One of the greatest challenges that new couples face is managing their joint finances. Buy-in from both partners is critical for establishing common goals and agreeing on spending and saving priorities. The following steps can be very effective in creating a budget that both of you will be motivated to use:
- Begin the process with an open and honest discussion about your life goals and priorities. This will help ensure your budget discussion remains productive and fruitful.
- Identify spending and savings priorities as a couple. While you may not be in full agreement on every item, identify the “big” priorities and goals you both agree on such as saving for retirement and/or a new home; paying down credit card or student loan debt, obtaining an advanced degree, etc.
- Review your current budgets first. If one or both do not have a budget, review bank account statements for the last six months, which are readily available online, to determine spending patterns.
- Categorize spending based on three categories: 1. necessities (housing, food, medical costs, gas, etc.), 2. discretionary spending (travel, entertainment, etc.), and 3. savings (emergency fund, retirement, other savings goals) to create a “proposed past budget” for each. This will provide a baseline for creating your joint budget.
- Review individual and joint spending and saving activity. Consider which current spending/items will remain and eliminate line items that are no longer applicable for pursuing your joint goals and priorities.
- Add any new budget items as a result of your new living arrangement. Factor in any new goals, such as saving for a down payment on a new home, paying for a wedding, or funding higher education expenses for one or both partners. .
- Review spending and net income (income after taxes) to determine if the end result is positive or negative.
- Make any needed adjustments to arrive at a comfortable budget, allowing for a 15% error rate.
- Consider using an online app that automatically uploads and categorizes spending and savings to track your budget in real-time.
- Schedule time to review your budget together at least monthly to gauge progress and make adjustments as your life, goals, and circumstances change.
Perhaps the most useful tip of all is don’t schedule budget review discussions on “date night.” All relationships take work and commitment and managing joint finances can present stress from time to time no matter how strong the relationship. However, as long as you both remember to communicate regularly and honestly, and reflect back on your shared goals and priorities, you can greatly minimize any budget surprises and disagreements. And that’s a good thing for date night!
What tips would you share with new couples seeking to combine their finances? What worked (or didn’t work) for you and your partner?