Newly Married - Help Establishing a Household Budget

[cysewr]

Hi there,

I was recently married, and now that the initial crazy busy phase is coming to an end, my wife and I are planning to sit down and establish our household budget. We are both fairly frugal and savings-oriented, but neither of us has had a well-defined budget before, and the idea of trying to get one in place is a little intimidating. I was wondering if there are any templates/software programs out there that you would recommend for this purpose? I did a quick search of the forums, but there were no threads that jumped out at me.

Any help you could give would be much appreciated - thank you!

Edit: Also, any tips you might have for combining finances and collaborating on financial goals would be welcome.

[Metalcat]

My best advice is to get on the same page ideologically. Don't initially make it about what you can and cannot spend, because that requires coming to agreement on each line item. Instead, have a very open and connected discussion about the future, what you both want it to look like, what it will realistically take to get there, and then work backwards to allocate your current income appropriately to meet that shared goal.

If you aren't able to share the same dreams of the future, no budget will work.

Really dedicate time to establishing the big picture, if you're aligned on that, you will easily be on the same page for almost everything else.

[FIRE 20/20]

I believe that a budget is step 2.  Step 1 is to understand your current spending.  I made the mistake of coming up with a budget to plan our FIRE expenses, but when we tracked our spending for a year I was off in a number of areas.  Overall I think my estimate of our budget was about 10-20% lower than it actually was.  For us, 6 tracking months of spending was enough to get a pretty good handle on it but we kept tracking every penny for 18 months to be more confident. 
That worked well for us because my partner and I had already completed the all-important step 0 which is make sure your spending priorities and values are aligned as Malcat stated.  Our spending pretty closely matched our values so the budget in our case matched our actual spending with a few changes to account for the fact that we wouldn't be working within a couple of years. 

[Virtus3]

Personally I hate a line-by-line budget; what my wife and I have found to work for us is a reverse budget.

Figure out what your savings goals are and have those amounts automatically deducted each pay period. 401k, IRA, Emergency fund, shared checking for bills/fixed expenses, debt (if applicable), etc. Whatever is left over can go towards your variable spending or increasing amounts to any of the prior categories.

This is a really stress free option and feels much less constricting to me; you can spend as you want each month and don't have to worry because you're paying yourself first.

[ixtap]

The bets place to start in defining a budget is to track your regular spending for a few months. Don't forget to account for annual expenses, like insurance, and irregular expenses, like oil changes and car and house maintenance, if applicable.

Honestly, we we went through that exercise, we decided we were happy with our regular spending, we were clearly responsible enough to carry on without worrying about defining a budget.

As for combining finances, it works best if you figure out what works for you as a couple. We have actually shifted a few times, when we move to a new location or change jobs. It took us several years to get to the point where we had a joint checking account and one person taking care of 100% of the finances. And that was mostly to reduce DH's stress levels when he was having a tough time, not out of any philosophical necessity. We started out with "you are responsible for these bills and I am responsible for those bills, we will discuss anything else that comes up." Even though my bills at that time included my own credit cards (although we did have a joint one that he paid for groceries), I still discussed buying an iPad with him before I actually went through with it. Now that we have joint finances and I am CFO, I still discussed buying a Switch with him before I actually went through with it. I have been in charge of acquisitions for several years now, so he definitely communicates what he wants to me.

[20957]

I like to look at a budget with a sense of curiosity and run different scenarios. Very little is truly a fixed cost, there are just choices. Make a spreadsheet, plug in the numbers you know (rent, insurance, 401k, phone bill, gym membership), and then list out the categories whose numbers you don't know or that vary a lot so you don't forget they exist. List all the things, this is not an exercise in deprivation. Haircuts, charity, emergency fund, oil changes, vacation, running shoes, vet visit, additional investing, gifts, movies. Put the income in at the top and subtract. The number at the end has to cover all the things whose price was left blank. Then start messing with it. Add prices if you know them but don't forget that they are not actually static. If you max your 401ks, what happens? You want to increase your investing and go on vacation, but then your number at the end is negative. What if you cut out the gym? Your charity spending is less than your haircut spending. You don't like that, but you don't want to pull back on savings or fun stuff. Well, what could happen if you moved to a cheaper place? Put it all on the table with curiosity and without judgement and you will quickly learn some things and find out if there are some areas that need deeper conversation. Goals and values will naturally come up.

Then make any agreed-upon changes (downgrade internet, increase auto-savings, whatever) and track spending for a month or two. We use Mint to track from our one joint checking, 2 credit cards, and Ally saving account (which allows sub-accounts so you can keep track of vacation fund vs sinking fund for car insurance). Then make adjustments as necessary. You've probably forgotten some things, maybe cutting back the grocery bill was harder than expected. Be realistic, but stay focused on your goals. Sometimes adding everything up by category is illuminating- did you want to be the people who spend 20% on "entertainment"? We don't actually track small categories at all but do a deep dive if our "personal" category gets too big. Personal is just anything that's not an explicit or implicit joint decision.  It's where we acknowledge that sometimes our priorities differ and we don't have to discuss every little thing. I hope this is helpful :)

[Le North Dreamer]

As others have hinted towards, know your current expenses before trying to budget.

Plug all of your financial accounts into Mint or another similar income and expenses tracking app/program and look at the numbers in 6 and 12 months. You'll know exactly what came in and what came out of your pockets, you'll be able to categorize transactions and then have a better idea of where you are and where you want to go. You can then let Mint (or other app) track your budget for you, which is neat (I'm lazy when it comes to areas I can automate).

Combining vs keeping things separate is entirely up to you and dependent on your goals and situation. My SO of 13 years and I always had a somewhat similar income so have kept things separate up to now (we have joint expenses shared 50/50 and personal expenses that we each assume on our side), but may reconsider going fully into combined finances given that we have a child coming up (yay). In any case, we share the same savings goals.

[achvfi]

I dont like to do budget.

My suggestion is

1) Aim high, have big goals - Even goals that seem quite unreachable.
2) Pay yourself first (Save in Cash fund, retirement accounts etc. directly out of you pay)
3) Live on the rest. This is your initial budget :)
4) Adjust and push harder

[red_pill]

Another option is the non-budget.  This really only works for entertainment and personal shopping categories.  But instead of saying "okay, I have X dollars a month for clothes, and Y dollars a month for hair cuts, and Z dollars for eating out," you just take out a set amount of cash every pay day and that's what you have to spend.  When it's gone, it's gone.   Want something big - gotta save up.

I find that it makes you spend less because handing over cold, hard cash is way different psychologically than just tapping a card and convincing yourself that the points you accrue somehow are making  you save money.

YMMV

[HPstache]

Good question.  I like the recommendation to track spending for a while, but it doesn't hurt to at least have a rough budget while you're keeping close track those first few months.  A few more suggestions:

1. Keep it simple - Don't trying to break categories into super specific things.  For instance rather than having "Grocery" and "Toiletries" as separate categories, lump them together in groceries.  Our rule is if we buy it at the grocery store (Costco for us) it's groceries.

2.  Have a "free spending" category for each spouse - this is critical in my opinion.  This is an equal amount of pocket money for each person, we have been as high as $200 and as low as $50 (side gigs started making us money to supplement) .  Budget fights are going to happen, and the pocket money can be used as the great equalizer when someone values buying certain things than others (coffee, hobbies, purses, whatever).

3.  Create sinking fund for things that you expect to happen so that they don't turn into an emergency when they do - Sinking funds are like mini savings accounts, though you don't actually need a separate savings account for each if you simply track what's in each one.  We have sinking funds that we put money into each month for things like Vacation, Major house repairs, Pets, Technology (new phones, anyone?), irregular bills (see #4) etc.  Keep track of what each fund has available.

4.  Keep an eye open for irregular bills - some things aren't paid ever month... Amazon Prime, car insurance, CC yearly fee, property taxes, life insurance payment, tabs for the vehicles, etc.  This can take almost a year because some things are paid that infrequently.  Set aside money for these too so that when the bill shows up you've got money setting in a sinking fund ready to go when that nasty $600 insurance bill shows up!

Best of luck!  Give it 3-6 months to dial in... it takes time.  Dave Ramsey's FPU class is a great way to learn as a couple how to do this stuff, but most people on this forum can figure it out on their own.  If you're super new to personal finance in general, the Dave Ramsey Baby steps are not a bad place to start (you can google what those are)

[SimpleCycle]

If you're both relatively frugal minded, then my preferred method is track and adjust, rather than budgeting without the input of what you are currently spending.  We initially used Mint, but I like YNAB much better because you "check in" every transaction and review/approve the category.

I also think that early in marriage, most of your "financial planning" should be talking about hopes, dreams, and goals.  Once you establish those, it's easy to review your spending and say "is this amount of spending on x in line with our values?  is it interfering with achieving our goals?"  And then you adjust your targets accordingly.

FWIW, early in our marriage we had separate accounts for our personal spending and a certain amount of money sent into those accounts each month.  But now, ten years into things, that has become unnecessary.  We trust each other, we spend reasonably, and tracking it all in one place gives us better data for eventual FIRE.

Finally, if one of you is the financial "manager", make sure the other spouse is involved enough to know what is going on in broad strokes.  It is also important that the one who monitors the spending plan doesn't take on the roll of "spending police".  You are a team, and if something isn't making sense it's much better to get curious than to get controlling.  And being able to tie it back to values and goals goes a long way toward making any needed changes as a team.

[cysewr]

These are excellent suggestions, thank you everyone. My concern has been that an overly-detailed budget just seems unrealistic, but your suggestions have been really insightful.

@Malcat - I love the idea of getting on the same page philosophically first. We had those sorts of conversations while we were dating, but now is a perfect time to revisit.

@Virtus3, @achvfi and @v8rx7guy - I like the idea of a reverse budget, and the idea of pulling out actual cash for the available spending money seems like it would actually work. Previously, my issue with the reverse budget was in keeping track of that remaining money, but cash solves that problem nicely.

[charis]

I did combo of a couple above suggestions for reverse budgeting:
1. Tracked spending in Mint for a few months
2. Automated savings for amount above spending (1. Max tax advantage accounts as much as possible (a. 401ks, IRAs, HSA, 529 plans). Anything after goes in savings account. We adjust for income increases when they occur.

[Sandi_k]

The first thing I would focus on is savings: are you planning to max out retirement savings? Do you have access to a 401(k) or 403(b), or only IRAs?

My recommendation is 20% of gross should be sent towards retirement, and it should be AUTOMATED, so you don't waste your "decision muscles" on something you've already decided.

Then, do you need to save for a house? Set up an account for those savings.

The biggest, best tactic we've used is the have "enforced scarcity" by removing those savings from our normal day-to-day sight. By moving the funds out of our daily accounts, we look at the slimmed-down balance regularly, and we naturally adjust to live within that amount.

If you need examples of software, YNAB has a cult following. I personally tried it, and found it to be way more work than I needed to exert to accomplish my goals. Dave Ramsey (a money guru who is very polarizing) has a free version of a budgeting app, called Every Dollar. It's pretty simple, and has also gotten good reviews - I believe it's much more user-friendly....

Best of luck - come back for more convos often! And congratulations on the new phase of your life!

[joe189man]

dont "budget" X dollars for this and Y dollars for that, too much mental energy
max out retirement savings
we still have semi separate accounts but pay for different expenses evenly, we make close to the same amount so its not a big deal
i like personal capital to track things

[mspym]

Loy of great advice here, Scott Pape recommends setting up a monthly financial date where you check in against your plan in a relaxed and happy fashion. Again, having the shared goals discussion upfront makes the rest significantly easier.

[blue_green_sparks]

Every red cent that exits our household goes out through one single bank checking account. Actuals vs plan is a piece of cake, especially with the bank providing a nice categorized breakdown.

[FI45RE]

As others have said: Don't budget, track your spending. See if that spending lines up with your ideological goals and values as a couple. If it does, great! If not, readjust and learn why you are spending in categories that don't matter to you.

Step 2: Pay yourself first.

[honeybbq]

Save a lot. Spend the rest. Don't worry about it. :)