Money Management – An ideal budget is a balance between saving and spending. Both of these financial issues are also emotional issues. Saving represents security for most people. Having money in the bank makes them feel they will have enough money for an emergency or for retirement. Not having enough money in the bank makes most people very anxious. On the other hand, the amount of personal spending money you have represents freedom. It’s the money you spend without discussing it with anyone else. Not having enough personal spending money makes people feel confined; having enough gives them a sense of freedom that is important.
The following questions will help you think about your own savings and personal money needs, which will help you create your household budget.
➤ The importance of a household budget
➤ Dealing with a reduction in household income ➤ Surprising challenges with an increase in income
In this chapter, we’ll give you tips on developing a household budget and guidelines on dealing with a change of income. We’ll help you discover a system of managing your money that works for you.
Consider your answers. Are they realistic, given your household income? If not, re- write them so that they would be more reasonable. Before you organize your overall budget, have your spouse answer the above questions.
Now take both of your answers and use the following sections to help you determine and agree upon these two key issues:
➤ Savings. (We will save __________ every month.)
➤ Personal spending. (I will have __________ to spend. My spouse will have
__________ to spend.)
Once you can settle these two issues, you will have conquered the most emotional part of your budget.
Savings and Investment
This book is not an in-depth finance book, and we cannot suggest to you an exact amount of money you should be saving. Every couple is different, and every situation is different. You might be earning less money now and expect a raise in the future. Or you might be at your peak earning potential and should be saving more now. Your kids might be out on their own, or you might be saving for college.
What we strongly encourage is that you don’t skimp on the time and thought you give to this issue. Determining a comfortable, appropriate amount of money you need to save every month is the corner- stone of a good budget.
The amount of money you need to set aside every month is determined by working backward from your long-term goals. The biggest issues facing you might be saving for a house, for a car, for your children’s education, or for retirement. The two of you might consider hiring an outside expert to help you develop a solid financial plan. Or you might feel comfortable doing it on your own. There are numerous workbooks and financial planning books out there to help you if you decide to try this on your own.
$ __________ is the total amount of money the two of you should save (or in- vest) every month.
Settling on a figure will give both of you peace of mind. Savers will know that money is being set aside for the future. And spenders will know that by setting aside this money first, their spending habits will not interfere with their long-term goals!
Separate Spending Habits
The other crucial part of the budget is determining how much money each of you gets every month that is entirely at individual discretion. Consider how important this is. The two of you were adults when you got married, so you each made separate financial decisions. At the very least, you were free to splurge on a fancy outfit or order dessert and coffee in a restaurant without discussing it with anyone.
Marriage Q & A’s
Q: What if you and your spouse have similar long-term goals, but still fight about money?
A: No matter what, you are two different people. One of you might like to indulge in a cappuccino every day before work, while the other would much rather save for a big ticket item. By having some money that is separate, you can each pursue your personal choices by using your own money and not your spouse’s.
The amount of money the two of you want to set aside for discretionary income will vary greatly, depending on what you want it to include. Common items to include in personal spending money are lunch and snack money, gas money, gift money, toiletries, and some extra money for unexpected things. This is by no means a hard and fast list. Some people include those items in the regular budget, or they may expand the personal money to include other items. For instance, you could decide that a cer- tain amount of money is reasonable for clothing for each of you and consider that part of the discretionary income. Some couples work better by having as much money as possible separate, while others like to keep closer tabs on everything.
Mary and Joe came to see us because they were tired of constantly fighting about money. Joe tended to be a spender and Mary tended to be a saver. Both of them thought it was a good idea to have separate money they could spend any way that they wanted without interference from the other per- son. They agreed on $35 a week, which was to include lunch and snack money. This amount was less than what Joe was currently spending and more than what Mary was spending.
At first it was difficult, especially for Joe, but eventually they found it easier to save every month. At first Joe was frustrated, but then he learned he could either eat out only three times a week or go to less expensive places. Initially, Mary didn’t spend anything and saved all her money. But, over time, when she really accepted the money was hers and hers alone to spend, she was able to buy things for herself, like a beautiful new wool coat she had always wanted. Both of them grew from the ex- perience, and they have more money in the bank, too!
What is the amount of money each of you wants every month that would be totally discretionary? This is money that you can spend without the other spouse interfering in any way.
$_____ His $_____ Hers $_____ Kids
The important thing to remember is that having your own money will give you free- dom to make your own financial decisions (and mistakes). Spenders will be able to spend (to a point) without discussing it with their spouse. And savers might find it easier to spend money that is set aside for them.
The Household Budget
This is a topic that many married couples dread: tackling the household budget. But it’s important to recognize that sitting down ahead of time to determine the budget not only gives a couple a sense of teamwork, but also allows for more freedom about money, not to mention less anxiety. Having a budget will lessen disagreements about money, because you shift the focus from money to thinking about how to meet your household needs.
In addition to the two emotional items we discussed, savings and personal spending, a standard budget will include the following:
➤ Shelter (includes utilities)
➤ Entertainment ➤ Insurance
➤ Transportation ➤ Health care
Before you start tackling this part of the budget, do the following calculation:
$ __________ $ __________ $ __________ $ __________
Write down your monthly income.
Subtract your planned monthly savings.
Subtract your planned monthly personal spending. The money left for your monthly budget.
Chapter 11 ➤ Money Management
The amount of money you have left is what you should use to calculate the rest of your budget. The numbers might fall into place. But if you find yourselves arguing over the budget, ask yourselves the following questions regarding how you can save money in each category:
➤ Food. Do you shop in bulk? Could you eat less meat and substitute grains and beans for some meals? Could you cut down on expen- sive snacks like potato chips and soda?
➤ Shelter. Could you reduce your heating or cooling bills? Would it be worthwhile to in- sulate your home? Could you move to a smaller dwelling or a less expensive neighbor- hood?
➤ Entertainment. Could you see fewer movies in the theater and instead wait for them to come out on video? Could you go to less expensive restaurants or cut out dessert and coffee when you eat dinner out? Could you scale down your va- cations by eating fewer meals out and staying in less expensive hotels? If you buy season tickets (cultural or sporting events), could you attend half the events and sell the rest of the tickets?
➤ Insurance. Are you fully aware of insurance through your employer? Sometimes insurance plans through work are much less expensive than those for individu- als. Could you extend your waiting period on disability insurance?
➤ Transportation. If you have two cars, could you function with only one? Could you save on gas by carpooling to work together or with other people? Could you sell one of your vehicles and buy a less expensive or older model to lower your car payments (and probably your automobile insurance)?
➤ Health care. Do you have the most reasonable plan for your needs? If you have few medical expenses, it might pay to have a less expensive policy with a larger deductible. If you are on long-term medication, are you buying your medicine in bulk? Sometimes plans charge a lot less when you buy several months’ worth of medicine through a mail service.
➤ Clothing. Could you buy fewer clothes or shop at a more economical store than you do now? Could you put part of the clothing budget under discretionary money?
After you go through these questions, try calculating your budget again. Things might fall into place. If they don’t, you’ll need to make more drastic cuts than you would like or somehow bring in more income.
Marriage Q & A’s
Q: I have the chance to make some additional money at work. Should I do it, even though it will mean less time with my family?
A: Deciding to bring additional income into the household is not easy, but the decision must be made with your spouse’s input. Working longer hours will bring stress back home with you. Try working extra for one week to see how it feels to both of you. Remember that extra money isn’t the only factor to consider.
What to Do When You’re Feeling Pinched
What should you do if you cannot come up with a workable budget on your current income and cannot reasonably bring in more money? Or what should you do if your financial situation changes for the worse and you need to pare down your spending even more?
First of all, stay calm. Evaluate whether the situation is long-term (you don’t foresee more income in at least a year) or temporary (like an unexpected large medical bill). A temporary change needs both of you to buckle down, cut down on your entertain- ment or other discretionary items, and pay that bill off. A longterm change demands a new budget.
Marriage Q & A’s
Q: My wife tells me that I need to be more romantic, but she doesn’t want me to spend any extra money on her. What can I do?
A: It’s easy to get so focused on money that you forget that some of the best things in life are free! If you’re on a tight budget, you can forgo the movie and dinner and still have a great time with each other. Instead, take a long walk, have a picnic lunch, or watch the sunset.
Go through the list of questions again. Are there ways you can tighten your budget without going into your savings? If not, you need to bring in additional income or possibly make some major changes. You will need to scale down. You might need to sell your home or move to a smaller apartment. Do your best to support each other through this difficult time—your relationship will be even stronger when it’s over.
More Money Might Mean More Problems
It might seem surprising that any problems would result from an increase in income. After all, you have a budget and now you have plenty of money to meet it and then some. It could only be better if the two of you had extra money to spare. Right? Wrong.
The two of you worked out a careful budget and have worked hard to meet it. More money will make that easier. But what are the two of you going to do with the extra money? One of you might want to save it; the other might want to
buy something not on the budget. Or maybe you want to upgrade something that’s already in your budget, or go on a great vacation. Sometimes, cou- ples end up spending more money than they make when they have an increase in income. They might fall into the trap of ignoring their budget in- stead of setting up a new one.
Marriage Q & A’s
Q: If not more money, then what will solve our financial problems?
A: Good communication and a commitment from each of you to have a budget that works.
Even though you have more money, you still need to rework your budget. Are you going to increase your savings and keep everything else the same? Should you take that dream vacation you have been thinking about for years? Or maybe it means you just have more money every month that you can spend without thinking about it.
The point is that even though you feel richer than be- fore, the extra money is still limited. You can easily go over your budget by upgrading everything.
Three Ways to Organize Your Money
After the two of you have generated a workable budget, you’re almost there. The other decision you have to make is how you are going to organize your money. Some couples like to have most or all of the money accessible to both of them. Others like to divide it up more and each take responsibility for dif- ferent parts of the budget. The following are three ways to organize your finances.
Plan #1: Each of you could have your own credit card and checking account. After putting aside your monthly savings, you could divide up the money appropriately so that each of you takes responsibility for a different part of the budget. For instance, one of you could take care of the groceries, clothing, and entertainment, while the other person takes care of the mortgage payment or rent, the utilities, and the car payments.
Plan #2: You could have only one checking account with all of the household ex- penses, including mortgage, insurance, car payments, and utilities, paid from that ac- count. You could both be involved in paying bills and balancing the checkbook as you write each check. Then each of you could have a credit card and a certain amount of cash each month for more discretionary spending.
Plan #3: One of you could take responsibility for paying the bills each month. That person would take care of the mortgage, insurance, car payments, groceries, utilities, and clothing. The other person would have a monthly allowance for discretionary spending.
The Least You Need to Know
➤ Different households have different conflicts about money.
➤ Monthly savings and personal spending money tend to be the most emotional issues in a budget. Spend extra time deciding amounts that will work for both of you.
➤ If your household income decreases, tackle your budget right away, before it gets out of hand.
➤ Even if your income increases, you still need to redo your household budget.