As a relationship grows and lives begin to intermingle, it is commonplace for financial responsibilities to merge. It is at this pivotal point when a couple needs to establish a healthy financial plan to secure their future, this plan is often referred to as a budget. Couples that share their financial responsibilities need to be open regarding their monthly expenses, this helps establish a baseline for their budget, from there they can determine how the rest is spent or saved.
Couples can work together to determine how much they want to allocate towards living expenses (rent, groceries, internet etc.) and how to split these financial responsibilities. Understanding, compromising, and sticking to your monthly budget can help you achieve your short-term and long-term financial goals. Let us go through a base framework you can use to set up a healthy financial budget:
Know your partners’ money management style
Each individual has their own way of managing their finances, knowing how your partner manages their finances is a vital part of setting up a monthly budget that can work for both of you. Discuss your money management style with your partner to create a healthy budget that works to each other’s strengths and your current available finances, establish max spend, set saving goals, and be realistic with what can be done with your combined salaries.
Set your joint financial goals
Everyone has a financial goal they want to achieve, whether it is a short-term goal or long-term goal. Discussing these goals with your partner can help you identify joint short-term goals and long-term goals which can be added to your monthly budget.
Some common short-term and long-term goals couples may have, are:
- Saving for a vacation
- Saving for an extravagant birthday gift or anniversary
- Saving for a wedding
- Saving for a new car
- Saving for a down payment on a house
- Paying off a student loan or previous financing
- Saving for your child’s financial future and education
Unless you have available resources and disposable income at the ready, setting a joint budget can help you determine which of your common goals are a priority, then create a budgeting plan to help you better achieve it.
Know your income and calculate your expenses
Creating a budget requires some insight into you and your partner’s income and expenses. Start by calculating each other’s total take-home income (calculated after-tax income), then calculate your total expenses, these should include priority expenses (rent or mortgage, utilities, transportation, groceries, insurance, medical aid, school fees etc.) and optional spending (hobbies, entertainment, take-out, vacation etc.).
If your baseline expenses exceed your monthly income, you will need to re-evaluate your expenses and cut costs where applicable. For example, downgrade your medical aid or change to a cheaper provider, opt to shop at more reasonable retail outlets, reduce the amount of take-out you get monthly, put a hold on frequent getaways etc. If your income exceeds your baseline expenses, then you can move on to the next step – creating your budget!
Creating a budget plan that works for you
There are no one-size fits all solutions when it comes to creating a budget plan. However, there are several budget plan strategies you could consider and adjust based on your relationship preferences.
Let’s take a look at these budget plan strategies:
- 50/30/20 Budgeting Rule: This budgeting strategy allows couples to split their combined take-home income into 3 categories (essential, discretionary, and debt / savings). You may fluctuate your percentage split across these 3 categories based on your income, spending habits, or financial goals.
- The Envelope Method: You’ve probably seen this on social media, as it’s becoming quite popular in teaching kids the importance of financial management. You and your partner will create various envelopes, for example, groceries, rent, entertainment, travel etc. You will then allocate a specific amount to each envelope; the goal is to avoid spending more than the allocated amount for the duration of the month. If you end up using the entire amount in one category, you will need to compensate by reducing your expenditure in another.
- The Pay Yourself First Method: This budgeting strategy prioritises saving above your expenses. This method requires you and your partner to transfer a percentage of your combined take-home income into a savings or an investment account first, then allocating the rest towards your essential expenses and discretionary expenses.
- The No-Budget Budget Method: This budgeting strategy provides couples with more flexibility compared to other methods. The goal of this strategy is to ensure your essential expenses are covered first, along with your savings or investments, then the rest gets used to cover whatever you want. Essentially, you do not track where the rest of your money goes outside your essential expenses and savings.
- The Split Test Method: This budgeting strategy helps couples where one partner earns significantly more than the other. The higher earner can allocate the bulk of their take-home income towards essential expenses (rent or mortgage, utilises, groceries etc.), whilst your partner utilises their take-home income towards discretionary expenses and savings. For example, your salary supports general living expenses whilst your partner provides you with a financial buffer, paying for a night out, covering internet costs, purchasing luxuries for you both to enjoy.
Divide and conquer your expenses
Establishing your budget strategy is key, but the next steps are equally important – deciding who will pay for what. As there is no one-size fits all budgeting strategy, the same applies to splitting your expenses, it will all come down to what your total take-home income is, and how you want to split the responsibility across the recurring monthly expenses.
Let’s take a look at these common couples’ budget split options:
- Share It All: Some couples may opt to have a shared bank account where both combine their take-home income and evenly distribute their earnings across the various expense categories.
- Split It Down the Middle: Some couples may opt to split the monthly expenses in a 50/50 split agreement. This strategy can be successful if both partners earn equal amounts to each other but can prove difficult if one partner earns significantly more than the other.
- Percentage Split: This strategy can work for couples with an income difference, as mentioned in the 50/50 split point. If one partner earns more than the other, they can opt to a 60/40, 70/30, 80/20, or 90/10 split depending on what the other partner can financially contribute without lapsing into debt.
- Pick and Choose: Some couples may choose to highlight recurring monthly expenses and, after evaluating their total take-home income, may suggest taking on certain financial responsibilities. For example, one partner may pay the rent or mortgage while the other pays the utilities or groceries.
Keep track of your finances
It is all good and well to go through the effort of creating a budget, but only if you intend on sticking to it. One-way couples can stick to their monthly budget is by monitoring and keeping track of their spending.
You can do this by setting up automatic transfers / debit orders that go off at set times throughout the month, for example, your salary comes in on the 25th, you might set up debit orders to deduct rent, insurance, medical aid, or savings off your account by the 1st of the new month. This guarantees that your priority expenses are covered, allowing you freedom to manage the remainder of your finances as you see fit.
Conclusion
With financial uncertainties on the horizon, families and couples alike can safeguard their financial future by being smarter when it comes to their financial management strategies. It all starts with a few easy steps, be open and communicate, do your research and create a plan, set your plan in motion, and monitor it frequently to ensure success.
If you find your budget isn’t working for you, identify the causes and make adjustments as needed.
