7 Steps to Create a Budget with Your Spouse

Creating a budget with your spouse is one of those less discussed issues of being married. Working it out is a significant part of learning to be married, or getting better at it.
Marriage is variously described as an equal partnership, a merger, or a union. No matter how you describe yours, you likely agree that communication is key to your happiness. You and your spouse will need to communicate on all major issues including lifestyle choices, parenting, sex, and, of course, money. In fact, money issues are among the major reasons marriages fail.

The Budget Solution

Money doesn’t have to be a contentious issue. Whether your marital status is “soon-to-be,” “newlywed,” or “been in the trenches for awhile,” the key to handling money is having a financial agenda or budget. Budgets can sound complex and difficult, but they don’t have to be. A budget is simply a best guess regarding the amount of income you and your spouse will receive over a set time period along with how you plan to use it.
Start by sketching out a basic budget plan together. Then, once you and your spouse have a budget, following your plan is just a matter of checking in with each other on a regular basis. Ideally you will do this using free or inexpensive software to track your ongoing financial success in a way that is easy, accurate, and quick (see more on this in Step 6). Here are the seven steps to follow.

Step 1: Set S.M.A.R.T. Goals

Your short-term, medium-term, and long-term financial goals will have a huge impact on your overall budget. Short-term goals typically take one or two years to achieve and include things like creating a three-to-six-month emergency fund, paying off credit card debt, and saving for a special vacation. Medium-term goals include saving for a down payment on a house, paying cash for a new car, or paying off student loan debt. This can take up to 10 years. The most important long-term goal anyone can have is saving for retirement and that requires saving and investing for most of your working life, which can be up to 40 years—or even longer.

When it comes to setting goals, many people rely on the S.M.A.R.T. acronym. The words have varied, but the ones often used for financial goal-setting are:

  • Specific — State your goal in a few well-chosen words. “We want to own a condo in the Bahamas.”
  • Measurable — How will you know you’ve achieved your goal? “How much will it cost?”
  • Achievable — It must be something you can accomplish financially given your means. “Can we save that much given our current and predicted future income?”
  • Realistic — Even if achievable, does it make sense in your situation? “What will we have to give up and is that OK?”.
  • Time-bound — Your timeline will tell you whether this is a short, medium, or long-term goal. “How long will this take?”

Use S.M.A.R.T. to test and, if necessary, adjust your goals. If a condo in the Bahamas is out of reach or takes too long to achieve, how about a time share? Or a stateside beach condo? You may have to set some goals aside to be revisited later—say, after a big raise or promotion.

Divide your financial goals into short-, medium-, and long-range categories to make sure you are planning for your present and your future.

Step 2: Determine Your Net Income

Once your financial goals are set, take stock of your monthly income. Gross income is the amount you have before taxes and deductions. That isn’t helpful for creating a budget, although any amount that comes out for retirement, a pension, or Social Security does come into play later so be sure to note it in the money you use to budget. For purposes of creating a budget, use your net monthly income or take-home pay. This is the amount you receive before spending begins.

If you and your spouse are paid a salary or an hourly wage, your net income is likely stable. If either of you has irregular income through seasonal work, self-employment, or sales commissions, you will need to revisit the income section on at least a monthly basis.

Step 3: Add Up Mandatory Expenses

Mandatory expenses consist of costs you must pay every month. Examples include housing, which could be in the form of a mortgage payment or rent, car payments, gasoline, parking, utilities, student or other loan payments, insurance, credit card payments, and food. For some people food becomes “what’s left over after all the bills are paid,” but you and your spouse should have a rough idea of the minimum amount you need to spend on groceries and include it as a mandatory expense. Subtract mandatory expenses from net income. If your combined monthly net income is Php 18,000 and your mandatory expenses total Php 14,000, for example, you have Php 4,000 to carry forward to Step 4.

Step 4: Calculate What You Need to Save

Refer to Steps 1 and 2 to determine how much you need to save to reach your financial goals (Step 1), as well as how much is covered by deductions for your SSS, PhilHealth, Comprehensive Group Plan, and PhilHealth contributions (Step 2). Include all of this in Step 4 before moving on. Subtract the amount you need to save (for retirement and other goals) from the amount left over in Step 3 and that is the amount available for the next category—discretionary spending. Let’s say the total amount you need to save each month is Php 2,000. Subtract that from the Php 4,000 left over in Step 3 and you have Php 2,000 for the next step.

Step 5: Allocate Discretionary Spending

Discretionary spending is just what it sounds like—spending on things you want but don’t need. You and your spouse will likely have your most interesting “discussions” about discretionary spending, so buckle up. Discretionary spending means paying for the things you do or enjoy together such as eating out, vacations, watching cable/streaming shows, or wearing matching outfits for this year’s ugly Christmas sweater party. It also includes how much you spend individually. This could include individual nights out with friends, sports (i.e., tennis for one of you, basketball for the other), or any of several different types of activities that each of you do with others or by yourself. Beyond the basics, it could include clothes, electronics, and how fancy a car you drive.

List all potential discretionary spending and categorize it as “joint” or “individual” spending. Discretionary spending typically is its own mini budget, created monthly based on available discretionary funds. In the example above, you have Php 2,000 left over for discretionary spending. That will not likely be the case every month, which means you and your spouse will need to negotiate discretionary spending with each other monthly. This will often require sacrifices from both of you. If you both accept an equal amount of pain, conflict can be minimized. And despite the need for negotiation, marriage does tend to have a positive impact on your financial picture.

Step 6: Select Your Budgeting Software

Now comes the fun part. Armed with your basic budget, you are going to look for budgeting software that meets your needs and that both of you feel comfortable using. While almost any budgeting software program or app will work, some have features that are specifically designed to be used by couples. Or you can use a simple excel form for that.

Step 7: Schedule a Weekly Money Date

With software selected and up and running, the final step is to keep communication open and ongoing. Schedule a “Money Date” once a week to check in and re-evaluate your goals. Talking about finances regularly will keep you and your spouse on the same page and motivated to meet your goals. It does not have to be a five-hour conversation, especially since your budgeting software will be doing most of the work. Discussing your budget over a glass of wine or while cooking dinner can be an enjoyable way to spend time together while keeping finances under control.

Key Takeaways
  • Lack of communication about money is among the top reasons marriages fail.
  • Creating a budget together will provide a framework for avoiding conflict about finances.
  • Using software to track your money can increase your efficiency and make it easier to stay on top of spending.
  • A once a week “money date” can foster continued communication and help you achieve your financial goals.

6 Effective Financial Lessons to Master by Age 30

Being money smart is not an easy journey. It will take you a lot of time and self-discipline to become one. Many Filipinos go through life without saving nor investing, and just live paycheck to paycheck.  Sometimes, even worse.  Some will even take a loan just to survive until their next salary or income.  Learning to handle your money at an early age will certainly put you to an advantage.

Sometimes we feel that we are still young and invincible even at 30, but the scary truth is that you are halfway to retirement, which is something you should prepare for.  If you are still not doing these 6 financial lessons, it is time you do.

1. Stick to a Budget

Most of those who are in their 20s have been laughing about budgeting or had been using a budgeting app like Expense Manager and have read an article or two about the importance of creating a budget.  However, very few individuals really stick to the budget that they planned or does not even plan a budget at all.  Once you turn 30, you should learn to start allocating where every peso you earn goes.

The overall point of budgeting is to know where your money goes.  Although it is fine to spend money on entertainment and fun trips, just make sure that it still fit into your budget or it has a certain allocation in it so that it wont detract you from your saving goals.  Knowing your spending habits will help you discover where you can cut expenses and how you can save more money in your retirement fund or similar investments.

The best way to setting up and sticking to a budget is by documenting all your spending.  If you are making your balance sheet, this is already something that you do. But if you do not, it is just writing down where and how much you spend.  You can either use an app or use the traditional pen and paper to cross-check everything.  Overtime, you will be more conscious with your hard-earned money.

2. Stop Spending Your Whole Salary or Income

According to the book “The Millionaire Next Door” written by Thomas J. Stanley, many self-made millionaires spend their money modestly.  In fact, majority of these self-made millionaires drove used cars and lived in average-priced housing.  He also found out that those who wore expensive clothing and drove expensive cars were in huge debts. To make the best out of your money, you had to ensure that your lifestyle can keep up with your paycheck.  Do not go overboard.

You can start by saving 10% of your salary and spending the remaining 90%. You should deduct first this saving before you start budgeting your income to your expenses.  You can use automatic debiting and put it into your retirement savings account to ensure that you will not miss it.  If your money is in cash, you should deposit it to your savings account, retirement fund, or any similar account that will prevent you from spending it.  Gradually increase the amount you save while decreasing the amount you spend. Ideally, learn to live 60-80% of your income while saving and investing the remaining 20-40%.

3. Get Committed with Your Financial Goals

Think about your financial goals.  Write them down and put it out.  From your big goals, create smaller ones in timelines. By planning how to reach your goals, you will get to know what are the things or actions that you should do and recognize unnecessary ones.  Adding photos will even help you get motivated.

4. Figure Out Your Debt Situation

In the Philippines, may individuals become unworried about their debts once they hit their 30s.  Maybe because nobody gets imprisoned because of unsettled debts.  The truth is that you do not need to live your whole life paying off debt.  Assess how much debt you have and settle it by creating a budget that helps you avoid gaining more of it.  (See: 5 Proven Ways to Escape the Debt Trap)

It is important not to get overwhelmed when you see that you have decreasing debt or else, you will be back in it.  The key is to control yourself especially your credit card usage to a minimum.  You may also want to consider cancelling cards you may not necessarily need.

5. Establish a Strong Emergency Fund

Having an emergency fund will save you from a lot of financial burdens that are unplanned or out of the budget.  If you do not have an emergency fund, you are more likely to use your savings that are meant for your other goals, or rely on credit cards to help you pay for unplanned car repairs and health expenses.  It is better to be prepared than get into another pile of debt.  It is important to have this fund to avoid begging someone else for money, such as the government or your relatives.  Manage your money no matter how small it is and see your money grow.

Some financial advisors recommend having the equivalent of 3 months living expenses in the fund, while other recommend six months.  How much you can save, however, will still depend on your financial situation.

6. Save for Retirement

As I mentioned, when you reach your 30s, you are half-way to your retirement.  While this may seem like long way ahead, it is important to know that in saving, time is your best friend.  The longer you save, the higher the interest it earns.  Many people in the world either enter their 30s without having a single peso contributed to their retirement, or they are just making the minimum contributions.

If you have your SSS/GSIS as retirement fund, it is advisable to have a separate retirement fund.  Saving in a separate retirement fund is proven much more useful in your old age because it gives higher amount of pension than the government’s offer.  If you want that million-peso nest egg, you must put in savings now.  Make sure that you still take advantage of your company’s matching contribution because it is still free money for your money you still can use in the future.

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