“Budgeting with my partner is the best.” – No one.
We get it. Most people don’t love creating a budget with their partner. But having your financial house in order is crucial to your relationship. In the U.S., studies show that arguments about money are the number one predictor of divorce. So if you can make a budget and stick with it, you’ll help your bank account and your relationship. Here are six steps for doing just that.
1. Get it on the calendar
Budget talk is easy to push off. Fight the urge and add a meeting to both of your calendars to discuss your budget. If you need extra encouragement, bring your favorite caffeinated beverage or snack to the meeting. #TreatYoSelf
2. Discuss your goals
When the big day arrives, start by discussing your goals for budgeting as a couple.
First thing’s first: decide what you are trying to do. Are you hoping to create a joint budget? Separate budgets? Or a mix of joint and separate budgets? (The answer will depend, at least in part, on whether you’ve merged your finances. If you need help with that, check out our post on merging finances.)
Second, identify why you want to create a budget. Are you trying to start saving for retirement? Put a down payment on a house? Save for a vacation in Hawaii? Pay off some debts? Make sure you’re on the same page with the why before you try to figure out the how.
3. Figure out your current situation
The next step is to take stock of your current financial situation. Start by calculating your monthly income (after taxes) and expenses. Then add up your assets (e.g., checking/savings accounts, cars, homes) and debts.
Trigger warning. This will probably involve bank statements, calculators, and maybe even a spreadsheet. Not everyone’s favorite. But it’s essential to have an accurate understanding of your finances before you can improve them.
When you make these calculations, try to be honest and exact. If you have to estimate, be conservative and don’t include uncertain sources of money, like raises and bonuses, as income.
If you’re having trouble getting started, check out a personal financial calculator or a personal financial workbook. Whether you rely on them entirely or use them as reference materials, they are solid starting points.
4. Pick a budget
Once you have figured out your goals and current financial situation, it’s time to find a budgeting plan that works for you.
There are a ton of options. Some people prefer allocating specific amounts of money for specific categories of expenses – e.g., planning to spend $50 or less for gas, $30 or less for utilities, $100 or less on dining out, etc. But our favorite approach, especially for your first budget, is the following rule of thumb for allocating your take-home pay: 50% to needs, 20% to savings/paying off debt, and 30% to wants.
The 50% for needs should go to expenses like utilities, housing, groceries, transportation, minimum loan payments, insurance, and child care. For the 20% going to savings and paying off debt, we typically suggest that you start by building an emergency fund of at least $500 to $1,000 and paying off your high-interest debt. After that, focus on building your retirement savings and paying off your low-interest loans.
Whichever plan you choose, make sure to account for all of your needs, savings for emergencies and retirement, and at least some of your wants.
Also, as you build your budget, try to be realistic. If you budget $0 for fun, you’ll inevitably miss the mark and probably discourage yourselves more than anything else.
5. Automate the process
With a budget in place, try to automate as much as you can. For example, to the extent you can afford it, try scheduling automatic transfers into a savings account for an emergency fund and automatic deductions from your paycheck for your retirement savings. By setting up a process that works on its own, you’ll develop a habit of spending less than you make.
6. Check your progress, tweak, repeat
Your budgeting plan and execution will not be perfect. That’s why it’s important to track your progress and figure out how you can improve.
Scheduling regular financial meetings with your partner — where you compare your plan to your actual spending — is the easiest way to do that. We suggest monthly check-ins (at least to start), even if it’s only for 15 minutes. If not monthly, make sure you meet at least every three months.