Budgeting solo is difficult. Budgeting together with your partner can seem impossibly daunting.
But if you’re living your lives together, learning how to successfully budget as a couple is an essential skill. It starts with gaining a firm understanding of your own money habits, and comes to culmination when the two of you communicate openly and honestly -- even about complex and difficult financial problems.
Figure out your own finances as an individual.
Why spend time figuring out your money habits independent of your spouse or partner?
Because you can’t communicate your own financial needs and acknowledge your own bad money habits without taking some time for introspection first.
“I think it’s really helpful to look at your past spending and see for yourself where your money has gone and kind of process what value you got from it,” says Elle Martinez, host of Couple Money.
“More than likely you’re going to discover that there are key expenses that add value and a certain amount of joy -- and then there are things you’re more willing to cut back or eliminate. That clarity will make budget discussions easier because you can know which expenses you’re okay with reducing and which ones you’d want to keep.”
Assess how you manage money as a couple.
There is no ‘right’ way to manage your finances as a couple. Depending on your circumstances and personal preferences, you have several options. Pick one that feels right to you.
Some couples choose to make their finances 100% joint after marriage. That means you both have your names on all the bank accounts, mortgage paperwork and loans. Either couple can freely access money saved in these accounts, and both parties may be held liable in the event of default.
Others choose to keep their finances completely separate. That means your spouse wouldn’t necessarily have a right to access the money you keep in your individual checking account. You wouldn’t have access to their individual checking or savings accounts, either.
You can still budget together. Your income will be the same regardless of where your paycheck is deposited. You just might need to do a little extra communicating to make sure each bill and debit purchase comes out of the right person’s account.
Others still use some mix of the two. Maybe they pay bills and handle day-to-day expenditures out of a joint checking account, but maintain individual savings accounts. Maybe all the bank accounts are joint, but the auto loans are in the name of one spouse or another.
How to Create a Successful Couple Budget
Now that you have a firm grasp on your individual situation, and have figured out how your finances operate in terms of joint vs separate accounts, you’re ready to sit down and actually write your couple budget.
Share your combined expenses and income honestly.
You might be embarrassed about your past spending or feel like you want to contribute more in terms of income, but it is imperative that honesty is at the core of all your budgeting conversations. Otherwise, you could find yourself on the slippery slope of financial infidelity.
“Financial infidelity is such a relationship destroyer because it erodes the key ingredient of trust,” says Martinez. “We’ve probably all seen those stories on TV and online about a spouse carrying $50,000 of debt, but it can enter into a relationship in really benign ways.”
She says that it could start out as simple as hiding the haul from your latest shopping spree in a closet, or underestimating your credit card spending because you are ashamed. As the behavior snowballs, it can easily turn into one of those terrifying headlines.
Disclose all debt and assets.
Another reason it is so important to figure out your own money before you sit down with your partner is because when you sit down together, you will want to lay out all your debts and assets. If you’re like many Americans, you may have more debts than your brain cares to itemize on a regular basis.
Your debts could include:
- Unpaid bills.
- Student loans.
- Your mortgage.
- Car notes.
- Credit card balances.
- Medical debt.
Your assets include anything that adds to your net worth. Assets can include:
- Retirement accounts.
- Home equity.
- Additional real estate property.
- Cash held in bank accounts.
- Appraised fine art or collectibles.
Those who have assets -- and/or those with children -- should have plans for where those assets will go in case of the worst. You can make these plans legal with a trust and free will.
Figure out your monthly cashflow together.
Now that you’ve honestly shared your debt, income, assets and expenses, you’re ready to figure out how to make your monthly cashflow work. Who gets paid when? Which bills are due each pay period? How big is a realistic spending budget for your day-to-day needs?
If you run the numbers only to find yourselves short at the end of the month, ask yourselves what you could do as a teamto make the numbers work better. You may have to sacrifice certain expenses that aren’t necessary, or you may decide to come up with a plan to increase your household income.
Communicate budgeting conflicts and compromise.
There will likely be some mixed feelings about what you could do as a team to make those numbers work better. If you find yourselves on the verge of a fight, know that what you’re experiencing is normal.
Martinez has two tactics she recommends when couples find themselves in this situation. First, she encourages the pair to put the numbers away. Instead of looking at the math, focus on your big couple goals over the next several years. Think about things like retirement, vacations or career aspirations. Reminding yourselves of your ‘why’ can help you both make healthy compromises.
Martinez also encourages couples to use some version of the 50/30/20 budget, wherein 50% of your income goes towards essentials including housing, 30% goes toward things you want in your daily life and 20% goes towards savings.
“This three bucket system with finances can help move the discussions along in terms of seeing what your essentials bills are, creating a savings and/debt payoff plan for financial stability, and having some fun money for both of you,” she says.
“Take each ‘bucket’ one by one, not trying to cram everything into a single discussion. Take a day or so to process how that went and then move to the next.”
In many areas, housing alone costs more than 50% of the average American’s household income. If you can’t get the percentages to match, work as a team to adjust them into something realistic for the two of you.
We all need to pay for essentials. We’re all going to spend money on at least some things we ‘want’ rather than ‘need.’ And we all really should be saving if possible.
The important thing is that you’re discussing each bucket -- even if you have to put a higher percentage towards ‘essentials.’
Create a spending plan.
The final step is to put your pen to paper -- or fingers to keyboard depending on your budgeting style. Write down where you want every penny of your income to go, and whether you’re allocating it to essential bills, groceries, debt, savings or even a vacation.
Set up regular team budget meetings.
Of course, setting a budget in and of itself isn’t enough. A budget is an intention. You have to follow through with action.
To gauge how well you’re actually sticking to your budget, you will want to set up regular budgeting meetings together. Here, you’ll look at your planned spending versus your actual spending. This accountability helps you redirect negative money behaviors early on.
Martinez points out that regularly-scheduled budget meetings can also help stop financial infidelity in its tracks. By communicating regularly about all of your financial accounts, you’ll both be in the know about each other’s financial habits from Day One. Any negative behaviors can then be brought to light before they evolve into a much bigger problem.
With regular budgeting meetings, you’ll foster communication channels regarding your finances. And at the end of the day, that’s what budgeting as a couple is all about: Communication.