Designing and sticking to a budget can be difficult enough if you track only your own expenses and savings . Adding other people to the mix can make it even more complicated.
You probably wouldn’t think twice about spending a sizable sum of money on a new pair of shoes, but your partner could find it a big waste. Or maybe your partner has a higher tolerance for risk when it comes to investing when you don’t.
Be aware that money matters are a common source of arguments between partners. That is why it is important for both parties to feel involved and comfortable when preparing a budget as well as a financial plan .
Quoting from CNN on Sunday (4/18/2021), here are 4 tips that can help you start managing finances with your partner.
1. Start Talking About Finances with Your Partner
The first step to successful financial planning as a couple is to start talking. Put all your money related cards on the table.
Yes, it may be uncomfortable at first, but you need to have a clear understanding of each other’s financial position to create a sustainable budget.
That means talking about things like: income, debt, money-spending habits, saving goals, even credit scores and scores.
“Being willing to share your financial picture with others helps build trust,” said Mandi Woodruff, chief consumer advocate at Ally.
“We had an honest discussion about, how you feel about money, who you trust with money and what kind of financial situation you are in, including debt and income,” said Mark Reyes, manager of financial advisory at Albert’s personal finance app who has the money conversation. with his partner since a few months after dating.
But this conversation about money shouldn’t be just one time. Establish regular date nights where you discuss finances, review the status of your goals and make any adjustments to your plans if needed.
2. Know Your Financial Status
The first step to creating a budget is knowing what money is coming in and how it is being spent. That means keeping track of all your expenses for at least a few months.
You can do the work manually by creating your own spreadsheets and adding income and expenses or by using a helpful application, such as Mint or Honeydue, which links to your account and does the work automatically for you.
Tracking expenses will provide insight into everyone’s spending habits and can also help identify areas to reduce, if necessary.
3. Identify the Need to Combine Budgets
There are three common approaches when it comes to budgeting as a couple: putting everything together and sharing all income and expenses, creating a joint account that both people contribute to shared expenses while also maintaining separate accounts, or separating everything and then dividing the bill.
Reyes and his wife have a joint account where they pay for basic expenses, such as mortgages and food, while also having separate accounts.
“We also enjoy control over our individual finances,” said Reyes. “I use my personal funds to buy things for my car,” he added.
“We have private accounts so we don’t feel weird or guilty about using our joint accounts for ourselves.”
For couples who decide to use one joint account for general expenses and separate individual accounts, Jerel Butler, a certified financial planner and founder of Millennial Financial Solutions recommends using a salary to determine the amount of contributions.
For example, if one person earns 60% of the total household income, they will contribute enough to cover a percentage of the total monthly shared bill.
If there is a big difference in income but dividing expenses evenly it can cause problems later on, says Sophia Bera, a certified financial planner and founder of Gen Y Planning.
“A lot of people decide to split the item into 50-50 and realize a few months later it doesn’t work,” he said.
4. Set Goals
You and your partner don’t have to have the same saving goals. Although, there may still be common goals, such as buying a house, but more individual goals, such as clothes or hobbies.
“There may be different goals, but have a conversation and document goals to ensure spending habits stay in line with short-term and long-term goals,” said Mary-Charles Nassif, financial advisor for Edward Jones Financial.
When it comes to saving for common goals, such as marriage, Bera suggests a joint savings account. Likewise, if you want to use it for regular household bills.