HOW TO CREATE A HOUSEHOLD BUDGET
Money is one of the biggest causes of arguments between couples, according to Relate.
There is no one size fits all approach to whether you should manage your money jointly or separately, but it can be tricky if you don’t see eye to eye with your partner about it.
It’s important, whatever your choice, that you don’t get yourself in a situation where only one of you understands your finances. A mutual understanding means you’ll both know what you can and can’t afford, and if something were to happen to one of you, the other would have an idea of your financial affairs.
Here are four tips to help you budget better with your partner.
1. Work out what you need to spend, vs what you actually spend.
The first step in creating a budget is looking over your monthly expenditures. Print out bank and credit card statements; track down your annual costs such as car insurance. The only way you’re going to be able to see the whole picture is if you get down into the details.
Once you’ve tallied all of your expenditures, it’s time to categorise them into needs for the family versus individual preferences. Regardless of whether you and your partner keep separate or joint banking accounts, it’s vital to know how much money the total family unit needs each month.
Emphasis on needs. No, Netflix is not a necessity. Think Mortgage/Rent , and associated expenses like Life insurance, Council tax, Utility bills, Grocery shopping, (don’t forget to include things like washing powder, toilet roll etc. Just so you know, Gin is also not a necessity.)
Once you’ve done that, you can look at the added extras such as the tv subscriptions, and if you are lazy - whoops, I mean busy - like me, a cleaner.
2. Be honest
The first step to sticking to your budget is to make a realistic budget to start with. Although it can be tricky to look at your expenses realistically, it is important to creating a sound financial future. The more you make your spending about rational, rather than emotional decisions, the better.
If you make an unrealistic budget, you’ll always feel bad about expenditures, whether they are necessary or not. That leads to emotional spending. By creating a sound budget, you’re giving yourself the tools to make smart financial decisions.
Allow space within your monthly budget with an extra 5% – 15% for unknowns. Although that can sound steep, it’ll cover costs like a car repair, an emergency trip to the vet or a new boiler. Alternatively, these costs could also be deducted from a household emergency fund.
3. Prioritise creating a household emergency fund
Once you’ve divided your expenditures into “family needs” and other, you should have a bare bones idea of what your household requires on a monthly basis just to exist. Whatever that number is, triple it and that’s a good indicator for what you need for an emergency fund.
Setting up a household emergency fund will help alleviate money stress. If you know you can cover the operating costs of your family for a few months, you’ll be less likely to lay awake at night worrying about money
4. Decide how to manage joint and personal accounts
The hardest part about budgeting with a spouse is the fact that there are two of you. It raises a lot of questions, such as:
If one person brings in more than the other, should you contribute proportionally or equally to household expenses?Has having children meant that one person has taken a financial hit?
If your partner came to the party with debt, is it fair for you to pay off their debt as well?If your spouse has a job that requires a professional wardrobe, while you work from home, do they get a clothing allowance?
These are all very personal questions whose responses vary widely depending on the couple. While you and your partner might have different answers, the important thing is to talk every scenario through so that you can agree on some basics—and avoid deceptions.
If you do have widely different ideas about pooling money, try to focus on the family needs versus wants. For some, keeping separate accounts is very important and gives them a sense of financial security. But you can still keep your own cash separate and “share” family finances, if you each contribute a certain amount to the household.
For other families, pooling money and then giving each partner a monthly allowance for their own needs is a good way to make sure you’re both contributing. At the same time it allows you to control your own money when it comes to things you enjoy.
By focusing on the larger picture – retirement, paying off debt, an emergency fund – you’ll be less likely to argue over the small details. And by creating a long-term plan that you both agree on, you won’t be frustrated at some of the silly things you think your spouse spends money on. Because that street goes two ways and no one wants to spend decades arguing over a Saturday night takeaway.