Here are the Best Ways to Budget as a Couple
Budgeting as a couple can feel like a daunting task at first. That’s because both partners must agree on a shared way to manage their finances.
However, when it’s done right, budgeting as a couple can be a very effective tool to save for future goals, pay off previously accumulated debt, and generate wealth in the long term. h It also strengthens the collaboration spirit, which may be positive for the health of your relationship too.
In this article, we will focus on the best ways to budget as a couple and reach every financial goal together.
Discuss Your Finances and Define Short-Term and Long-Term Goals
Sitting down with your partner and having an initial discussion about your finances and goals is the first step when budgeting together. Money can bring a lot of stress to your relationship, so having an open and honest conversation about it is paramount to avoid starting on the wrong foot.
First, list each component of both partners’ income situation, such as:
- business revenues
- side gigs
- financial investments;
- real estate investments:
- other investments;
- gifts from relatives
Then, it’s time to list all expenses, both shared and individual, and divide first into needs (essential costs like health insurance premiums) and wants (discretionary costs like a gym subscription). You should also divide them into regular costs (e.g., monthly expenses like renting an apartment) and variable expenses (e.g., groceries and skincare products).
Subsequently, you should list all your current debts, such as:
- credit card debts;
- student debts;
- car loans;
- personal loans;
Finally, you should consider what your current savings and what you are saving for are.
After listing all aspects of your personal finances, it’s time for the same important evaluations. Decide which parts of your finances to keep separate and which you want to combine. Some couples may decide to integrate every aspect of their finances, while others may prefer to keep some things separate. Obviously, shared expenses (like electricity bills and rent) should be managed jointly. However, certain aspects of your personal finances (like one of the two partners saving for a trip with friends) may be managed individually. It would be best if you also discussed opening a joint bank account or keeping separate ones. The discussion should consider both your checking account and savings account. Some couples decide to both keep their old separate account and open a new joint one.
You should also set short-term and long-term financial goals together. It’s essential that both partners agree on these goals and that they are realistic.
The following list contains several possible short-term goals.
- Building up an emergency fund with three months of living expenses saved up.
- Start investing in a retirement account, like a 401(k)or IRA.
- Setting aside money for a vacation or special event (e.g., wedding or honeymoon).
- Making sure both partners have life insurance coverage in case something happens to either one of them.
- Establishing joint savings accounts for future purchases like buying an hour or a car together.
- Taking advantage of tax breaks for married people.
Let’s now look at a list of potential long-term goals.
- Paying off all previously accumulated debts.
- Creating an emergency fund with at least six months of living expenses saved up.
- Grow wealth over time by investing in stocks, bonds, mutual bonds, and other investments.
- Planning for college tuition expenses for your children.
- Establishing long-term care insurance plans to cover potential medical costs in old age if needed.
- Creating wills and trusts to ensure that assets are distributed according to the couple’s wishes after the death of either partner and that any dependents are taken care of if necessary.
Agree on a Budgeting Method
Once you have clearly defined your common overall financial situation and set your goals together, it’s time to select the budgeting method to help you achieve them.
Zero-based budgeting could be a very effective budgeting method for couples, as it assigns every dollar a purpose. This method requires you to create a monthly budget plan and assign every dollar of income to an expense category or a savings goal.
Envelope budgeting is another suitable method for couples. It involves assigning each budget category a certain amount of money in an envelope and spend only that much on the corresponding type of expenses. This method helps to control impulse purchases and stick to the budget plan.
50/30/20 budgeting is a very popular budgeting technique. It suggests assigning 50% of your income to your needs (essential expenses like housing or groceries( and 30% to your wants (discretionary expenses like entertainment and travel). The remaining 20% should go towards savings, investing, or other financial goals.
70/20/10 budgeting puts a greater emphasis on financial goals. 70% of income is spent on needs, 20% on debt repayments, and 10% on savings and investments.
80/20 budgeting is more flexible than the previous two methods, and it involves assigning 20% of your income to your savings and then spending the rest freely. The goal of this budgeting technique is to ensure that you’ll set aside a certain amount of money each month, no matter what.
You should also review your budget method regularly to check whether it’s helping you improve your personal finances or whether another method may be more effective.
Be Honest with Each Other About Your Spending Habits: Don’t Hide Purchases from Your Partner
Honesty is paramount for your budgeting efforts as a couple, to work. Hiding expenses with your partners don’t just make budgeting ineffective, but it can also lead to mistrust and problems in a relationship.
The two partners should create an open dialogue about money and discuss any large purchase before making it, thus making sure they are both on the same page.
It would help if you also talked openly about any debt or credit issue either of you may have. Being honest about these topics can help you both develop a plan for tackling debt or improving your credit score together.
Make a Habit of Checking In with Each Other Every Week or Month to Update Your Budget
Budgeting is an ongoing effort. Without consistency and perseverance, achieving your financial goals and improving your overall money situation is complicated.
Checking in with your partner can be done in many different ways. You can set a specific time of the week or a particular day of the month to review your budget and make sure you’re still on track. If you have both busy schedules, you can decide at the beginning of each week or month when to schedule an appointment to catch up on your budgeting. If you don’t want these meetings to occupy the precious time you have together when you’re not working, you can also schedule a video call at a time when you are both taking a short break from work but don’t have the time to meet in person.
Making a habit of checking in with each other will also help keep communication open and honest between you. It’s important to remember that budgeting as a couple isn’t just about numbers; it’s also about understanding each other’s needs and working together towards common goals.
Celebrate Small Victories Along the Way, like Paying Off a Credit Card or Saving up For a Vacation
When you reach important milestones, like paying off a credit card or saving up for a vacation, or a downpayment on the house, take the time to celebrate these victories. It’s essential to recognize how far you’ve come together and how much effort you’ve put in, as this will help keep you motivated to continue working together on your budget.
Research has shown that our brains are wired to respond positively to rewards, so taking the time to acknowledge each step of progress can help us stay on track toward achieving our bigger goals. It also provides us with moments of joy, hope, and happiness in life that we can look back on and remember fondly.