Better household cash flow management can be achieved upon merging your finances the right way, while respecting individual and household needs.

Note: While this article assumes the use of “marriage”, “couple”, and “spouse”, the steps outlines here are usable for any partnership where there are 2 or more parties pooling their money together for shared expenses.  

Congratulations, you’ve decided to share household expenses! Among the many financial exercises you both need to do together upon marriage, budget-setting is an important one.

A household budget is a tool that helps you better understand how money flows in and out of your household. It helps you understand your joint spending habits. The data also can be used to help you determine realistic money goals and how to reach them. It can also show you should you have a cash flow deficit, meaning if your household expenses exceed your income.

Follow these simple steps to set up your household budget and remember you are in this together; no longer a solo performance!

Step #1. Gather All Your Financial Paperwork

If you have been taking charge of your own personal finances, this step is a breeze. If you have not, no worries, it’s easy.

Gather all your money-related documents and data, such as those related to your:

  • Income
  • Bank statements
  • Loan statements (property, vehicle, education, personal, etc.)
  • Investment accounts
  • Credit card statements
  • Other outstanding debt
  • Spending records (simplest would be to pull from an expense-tracking app)

Step #2. Identify Your Monthly Income

List all your income streams. Take note of which are regular and which are irregular, for example if you or spouse are employed full-time versus working as freelancers.

Now, for the purpose of budget-setting, analyze these income streams and jot down what is your monthly net income, both individually and then combined. Your net income is essentially the money coming into your household, also known as your take-home pay. To calculate your net income, take your gross income and minus your tax, EPF, or other relevant deductions.

Expenses should not be deducted at this point even if they are non-negotiable needs.

Now, discuss a temporary plan in terms of how you want to combine your income. Some options include but are not limited to:

  • Giving equal amounts to a shared/joint account
  • Giving an equal percentage of your individual income to a shared account
  • Agree to split up which expenses are fully covered by one individual while the other individual fully covers other expenses

Step #3. Determine Your Monthly Expenses

List down all your known expenses and then sort them into these two categories:

  • Mandatory expenses – Things you cannot go without. Loan repayment, tax, utilities, basic groceries, etc.
  • Discretionary expenses – Nice to have, but could trim down or trim out. Vacation fund, new curtains, dining out, etc.

Next, further sort them into another two categories:

  • Individual expenses – Expenses (mandatory and discretionary) that are borne individually.
  • Household expenses – Expenses (mandatory and discretionary) that will be shared.

Did you find that odd? For although you may be agreeing to be a “household”, this does not mean “your/my money is our money” or “your/my debt is our debt” entirely (you do need to be aware that your spouse’s bad credit score can hurt yours too.).

Now, there is no winning formula for all couples when defining exactly which expense falls into which category, or even what number to assign to each expense. Instead, do talk it out to negotiate and deliberate on what is best based on you and your spouse’s unique needs.

Step #4. Know Your Joint Financial & Life Goals

Everybody should have financial goals. Likewise, as a couple, you need to know each other’s financial goals as well as determine what are your shared goals. As such, do list down all your financial goals and sort them into these two categories:

  • Individual financial goals – Goals either of you want to achieve and will strive to achieve, with individual’s own money.
  • Household financial goals – Goals both of you want to achieve together and will strive to achieve together, with both your monies.

Note: It is important that you and your spouse set a goal of debt-clearing if either of you have any, especially high-interest debt. 

You will then need to work out your plan for achieving these goals. This will help you both identify how much you need and can save/invest in order to reach your goals.

While this steps may sound difficult or tedious to the point you are considering giving up, don’t give up now!

If you find yourself struggling to see how you can create an actionable plan, do get in touch with a licensed financial planner. They are professionals who are certified to help you craft a plan that suits your goals, needs, and current earning capability.

Now, with the information you gathered and digested, you should be aware of how much you need to save and/or invest in order to achieve your individual and household goals.

Step #5. Tally Up, Discuss, and Determine Your New Budget

This step is a tough one for any relationship. Keep an open mind, try to stick to facts rather than emotions, and let’s get down to business.

Looking at the numbers you have collected in Steps 1, 2, and 3, it’s time to combine them together. Whether for your individual cash flow or for household cashflow, follow this formula:

Income – Expenses – Deductions for saving/investing = Balance

A positive number in your balance means you have positive cash flow. That’s fantastic! This means you have excess money that you can channel to your savings, investments, or discretionary spending. Together, discuss what to do with the excess money.

A negative number in your balance means you have a negative cash flow. Try adjusting the numbers to see whether you can achieve a positive number after reducing or removing discretionary spending. If the number still remains negative, this means you and your spouse need to take your finances more seriously as you are spending beyond your means. Income needs to increase and/or expenses need to decrease. Sit down and discuss what you think you can do for your cash flow to turn positive again. Make actionable plans immediately and set deadlines for yourselves. Carry out your plans and the next steps will show whether your plans are working out.

Whether your balance reflects a positive or negative number, together you need to determine a target amount for each item in your income and expenses. This is the budget that you would like to set for both of you to aim for. You will want to consistently bring in income that reaches or surpasses your target income amount, and you will want to consistently spend below that target expense amount.

Step #6. Track and Maintain

So far, Steps 1 to 3 would have taken you somewhere between a day and up to two weeks to complete. It is only a snapshot of your financial situation. You still need continuous effort in order to track your expenses to see if your numbers are maintaining or changing, whether for better or for worse!

Expense-tracking is a must-do activity in order to get a true idea of how your spending is trending. You can choose many different tools and methods to do it. For example, you can rely on good old pen and paper, a computerized spreadsheet, or even use one of the many apps available nowadays.

Whichever method you use, regularly remind yourself and your spouse to at least daily log your expenses and income as the money goes in or out of your pockets. The more accurately you key in, the more accurately the data can help you in the long run as we will see in the next step.

Step #7. Meet for Regular Check-Ins Together

By now, you’ve collected the data. You’ve tallied the data and seen the results. You’ve probably implemented some action plans. And, you’re being very disciplined at tracking the money going in and out of your pockets. What’s next?

Talk with you spouse and determine an agreeable frequency to meet and analyze your money data together. It can be weekly, fortnightly, or monthly.

Questions to cover during this check-in include:

  • Has  expense/income tracking been done?
  • Are there any changes to financial goals?
  • How did we do this past week/fortnight/month?
  • Do we want to increase/reduce our expenses budget for any particular item?
  • What changes did we make and what were the financial consequences?
  • Are there new changes we should want to implement?
  • Should we change our income contribution amount/percentage/option? (Refer to Step 1)

Continue checking in to help keep both your money attitudes aligned. Calmly analyze the facts together and discuss to negotiate what changes can you each make to your money habits.

You will also want to determine a frequency to go through Steps 1 to 5 again in order to have a thorough check on whether your budgeting has worked out. You can choose from quarterly, half-yearly, to yearly to undergo this exercise together.

Conclusion

Merging lives can be a challenge as it reveals the clashes that arise from our different personalities, habits, and even attitudes towards money. However, all hope is not lost so long as all parties are committed.

Continue repeating these 7 steps regularly until they become a steady beat in the rhythm of your life together. Isn’t it a satisfying feeling knowing that you and your spouse are in control of your happy home finances together?

 

What other key tips do you have for successful budget-setting as a couple?

 

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