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Whether you just started dating or you've been married for decades, money can be a difficult topic for couples to discuss. However, budgeting as a couple could save you from financial headaches and set you up for future successes.
Budgeting as a couple involves communicating openly, aligning on a spending and savings strategy, and maintaining a sense of autonomy within the budget you create. In other words, it's complex, and can be a difficult exercise unless both partners are willing to listen, share and compromise. It's also an opportunity to learn more about your partner and make exciting decisions about your future and goals together.
Here's a framework for how to approach the budgeting process, and some common pitfalls to watch out for.
Put All Your Cards on the Table
When you're in a committed relationship—meaning you've made long-term plans and you've established a high level of trust—it's crucial to establish a clear understanding of each other's current financial situation and goals.
When you've reached the point in the relationship where you're ready to make a budget together (it doesn't have to be after you get married), each partner should go over their:
- Real estate holdings and other assets
- Outstanding debts and how long you have left to repay them
- Credit events that have a negative impact on credit reports, such as bankruptcies, foreclosures, repossessions and accounts in collection
- Individual financial goals, such as a desire to buy a house or retire by a certain age
Your incomes, debt payments and plans for the future are all going to factor into how you create a budget. Have an honest conversation with your partner about what you both owe, how much you earn and save each month and how you want to work together to meet your goals. Even if you're not proud of certain aspects of your finances, being dishonest or leaving information out will only work against you and your relationship.
You can both get a copy of your credit reports from all three credit bureaus (Experian, TransUnion and Equifax) from AnnualCreditReport.com. You can also get your credit report and credit score for free through Experian and share them during the conversation. That way, each partner feels the other is invested in open communication from the beginning.
Create a Household Budget
Now it's time to create a monthly budget, which will help keep household spending far enough below your combined income that you're able to save for the future. First, add up your total monthly net income, or the amount you both earn after taxes each month.
Then calculate how much you both spend on necessities each month, such as rent, utilities, groceries, transportation, insurance and any other essentials. Ideally, this spending will add up to no more than 50% of your combined take-home income, as suggested in the popular 50/30/20 budgeting method.
According to the 50/30/20 rule, the next 30% of your budget can be spent on "wants," including entertainment and meals out. The last 20% of income will go toward paying off debt and building your savings accounts. Depending on your goals, income and spending, you might adjust these categories so you can put more toward paying down debt or paying your rent.
Discuss your short- and long-term financial goals to decide what to do with your savings. Your priority should be to establish a shared emergency fund if you don't have one yet, in case one of you gets sick, loses their job or you have a major unexpected expense. Then, you can focus on long-term goals such as building a down payment fund you can put toward a home together (more on that later).
Using joint accounts can be a good strategy to help you gain some clarity on your finances. Consider creating a shared savings account and a shared checking account, in which each partner will automatically deposit a certain amount per month. You may decide to deposit a percentage of your income or the same fixed amount. You'll use the checking account to pay for shared household expenses, and the shared savings account will be the place where you work toward financial goals together.
In addition to the shared accounts, you can keep your own checking and savings account for individual spending on things like work lunches or personal hobbies. The number of accounts you can have is only limited by your ability to manage them.
Identify Individual Needs
It's important to allow for each partner's wants and needs within a shared budget, and to make sure they fit into your overall financial plan.
Talk about the expenses that are important for each of you to maintain, such as personal care, gym memberships or subscriptions. Maybe you'll decide to pay for them from a separate account, rather than a shared account, as long as they're affordable based on your income.
Set Long-Term Goals
Once you've set your budget and accounted how much money you have to set aside for your long-term goals—like starting a family, saving for retirement or buying your own home—you can start going over your plans in more detail. By doing this, you will have an idea of how much money you should save by age 50.
Explore when you'd like to meet these milestones, how much you'd need to save toward each goal every month to get there and whether that's realistic based on your current income and expenses. Write these goals down, or consider using a money management app to outline how much you'll put aside each month and for how long.
You'll likely need to prioritize certain goals now but readjust them as your lives and needs change, so remember it's important to stay flexible and return to the conversation often.
Consider Opening a Joint Account
While you may be able to manage your joint budget while still maintaining separate accounts, as discussed earlier, opening joint accounts can help organize and track your spending. Consider using services like automatic transfers and automatic bill payments to help you and your partner manage your money and avoid late or missed bill payments. Late payments and accounts winding up in collections can seriously damage your credit scores.
As your savings goals take shape, consider having money automatically transferred to your savings accounts on a monthly basis or with each paycheck. This is one of the easiest ways to help you stay on track with your savings, and it can be a motivator to see how far you've come toward your goals.
But you're not required to open a joint checking or savings account if you don't want to, and if maintaining separate accounts is working so far, you might have little need to change it.
Set Up Times to Meet and Track Spending
It's crucial to talk about money matters on a regular basis, rather than occasionally as issues arise—or, even worse, not at all. To ensure that the conversation stays open and also light and gratifying, set up short meetings on a consistent schedule to check your financial situation. Once a month is a good cadence to start with.
You may take a look at your expenses for the past month, and talk about ways to reduce them equitably if you're overspending. You can also check your savings accounts and decide whether it's possible to save more, or send more money to debts to cut down on interest charges.
Budgeting as a Worthwhile Learning Opportunity
While setting a household budget doesn't sound like the most thrilling activity for a couple, it can help set the foundation for a communicative, supportive relationship. It can also ensure that neither partner is surprised by the other's, or their own, spending or savings habits. And most important, budgeting offers the opportunity to discuss what each partner wants from their lives, and how you can move in that direction together.