7 steps for couples to set up a joint budget

Budget-setting is an important step for all couples. (Rawpixel pic)

Congratulations, you and your partner have decided to share expenses! This means that you both have made the decision to set up a joint household budget.

This move will help you understand how money flows in and out of your household, pin down joint spending habits and determine realistic money goals.

Though these simple steps will help you set up your household budget, the most important thing to remember is that both of you are in this together!

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, don’t worry; it’s easy.

You’ll need documents pertaining 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)

2. Identify your monthly income

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

Now, for the purpose of budget-setting, analyse and jot down 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.
Agreeing to split up which expenses are fully covered by one individual while the other individual fully covers other expenses.

Agreeing to a household budget does not mean individual expenses should be ignored. (Rawpixel pic)

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, such as loan repayment, tax, utilities and basic groceries.
Discretionary expenses: nice to have, but could be trimmed down or taken out such as vacation fund, new curtains and dining out.

Next, further sort them into another two categories:

Individual expenses: mandatory and discretionary expenses that are borne individually.
Household expenses: mandatory and discretionary expenses that will be shared.

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, though you do need to be aware that your spouse’s bad credit score can hurt yours too.

4. Know your joint financial and life goals

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

Individual financial goals: goals either of you wants to achieve and will strive to achieve, with the 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.

It is important that you and your spouse set a goal of debt-clearing if needed.

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 or invest in order to reach your goals.

Be sure to sit down with your spouse regularly to discuss money matters. (Rawpixel pic)

5. Tally up, discuss and determine your new budget

Looking at the numbers you have collected in steps 1, 2, and 3, it’s time to combine them together. Follow this formula:

Income – Expenses – Deductions for saving/investing = Balance

A positive number in your balance means you have positive cash flow. This means you have excess money that you can channel to your savings, investments, or discretionary spending.

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.

6. Track and maintain

Expense-tracking is a must-do activity 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 a good old pen and paper, a computerised spreadsheet, or even use one of the many apps available nowadays.

Whichever method you use, regularly remind yourself and your spouse to log your expenses and income as the money goes in or out of your pockets.

7. Meet for regular check-ins together

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

Questions to cover during these check-ins can include: