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Communication! That’s the secret to budgeting with your partner. So says Judith Ward, senior financial planner and vice president of T. Rowe Price Associates.
“If you’re used to doing things on your own and you have your own system and it works for you, that’s fine,” Ward says. “But, still, you have to come together as a couple and decide on those shared financial goals. And then check in with each other from time to time to make sure that you’re tracking your progress towards your goals.”
As a financial planner, Ward has learned some of the telling signs of couples being out-of-sync with each other. For example, one spouse may be unaware of what the other has in retirement savings or whether the other partner has money stashed on the side for an emergency.
Ward recommends a few conversation starters to help new couples get the budget ball rolling in the right direction. For one, how will you two take on debt? Will you take on loans such as mortgages and car notes together or separately? What about debt being brought into the relationship; how will you manage that? Lastly, how will you start and maintain savings for emergencies?
More reading: How To Create An Emergency Fund
Another topic should be retirement. If you’re married, you’re presumably aiming to be together until death do you part. So shouldn’t you have a plan in place for a period that represents about a third of your adult life?
Particularly if children are in the picture, your couples discussions should include life insurance and estate planning.
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To make these discussions less uncomfortable, Ward advises scheduling time to do it. Make it fun by incorporating date night trappings like a glass of your favorite wine or beer. Too informal? Ward recounts how one couple she met holds budgeting summits, with an agenda where they discuss such items as what vacation they want to take next and how they will fund it. It’s all about what works for the both of you as a couple.
I spoke with six individuals about the way they budget with their significant other. Each was assured they could remain anonymous, while receiving advice from Ward—-a prospect they all eagerly embraced, even though they’re at very different points in their lives and relationships.
Even if you don’t see yourself in one of these couples, you’re likely to find some of Ward’s advice hits home.
This 20-something individual is living with her boyfriend in Manhattan. This career-oriented couple has been together since college, but still keeps their bank accounts separate. They split the rent, pay bills separately and keep track of what they owe each other. The biggest question the girlfriend has is how can they continue to go out often (which they both enjoy) while saving towards retirement.
“They should each budget for retirement first, then decide how much they can spend on ‘entertainment,” is Ward’s no-nonsense response. “With each of them saving in their own retirement accounts, it starts a good discipline that will serve them well if they stay together or separate.”
Ideally, Ward says, people should save 15% of their income (including company contributions) for retirement. But in a person’s 20s, she adds, they can start at a lower percentage and then increase it over time.
One strategy: When you get a raise, save half of it. So if you get a 4% raise, raise the percentage you’re putting in your 401k by 2%. Another: Check to see if your savings plan offers an automatic escalation feature.
More reading: Give Your Retirement A Raise.
Couples like this—who are still keeping their finances separate—should be looking for ways to support each other in an equitable way, Ward says. While they each focus separately on building their retirement and emergency savings accounts, they can do some things together. For example, They can take advantage of a lot of couple-themed budgeting apps like
Simple and Honeyfi, which allow users to set up savings goals for trips or wedding season together without abandoning their individual accounts.
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“If you’re not married, you still need to be cognizant that the relationship could end. So, it's really important to still look out for yourself as well as for the relationship,” says Ward.
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Married less than a year, this millennial couple turned to budgeting apps like Fudget to help keep an eye on their immediate expenses. For a deeper dive into their finances, they’ve set up a Google doc of their fixed expenses and shared goals such as retirement. Their accounts are set up as yours, mine and ours.
When it comes time for the money talk, which they have every three to six months, they hold it on a Saturday morning over a cup of coffee. Though they are budgeting, they expressed an interest in learning how to explain their purchases to each other.
That’s understandable. It’s a big adjustment to go from having to answer to noone (except your creditors and future self) about your spending, to having another person—a person you presumably care about—looking over your shoulder. A University of Notre Dame study found that couples with joint accounts tend to favor utilitarian purchases that are practical and easy to justify to their partner (e.g. clothes for work vs. clothes for fun). The study also found that individuals with joint accounts tend to spend less money on things like vacations and beauty products. Talk about consideration for someone else’s feelings.
Newlyweds need to learn and understand each other’s spending styles, Ward says. Figure out who is the natural saver and who is the natural spender so you can head off problems. “If someone is a natural spender then try to automate as much as you can. Try to have money go directly into a retirement account, emergency fund or whatever those savings goals are. Try to have it come out of the paycheck,” says Ward. That way you both are saving towards the future and still leaving money to take care of daily expenses and having fun.
After being married for two years, this 30-something couple is welcoming their first child. They keep track of their long-term goals on a shared Google doc that they update quarterly. They use a shared bank account for everyday expenses such as groceries and utilities. If they ever deviate from their budget to make a big purchase, they “punish” themselves by placing half the cost of that purchase into their savings. That way, they force themselves to cut back on other spending to finance half the splurge.
Their questions relate to future, big, prospective family-oriented expenditures—-namely, how to save for college and for a second home for weekends and vacations.
Wards advice hints at the complexities this couple faces—and at the possibility that their priorities might evolve. Children come with their own trade offs, including questions about whether one of you might switch careers or change your working hours to devote more time to a child. Then there’s the decision to put the child in childcare, hire a nanny or have one parent stay home. Decisions like that impact your finances. Ward says, so use your budget to empower you to make decisions that work for your new family.
“Build your savings goals into the budget and you’re more likely to achieve your goals,” says Ward. “Understand the money that’s coming in and how your spending it. And maybe how your going to be spending it in the future so you can figure out what’s going to be best for your household.”
For large purchases in the future like a second home, first, do your research. Find out what ballpark figure needs to be growing in your bank account as a down payment. Then decide how you will reach that goal. Ask each other questions such as, Are we going to sacrifice some of our current spending? Are we going to buy a cheaper car so we can put more money into the vacation home fund?
“If you can’t [work it into your budget] then maybe it's not the right time, or if it's that much of a priority, then you need to find a way to work that in,” says Ward.
This couple has one partner paying for all major expenses while the other partner, who is in school and works part-time, is responsible for entertainment and additional purchases. Once the bills become two-inches thick the couple grabs some wine or beer and conducts a mini-audit, reviewing whether all the bills have been paid.
Since the couple has a home, they wonder if they should remodel their home and also what other investments they should make.
As long as the couple isn’t “putting their other saving goals at risk,” Ward thinks their current goals are up to them. She couldn’t give detailed advice without knowing more about their situation, but Ward did suggest that they should find out if they are adequately saving for retirement and the state of their emergency fund before making any large purchases or investments.
Two couples fit this style. Both couples have been together for a few decades and have adult children. But there’s a crucial difference: In one couple, the stay-at-home spouse wants to be fully involved in financial decisions. In the second couple, the stay-at-home spouse is disinterested in the household finances.
Ward suggested the first couple focus on retirement planning and plan out how they want to spend their retirement together. Do you want to travel? Perhaps you want to remodel your home? Or maybe you want to move closer to your grown kids. Whatever it may be, make both spouses are on the same retirement activities page, and then determine if your budget supports those goals.
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The second couple needs to have a sit-down, says Ward. There’s a real possibility that during retirement one spouse could find his or herself flying solo. In case that ever happens, both spouses need to be aware of “where all accounts are located, how to get in touch with financial institutions” and have overall awareness of the finances, including what debts the household owes, she cautions.
“The longer you’re together the more you tend to move apart in terms of communication around finances. It just gets comfortable and you keep doing what you've been doing. You trust your spouse but, at some point you need to come back together and both need to know what’s going on,” says Ward.
Budgeting with your partner doesn’t have to be stressful. As long as the lines of communication are open between the two of you, you can plan for the present and the future. Find a budgeting style that fits your circumstances and have a budget date at least once a year. Do it with wine, beer or a formal agenda. That choice is yours, but communication is mandatory.