by elmads

Introduction

Budgeting our hard-earned money can be a challenging task, especially for those who are new to the practice. The transition to a spending plan-conscious lifestyle may take time, similar to the commitment required for exercising and maintaining a healthy diet. The level of success we can achieve in our spending plan is dependent on our discipline, consistency, and determination to improve ourselves. To reach our personal financial goals.

“If you want something you have never had, you must be willing to do something you’ve never done.”

-Anonymous

What may seem a daunting task at first, will eventually be a natural part of our lives.

My Observed General Phases of Budgeting

From what I’ve observed, individuals who start their spending plan journey usually undergo these three phases.

PHASE 1 — The entry to budgeting, the universal beginner’s guide via the 50/30/20 rule. It states that 50% of our total income should be allocated for our basic needs, 30% for our wants, and 20% for our savings. It’s actually a good start for the greenhorns.

Phase 2 — After religiously adhering to the budget plan, eventually some individuals realized that the 50/30/20 might not be for them, and it might not be actually for a larger chunk of the world population. This is because budgeting is a personal endeavour, it is based on our own life circumstances. Here is where the 50/30/20 budgeting principle falls short. How can you adhere to 50/30/20 rule when your basic necessities expenditure is already 60% or more of your salary? sure they can do the 80/20 rule but that’s just a variation of the 50/30/20 rule.

People who realize this question themselves on what is actually right spending plan approach that would personally best suit them. That’s where the Zero-Based Budgeting/Spending plan trumps other strategies. It understands that personal finance is called “PERSONAL” for a reason.

I’ve talked about Zero-Based Budgeting in detail in my blog titled “Budgeting Strategies for Everyone”.

Phase 3 — Making a spending plan is based on our own individual life circumstances, our needs, wants, behaviours, priorities, and any possible future changes in our lives.

I used to think that phase 2 marked the end of our budgeting journey, but then I realised that personal finance extends beyond the individual level as it encompasses the family unit.

It’s a natural part of life to love, to be with someone, to love and be loved, and eventually to tie the knot and embark on a forever journey of commitment, companionship, and love. And with these may be born a seed or seeds of love. These are the massive changes an individual experiences: priorities shift from me to us, and so do the resources we have.

When we have a family, personal finance becomes a family matter. Being married is a union of two adult individuals; two become one, and that also includes their finances.

Others may argue that marriage doesn’t mandate couples to join together their finances, which is true most especially in other cultures, but for the sake of this article, I’ll be writing about married couples who joined together their lives not just in marriage but also with their finances.

Personal Family Finance

“Smart couples talk about money all the time and it never destroys their relationship”

-David Bach

Marriage is not as simple as just tying the knot and living together for the rest of your lives. There’s more to it than that, and it’s a complex life that will never be exactly the same with other married couples out there. Every couple has their own uniqueness and problems, and I’m not just talking about love in a relationship but also marriage relative to a couple’s general health, spirituality, mentality, and finances.

Two individuals with different personalities, life experiences, upbringing, wants, needs, and even aspirations for the future, which are all complex matters, This could either be good, bad, or in between; who knows? Maybe just the married couple who lives together. Plus, starting a family could sometimes maximise both the stresses and happiness of married life, or it could not, or maybe, again, it depends. The commonality for every couple is that money will always come into the picture.

It’s very helpful if both the husband and wife know how to budget money, as this could shave off a possible problem in family financing, but this doesn’t mean they would have a better financial life. Mind you, if both husband and wife are not in sync on where to allocate their money, then that could also spell arguments within the four walls of their home.

Learning how to budget money individually is one thing, but aligning your spending plans with your spouse is another, and this can be a much more difficult task. This is the reason why money should be talked about while you’re not yet married.

For married couples, communication and understanding are always integral parts of any marriage.

“The fact that most of us are not raised to talk about money is a real tragedy. Show me a couple who doesn’t talk about money and plan their finances together, and I will show you a couple headed for financial trouble – if they’re not already in it. When you work together on your finances, you can compound the results. When you don’t, the same can be said for the mistakes you will invariably make. In general, two heads are always better than one. No matter what your specific goal happens to be, having a partner working on it with you, providing encouragement and ideas, makes achieving that goal much easier.

More specifically, the two of you will probably find it easier to save more money together than either of you can save separately. Which leads me to one of the basic points of this book (Smart Couples Finish Rich: 9 steps to Creating a Rich Future for You and Your Partner, by David Bach). Couples Who Plan Together Have a Better Chance of Being Happy Together This, in a nutshell, is what this book is all about. By Planning your finances together as a couple, you will significantly improve your chances of becoming wealthy and being happier together.”

-David Back

Family finance goals are related to personal finance as well. The important initial aspect is to always protect and secure the family’s wealth.

• Secure your family’s cash flow (employment, business and/or side hustles)
• Debt Management – As much as possible, pay off all of your family’s debts (mortgage doesn’t need to be paid off immediately)
• Emergency Fund and Rainy Day Fund
• Life and Medical Insurance

I’ve discussed this in detail in my blog title “Basic Financial Planning Part 1” and “Budgeting & Prioritization”

Straightforward, isn’t it? The problem here is ticking items off the list one by one through saving and budgeting for the family’s spending plan.

Let’s say a husband and wife agreed to save first for their emergency fund. Both of them deem that they need £9,000 for it, which is 3 months worth of their family’s £3,000 monthly expenses. The couple said that they want a balanced budgeting strategy for the family, where no one would need to shell out more or less in a certain bucket of savings and expenses than the other. So, the couple started analysing their spending plan based on their combined salary and followed the Zero-Based Budgeting.

This would be easier if both couples had the same salary, let’s say £3,500 per month, because it would automatically balance their allocation. See photograph below:

But what if one has a higher salary than the other? It’s most likely that the person who has the higher salary will shoulder a larger part of the family’s total expenses.

But, despite the couple’s unequal salaries, can we still insist on a well-balanced percentage budget? somehow, yes, it’s by doing a weighted average of a couple’s salary.

Zero Based Budgeting by Weighted Salary Averages

A win-win situation if you ask me. This is one of the approaches that a couple could take to make their own spending plan. It’ll be actually easier if both has the same amount of salary, but this will not always be the case for every family.

I’ll guide you to the step-by-step method on how you could do this. Try this with your family’s finances and see if it works for you.

Step-by-Step Guide – Zero Based Budgeting by Weighted Salary Averages

STEP 1.) Know your contracted monthly salary, then list it down. Add both (His/Her) of your salaries.

STEP 2.) List your top spending plan priorities.

STEP 3.) Do your own Zero Based Budgeting based on your family’s priorities. See the blog link on how to make a simple Zero-Based Spending plan for yourself.

The succeeding portion now will be tricky because a zero-based budgeting method works differently based on a family’s priorities and earnings power. It is so personal that making a zero-based spending plan differs for every person. Thus, I’ll make a simple scenario for the sake of explaining to you how to make a weighted average budgeting plan.

SCENARIO: We have two a married couple with the following monthly salaries.

• HIM: £2,400
• HER: £800

Their current family spending plan priorities are as follows:

• Essential Expenses
• Emergency Fund
• Remittance
• Travel
• Personal Wants

Their constant monetary allocation priorities every month are as follows:

• Essential Expenses = £2,200
• Emergency Fund = £300
• Remittance = £300

What money is left is for their Travel and Wants spending buckets, 50% and 50%, respectively. Making it £200 for each. I highly suggest that you read my blog regarding the Zero-Based budgeting to better understand what it is, how it differs from other spending plans, and how you can apply it to your own finances. 

STEP 4.) Know how much money your family will be allocating to each budgeting bucket. We’ll be using our sample scenario above. 

STEP 5.) Divide each of your family’s allocated monetary amounts from your budgeting bucket category by your family’s combined salary.

The above image explains how much of the total family’s allocated money is in each bucket relative to the combined salary of the family. It shows that 69% of this family’s combined salary goes to their essential expenses, then 9% goes to an emergency fund, another 9% goes to remittances, and both 6% go to the Travel & Wants spending bucket.

STEP 6.) Getting the weighted average individual contribution. We do this my multiplying each individual’s salary (presented in the rows Him & Her) to the total percentage contribution below per column. See slideshow images below.

Check If We Did It Right

1.) Add each of the priority spending buckets to each individual’s contribution. The result must be equal to the individual’s salary.

2.) Add the individual contributions from each column of your priority spending buckets to see if they equal the combined amount.

3.) Divide each individual category of expenses to the individual’s salary.

This is the weighted average method. A weighted average is an average that is calculated by giving different weights or importance to each component or factor. The weight given to each component represents its relative importance in the calculation of the overall average.

This is the reason why having an equal monetary contribution to a family’s finances is still possible regardless of the varied amount of income.

This is not a perfect method, as it is still highly dependent on a couple’s earnings power and their understanding and agreement on the budget plan. Nonetheless, this would work well for couples who would like to make an equal contribution to their family’s spending plans regardless of who makes more money. 

To Sum It Up

Effective communication and mutual understanding are key to successful financial management within a marriage. It is not just about the money, but also about the process of managing it. Working together to achieve common goals and making financial decisions as a team can lead to a stronger and happier marriage.

The handling of finances is one of the major emotional battlegrounds of any marriage. Lack of finances is seldom the issue. The root problem seems to be an unrealistic and immature view of money.

-David Augsburge, The Meaning of Money in Marriage

Knowledge is my Sword and Patience is my Shield,

elmads

This blog is for informational purposes only and not a Financial Recommendation. Not all information will be accurate. Consult an independent financial professional before making any major financial decisions.