We hear repeatedly that one of the biggest challenges in marriage is how couples address finances. One of the best solutions for this to have open and ongoing communication about your finances. Of course, communication itself, is also one of the more common challenges in a marriage. Seems my wife said something just the other day about my hearing.
While this obviously comes down to budgeting, it is too easy to state that budgeting is like dieting but the analogy works. If calories out are more than calories in, you lose weight. The opposite is also true, and don’t I know it. When your budget has more dollars out than dollars in, you have a deficit and that will not last for long before you have trouble making ends meet. Unless you are the government but let’s not have that discussion today.
The starting point is as a couple, to discuss and agree on priorities and goals. This will usually take some compromise. Include long term concerns such as, purchasing a home and retirement funding. Shorter term goals such as funding a Christmas or vacation fund, or a vehicle replacement are examples which may also be determined. Realistic and obtainable is the key.
There are many ways for people to budget. For example, couples can decide that each spouse be responsible for specific expenses in the budget or keep everything separate except for the rent or mortgage. You may also choose to combine everything. For newer couples this can be quite burdensome especially when considering the different income and debt levels each partner brings into the relationship. That subject merits a full article on its own.
Using a bucket system is one way to simplify. Four buckets; liabilities, recurring expenses, goals, and discretionary spending buckets. Yes, these are listed in order of importance. Liabilities include any and all loans, mortgages, consumer debt, etc. This is also the bucket with which people tend to get in the most trouble. Recurring expenses are utilities, fuel, auto registration, insurances and home owner association dues and more. Funding your goals should come before discretionary spending however some goals are more important than others, i.e. fundamental versus lifestyle goals. Retirement is fundamental while a dream vacation would be considered a lifestyle goal. The discretionary bucket includes dining out, entertainment, cell phones and internet access. While these last two items are considered necessary in today’s culture, the level of service is discretionary and can be reduced if necessary, to meet budget limitations. This same argument can be made for many categories.
The timing and funding of goals is dependent on your free cash flow not the other way around. Just because you want that new set of clubs, doesn’t mean your budget will allow you to complete the funding in time. Don’t blow up your budget by making purchases you are not ready for. A good way to avoid that is to set some parameters for spending. One idea is to have a baseline for autonomous spending for example, anything up to $200 might be discretionary and anything over that amount should be discussed and agreed upon prior to purchase. Spouses may even have separate accounts for their discretionary spending. In which case it may be up to the spouse as to how much is saved and spent from the account.
Getting back to communication. Couples need to communicate on the front end by planning and setting goals. You should have regular discussions keeping each other informed and on track as accountability partners. In the beginning of a new budget you may want to do this more often and as time goes by you may both be comfortable with less frequency. This is all personal preference, but it must work for your budget and for the two of you. Life happens, things change, and you must continue communicating as well. Until we talk again be well.
Dale Immekus is the owner of Dedicated Financial Services and an Accredited Wealth Management Advisor. Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment advisor. Member FINRA/SIPC. Dedicated Financial & Insurance Services and IFG are unaffiliated entities. If you have any questions for our panel of financial experts, email News Sentinel Editor Scott Howell at firstname.lastname@example.org