How do I start a budget?

Budgets vary from back-of-the-envelope to the use of simple apps to detailed Excel spreadsheets. It is important to use the method that best suits your capabilities and lifestyle. You will be much more likely to stick to a budget if you find it easy to manage so you’ll keep up-to-date. You can’t pull a budget out of thin air and expect it to work, though. Just because you think your spouse should be spending $250/mo. on clothes, budgeting for that won’t make it happen when your spouse is used to spending $1,000/mo. Here’s what we advise to clients starting a budget:

  • Categorize your spending for at least the last 6 months, preferably a year. I like to use an old-fashioned spreadsheet. Older clients sometimes list by hand, others (ok, usually younger) use Mint.com, Mvelopes.com or other programs.
  • You’ll need to detail your credit card charges, too (iow, don’t have a category named “Credit Card” but instead break out the expenses: dining out, clothing, daycare, etc.).
  • If you find yourself habitually at the ATM and you don’t know where it’s going, dedicate a column to “cash” to see how much is slipping away.
  • Use your current spending as the baseline of your budget. Expect to be surprised by your “hot” spots: eating out, personal care, clothes, travel – your personal obsessions.
  • Decide on a spending limit for which both spouses must give approval. For example, any purchase under $250, the spouse can unilaterally decide, but over that, it takes 2 ayes to buy.
  • Once you have jointly agreed on the budget, take turns managing it. Have quarterly finance meetings to discuss and adjust. Meet in a quiet, relaxing setting, if possible – maybe a casual favorite restaurant where you can review the quarter over a beer or glass of wine.
  • If you’re arguing or can’t seem to stick to your budget, consider hiring a fee-only financial planner who will give independent advice on an hourly or fixed-fee basis.
  • TIP: I believe every budget for couples should have a NQA (No Questions Asked) line item for each spouse. Whether it’s $100 or $1,000/mo., write a check to be cashed or deposited into separate bank accounts for each of you to do with as you please.
  • TIP: Sometimes baby steps provides greater success when it comes to budgets. Tackle one or two “hot” spot expense items for a month or two before adding the next item or two. For instance, in month 1 & 2 work on reducing eating out and groceries, and then month 3 and 4 add clothing and entertainment, etc., until your budget is where you’d like it.

How should couples talk about money?

Joint or separate bank accounts?

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