Budgeting Makeover
Credit: Holly Perez

Money is usually the last thing we want to talk about with our significant other. Ugh! It’s an uncomfortable topic that usually leaves people accusing each other of over-spending or being too much of a tight-wad. Typically, one person is the 'spender' and the other person in the 'saver' in the relationship...and that’s okay. You can each embrace your inner spender or inner saver while finding common ground.

When I got my degree in business management, I really felt that the information I learned not only applies to a business but so much of it applies to running a financially successful household. I am far from perfect and am definitely the spender of my relationship, but what is important is that we constructively communicate, that we are accountable to ourselves and each other, and that we dust ourselves off when we fall and try, try again.

 Why do we need a budget?

  • So we don’t spend what we don’t have.
  • A business wouldn’t THINK of operating without a budget…neither should we.
  • We must learn to manage our money before it manages us.
  • Those who fail to budget, budget for failure.
  • To demonstrate transparency & accountability to ourselves & partner.
  • To learn self-restraint in spending (budgeting acts as our mirror)
  • Teach / Show our children that we are NOT a magical money tree [1]

Fun Info Nuggets: Test Yourself and See What you Know…

  1. According to the American Bar Association, does anyone know what % of divorces are traced to quarrels & accusations over money?[3]
  2. True or False: Most marital quarrels are due to a LACK of money (the need to earn more).[1]
  3. According to financial guru, Dave Ramsey, what % of Americans buy things they can’t afford?[1]
  4. The average millionaire: (a)    Only leases cars (b) Never drives a used car (c) Drives only reliable, used cars (d) pays others to drive them around[1]

Answer Key is at the end of this article.

Info I Wish I Had Known Before Life Happened:

Most of us (hopefully, all of us) know how much income we bring into our household each month and have a rough idea of what our expenses are. Believe it or not, a large number of people do not know how much money their significant other makes!

Do you really know what percentage of your net income (take home pay after taxes) should be used for housing (rent, mortgage payment, property taxes, electricity, natural gas, water, sewage, trash, and homeowner’s / mortgage insurance), auto expenses (gas, maintenance, repairs, registration fees), personal debt, other life expenses, and savings? I had no idea.

I had built my life around what banks told me I should spend on housing – many of you may have heard somewhere around 50 to 55%; some of you may have heard 30%. What I hadn ’t realized is that I was getting my information from businesses who only wanted to loan me money; not an unbiased source. I finally found a model that works to help families become financially sound. Are you ready?

  • Monthly Housing Expenses should be no more than 35% of your net monthly income. This includes any rent or mortgage payment, property taxes, electricity, natural gas, water, sewage, trash, and homeowner’s and / or private mortgage insurance all added together.
  • Transportation Expenses should be no more than 15% of your net income. This includes all of your car payments, auto insurance, gas, oil changes, repairs, public transportation, parking fees, etc.
  • Life Expenses should be no more than 25% of your net income. This includes cable, cell phones, internet, childcare, life insurance, medical, dental, groceries, entertainment, dining out, your pet’s expenses, gifts, vacations, hobbies, sports, kids’ lessons, tithing, etc…pretty much everything else that does not fall under housing or transportation.
  • Personal Debt should be no more than 15% of your net income. This includes credit cards, personal loans, and student loans.
  • Savings should be at least 10% of your net income. If you can add more, GREAT! [2]

Gail Vaz-Oxlade Provides Percentage Guidelines for Expenses

Money Rules: Rule Your Money, Or Your Money Will Rule You
Amazon Price: $6.99 Buy Now
(price as of Apr 27, 2016)
I'm so grateful to Gail's interactive budget. It totally changed the way we allocate our income. I wish I had known this information from Day 1 of adulthood.

Reality Check, Please

There are many free and amazing budgeting tools online. Now that you know where you should be, it’s time to look at where you actually are. I use a free site to review my spending behavior…it pulls your bank transactions and allows you to drill down to an average of how much you spend of what. If haven’t already done this, using your favorite budget tool, whip out at least the last 3 months of bank statements (ideally 12 months) as an expense guide and:

  1. Write down your monthly income or fixed income
  2. Add your total income if you have more than 1 income.
  3. Add your needs and your wants together to view the Total Expenses
  4. Subtract the Total Expenses from your Total Income

You may find that your expenses exceed what you bring home. If this is the case, it is time to sit down with the family and re-categorize your needs versus your wants. To serve as a painful reminder to all of us, needs are actually only what we need to survive; they do not include cable TV, going out to dinner or a movie, or even a cell phone (gasp) – unless you need it to earn your living, of course. If we don’t know where we are today, we cannot plan for tomorrow. Keep an open mind and be ready for the truth presented to you, no matter how stark.

Mint.com Personal Finance
Amazon Price: $0.00 $0.00 Buy Now
(price as of Apr 27, 2016)

Knowledge is Power

Flex your Financial Muscle

Financial Muscle
Credit: Holly Perez

Moving Forward

Now you’re ready to make some changes and build your new budget. After you’ve created your budget masterpiece as a team, you should feel empowered. It always feels so good just to know where you stand financially, even if it’s grim. Here are tips to stay on track:

  • —  Use the cash / envelope method
  • —  Set up budget alerts through your budget tool or your bank.
  • —  Weekly / monthly meeting: keep each other accountable (use loving tones…accept and give feedback without being offensive / defensive)
  • —  Tell the kids NO.
  • —  Tell yourself NO.
  • —  Coupon for everything, if possible. (but  don’t clip the coupon if you would not normally buy that item).
  • —  Eat at home.
  • —  Watch movies at home.
  • —  Have game nights.
The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness
Amazon Price: $24.99 $11.00 Buy Now
(price as of Apr 27, 2016)
I love this book. Be sure both partners in a relationship read this so you can both be on the same page. Dave brings humor to a touchy subject and brings couples closer together in life goals alignment. Thank you, Dave!

Answer Key:

  1. 89%[3]
  2. False. It’s sue to a lack of money MANAGEMENT.[1]
  3. 90%[1]
  4. C[1]