Managing finances as a couple can be a challenging and sensitive topic, but it is crucial for building a strong and healthy relationship. In this article, we will provide tips and strategies to help you manage your money together.
Step 1: Keep It Honest & Real
To effectively manage your finances as a couple, start by having a real and honest conversation about your financial situation. Discover how each of you feel about money; and then dive into your current relationship with money.
Lay all your financial cards on the table, including income, debt, spending habits, savings goals, and credit scores. Understanding each other and how you both approach money can help provide a basis for moving forward. This conversation is crucial before you sit down to plan out your budget with your partner.
Step 2: Create Goals Together
Once you've had an honest conversation about your financial situation, the next step is to managing finances as a couple is to set financial goals together. This should include short-term goals, medium-term goals, and long-term goals.
- Creating an emergency fund, paying off credit card debt, or saving for a vacation are short-term goals.
- Saving for a down payment, paying cash for a new car, or paying off student loans are medium-term goals. These goals may take 10 years.
- Long-term goals can include saving for retirement, which can take up to 30 years.
Use the S.M.A.R.T. goals framework to test and, if necessary, adjust your goals. This acronym stands for specific, measurable, achievable, realistic, and time-based.
- Specific goals state your goal in a few well-chosen words.
- Measurable goals outline how you will know when you've achieved your goal.
- Achievable goals are something you can accomplish financially given your means.
- Realistic goals make sense in your situation and consider what you will have to give up.
- Time-based goals determine whether your goal is short, medium, or long-term.
If a goal is out of reach or takes too long to achieve, consider other options. You may have to set some goals aside to be revisited later- say, after you get a big raise or promotion. The key is to be flexible and willing to adjust your goals as needed.
By setting goals together, you can work towards a common vision and track your progress along the way.
Prioritize Your Goals
When setting goals, it's important to discuss your priorities and timelines. You may have different ideas about what's important or achievable, so it's important to find a compromise that works for both of you. Once you've set your goals, create a plan to achieve them. Break down your goals into smaller, achievable steps and create a timeline for when you want to reach each milestone.
Step 3: Create a Budget
Create a budget is one of the ways of managing finances as a couple. It helps you reach your financial goals together
First, determine your net income—your take-home pay. Note any retirement, pension, or Social Security deductions when calculating net income.
If you or your partner earn irregular income from seasonal work, self-employment, or sales commissions, you must update the income section monthly.
Next, add up your mandatory or need-based expenses. Monthly expenses include mortgage or rent, car payments, gasoline, parking, utilities, student or other loan payments, insurance, credit card payments, and food.
You and your partner should know how much you need to spend on groceries, but you can review past financial statements to find a solid number to include as a mandatory expense.
Subtract your mandatory expenses from your net income and evaluate. Is there money left? Are you breaking even? Do your monthly expenses exceed your income? Reduce your expenses before moving forward.
Then, refer to your shared financial goals. How much will you need to save each month to reach them? Subtract that amount (don’t forget your emergency fund, retirement savings, etc.).
Evaluate again. Are there any more funds available after deducting the amount required to meet your short to long-term saving goals? If so, this is called your discretionary spending.
This type of spending is used for family activities like vacations, eating out, streaming channels, and more. Personal spending is included. List your “joint” and “individual” discretionary spending. Monthly discretionary spending mini-budgets are created based on discretionary funds. It may not be the same amount every month. This means you and your partner must discuss monthly discretionary spending. This usually requires compromises from both of you. If you both sacrifice equally, conflict can be reduced.
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Step 4: Assign Roles and Responsibilities
Discuss each other's strengths and weaknesses and assign roles and responsibilities, This can help both partners contribute to the financial management of the household.
Responsibilities can include who pays the bills, tracks expenses, manages investments, and more. By dividing responsibilities, both partners will be involved in the financial management process and reduce the likelihood of misunderstandings or conflicts.
Be willing to switch roles if needed and make sure both partners are comfortable with their assigned tasks.
Step 5: Simplify Using Software
Now that you have a basic understanding of budgeting, it's time to choose the right software to help you implement and stick to your budget. There are a variety of budgeting software options available, but it's important to find one that fits your specific needs as a couple. Here are four popular budgeting software programs that are great for couples:
You Need A Budget (YNAB)
This software is designed around the zero-based budgeting principle, which requires you to assign every dollar a job. It's perfect for those who are willing to be involved in their finances and make changes to their habits to make the system work.
YNAB is available for Windows and Mac computers and has apps for iPhone and Android. It can connect to bank and credit card accounts but doesn't track investments.
YNAB budgets can be shared among multiple users, and the platform features tutorials, videos, and a weekly podcast. After a 34-day free trial, YNAB costs $11.99 per month or $84 for the whole year.
This is a free budgeting software that connects to your bank accounts and helps you track your spending and create a budget. It allows you to set financial goals and provides tips on how to save money.
Mint also offers a feature where you can share your budget with your partner, making it easy to collaborate and keep each other accountable. The software is available on both desktop and mobile devices.
This budgeting app is specifically designed for couples and includes a feature that lets you and your partner decide how much you want to share with each other. This allows for the tracking of shared expenses as well as individual spending.
The app is available for both iPhone and Android, and you can set monthly limits for each spending category, chat within the app, react to transactions, and ask each other about questionable spending. Honeydue is free and supports over 10,000 U.S. banks.
Goodbudget (formerly EEBA) uses envelope budgeting, which divides your monthly income into virtual “envelopes” for each spending category.
The envelope category closes for the month when the money's gone. This cross-platform program syncs budgets across devices and has a web version.
Goodbudget free lets you create 20 categories or envelopes on two devices with one bank account. The $7/month or $60/year paid version supports email and unlimited envelopes and bank accounts on five devices.
Step 6: Separate, Combined, or Hybrid
There are three ways to manage finances as a couple: separate, combined, and hybrid.
Each partner manages their own finances with separate finances, but with combined finances, almost everything is shared in a joint account. A hybrid approach uses joint accounts for shared expenses and individual accounts for personal expenses.
The best approach for you and your partner depends on several factors, including your financial independence, shared financial goals, personal debts, credit, and relationship trust and communication.
Some couples prefer separate finances to maintain their independence and manage their expenses, while others prefer combined finances to work toward shared financial goals.
A hybrid approach allows for a joint account for shared expenses and some financial independence via separate individual accounts.
The key to successful financial management as a couple is finding an approach that works for both of you. Be upfront and flexible about your financial needs and goals.
With the right approach and a commitment to working together, you and your partner can achieve your financial goals and build a strong future.
READ ALSO: 5 Steps to Boss Up Your Budget
Step 7: Regular Money Dates
Talking about finances regularly will help you managing finances as a couple, be on the same page and stay motivated to meet your goals.
Schedule a weekly money date to check in and re-evaluate your goals. It doesn't 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.
Budget meetings should cover category spending and what's left, special expenses (birthdays, graduations, kids' expenses), the state of your joint assets, and any unexpected expenses or windfalls. Thus, both of you are aware of your family finances.
Budgeting or managing finances as a couple can be a challenging task, but it is essential for building a strong and healthy relationship. By setting financial goals together, creating a budget, assigning roles and responsibilities, communicating openly and honestly, planning for emergencies, and planning for the future, you can effectively manage your finances together.