TV package? Could you save money by switching your mobile phones to a family plan? Calling these "fixed" costs may be a misnomer because you actually have quite a bit of wiggle room with how much you spend.
Map Out Discretionary Spending
Finally, it's time to get into the nitty-gritty. There is some room to reduce your standard monthly expenses, but discretionary purchases are where you have the most room for cost-cutting.
Working with your partner, divide your monthly spending into categories and determine approximately how much money to allocate each month. Categories should be fairly broad: restaurants, bars, entertainment (music, cinema, theatre, etc.), shopping (clothing, electronics), and travel are good examples. You and your spouse probably each spend money on things the other person doesn't understand. A budget helps you keep disagreements in check--as long as you each stay within agreed-upon amounts, there's no need to scrutinise individual purchases.
You should also decide how much of your pay cheque(s) to sock away each month, both for retirement and other goals. Remember to save for an emergency fund, if you haven't already--see this article for tips.
Consider your category spending limits to be general guidelines, but treat your savings as a fixed cost. It's okay if some months you spend more in one category and less in another, but you'll have much more success meeting your goals if you refuse to shortchange your savings.
This worksheet is a good place to start your budget planning.
Of course, staying on budget also requires continuing to track your spending on a monthly basis.
