Once you’re back from your honeymoon and all the wedding gifts have been unwrapped, it is important to get into the routine that is married life. In order to keep each other from falling into financial difficulties, it is important for newly-weds to create a household budget. Single living is remarkably different from couple living as partners often have varied spending habits and priorities. Without a plan and without a detailed priority list, this could invite a lot of financial difficulties.
The first step is to list out all the sources of income that both partners receive and it is important to be open about how much one makes. All sources of income such as salaries, investments, rentals and trust funds should be disclosed and a joint account should be made in order to provide a working base for the finances.
It is always advisable to deal with non-negotiable expenses in the beginning. These expenses are payments which are incurred every month and are generally the same each month. For example, rent or mortgage payments, auto insurance payments and premiums, mobile phone bills and other such expenses come under such classifications. These expenses are constant and hence it becomes easier to work around them so deal with them first.
It is also important to account from flexible non-discretionary expenditure. These are expenses such as utilities and grocery bills. Since these bills differ slightly from month to month, it is generally advisable to go through the credit card statements and bills from prior months in order to come up with a realistic picture of how much money is spent on such utilities. Ball-parking is the best way to do it and it is advisable to keep a little extra in the budget projections in case the utilities bills shoot up and also to ensure some room for the couple to be comfortable with.
Ceiling levels should be set for discretionary spending. These expenditures are basically cable and internet bills, the cost of dining out, gym and club memberships and other non essential expenses. These expenses can be cut down when finances start drying up and setting an upper limit on such expenditure not only allows the couple to live freely without financial duress but also reduces friction in their relationship through arguments over expenditure.
An emergency fund should be set up in each month’s budget in order to provide funds for exigent circumstances. This money should be kept separate from the household checking account and should ideally be put into a savings account. Having such a fund allows the couple to have a buffer in case their auto insurance doesn’t hold up and they need to pay for expensive car repairs or if there is an emergency which requires immediate financial attention. It helps to reduce the strain on the finances of a couple and helps them stay afloat during troubled times.
Retirement planning should start from an early age and financial planners should be consulted as to the intricacies of retirement and how to plan for it. There should be contribution to savings and retirement accounts from both partners or from the financially superior partner in order to help the couple work till a certain age and still live comfortably after that.
Discretionary budgets should be provided to both parts of the couple. Clear guidelines need to be set at the very outset of financial planning and discretionary and non discretionary spending should be defined without any ambiguity. Each spouse should get their own ‘pocket-money’ in order to avoid having to extensively micro manage funds. The individual spousal money should be separate from all the funds meant for the household and should be placed in the trust and care of both members of the couple.
Dorothy Williams is a financial planner who specializes in advising couples about their financial patterns and how they can save more money and manage their wealth better. She can help couples find out the best auto insurance rates or the easiest way to save money for a romantic getaway or other such marriage related financial advice.