Brick wall with 'til debt do we part' inscribed

Budgets: One Key to Personal and Relationship Success

The photo introducing this article makes three very important points which are very important to your personal and relationship success regarding budgets, money and finances. 

  • First, the idea of "hitting a brick wall" is very much something you generally want to avoid in life -- whether it is when driving a car (of course), running out of options with legal trouble, getting into trouble with relationships, or (in this case) running into a very difficult financial situation. 
  • Second, debt can start to "own you" and others you are in a relationship with if it is substantial and/or at a high interest rate.
  • Third, financial issues can cause otherwise good relationships to be stressed and, possibly, break apart.

Relationships -- Not Married

Now, starting at the bottom of the three items above, you may not currently be relating to the third point right now because you are young and not married.

However, even if you are in your early teens, you are probably part of a family and may, actually, be able to positively contribute to reduced stresses in that family via your financial responsibility or (after you read this article) wisdom. You or a sibling can put pressure on your parents to buy you things they can't afford. You can run up a tab of unexpected expenses that have to be covered (like increased car insurance payments if you get a speeding ticket or have a wreck). You can, even, help your parent or parents budget if they aren't very good at this life skill.

If you have roommates in college who are (or were, in many cases) your friends, the relationships can be ruined if budgets aren't agreed upon and adhered to by all parties. What portions of the various jointly used services does each person pick up? If the rent is due and one roommate spent all of his money on clothes, a Spring Break trip, or drugs (very dangerous situation) -- who picks up the slack so you don't all get kicked out?

If you are completely on your own, the "relationship" you need to be concerned with is how you feel about yourself and whether you are taking care of yourself or not. Are you running from bill collectors or wondering if the power is going to turned off in your apartment when you get home at night? The good news is that you have no one to blame but yourself. That's also the bad news. How much extra stress is there in the life of a person who is always "short"?

Even if you are currently totally single, a person who accumulates massive debt will end up carrying that debt into their marriage. Massive student loans are often brought into a marriage by both parties. One person may have been an abuser of credit cards and will drag along a big debt, high interest rates, and very low credit score. Attracted to someone because they drove a very nice car? One of you may "just" have a very big car payment to make every month. This doesn't mean that you shouldn't marry someone because they are carrying a lot of debt, but it shouldn't be a non-budgeted surprise unveiled during the honeymoon. 

On the positive side while you are "unattached", why wait until you are married to start saving for the down payment on a home? Why wait to start investing for your retirement or "safety net" in case you move to a higher risk/return job or want to start your own business? If you don't have someone to pay for your college education, why not start saving? If you are starting into college on a student loan, why not budget the "out years" to make sure the payments are something you are willing to live with. Some students live like kings on student loan money while in college and don't seem to give a thought to the fact that they are racking up $1000/month payments for their future. This may not be a problem if they do a post-graduate budget and have it covered based on high income from their career choice — but it isn’t the smartest thing to do regardless of future income prospects.

Relationships -- Married

From the last paragraph in the section above, you may already be sensing where this section is heading. Imagine entering into a marriage and finding out that 50% of your combined monthly income is already "allocated" due to unexpected debt legally attached to your new partner? Imagine if you are the one with the big debt and you haven't told your "significant other". This is not a great way to start, is it?

Regardless of your initial situation, however, you are both going to have to deal with it. You are going to have income and expenses. It will be much less stress on your relationship if your income is comfortably higher than your expenses -- of course. 

One "beauty" of a budget is that your and your wife can avoid a situation where you are deep in debt and always under the gun at the end of every month. If you are already deep in debt, a budget, at least, provides a plan for digging your way out someday in the future.

Another great thing about a family budget is that you will be communicating about your priorities and future goals. Some people don't share very much about what they want in life and what's most important. If you are that person, you might feel left out or "used" if your wife just ploughs ahead with big purchases. If you wife is the person who doesn't assert herself regarding wants and needs, she may easily start to feel that she is being bullied or ignored. If you both get together to talk about what you are going to invest it, each of you will at least have had a chance to voice an opinion. A simple example is buying an expensive car that "you have always wanted". If you both agree that this is a high priority, you will both just have to suck it up when the $700/month payment rolls around each month. If she was never in on it in the first place, there is a very good chance that she will resent the payment, the car, and you if you are short of cash to, say, take the baby to the doctor or pay rent at the end of the month.

As much as you love your wife, you may find out that she never operated with a budget when she was growing up. In fact, you may be the one who never operated with a budget. Anything she wanted was provided by overindulgent parents who didn't want to disappoint their precious loved one. If they (or you) were the child of divorced parents, you may find out that they (or you) were able to play one parent against another to get whatever they wanted -- despite what was affordable by either parent. Maybe you or your partner is just the impulsive or spontaneous fun-loving type. In all of these cases, the budget becomes a necessity to keep you from digging a major hole for yourselves.

You can also include other members of your family (like your kids) in the budgeting process if you want. This can help protect you from the pressure of "infinite needs" -- like teenager requirements for a new car, the best iPhone, Ivy League college, trip to Europe for the Summer, a $200000 wedding, etc. If there are siblings, they can actually help you balance the "needs" when they sense that there might not be enough to go around if one of the others gets everything they ask for.

Process of Budgeting

So, I hope you can see that a budget is a worthwhile endeavor -- younger or older, single or married. How, then, do you go about budgeting?

Consider the following five steps:

The first step is to agree to make a budget and agree to, when things change, get together as a team (team of one if you are by yourself) to discuss changes when needed. (If you are doing this with roommates, you may be surprised by how hard it is to get them all together for this exercise -- not a good sign!)

The second step is to have a frank discussion and "pact" with all parties about how this tool is going to be used in your relationship.  Be very much aware that any good plan needs adjusting. Be aware that almost every good tool can also be misused as a weapon if the motivation isn't one of love and caring. The "pact" needs to include the following points:

  • We agree to try to adhere to this budget.
  • We agree to tell the other members of the team if we deviate from the budget in a significant way.
  • We agree that the budget is a firm plan, but it isn't so firm that major changes in life or opportunities aren't adjusted for.
  • We agree that the budget is considered a means to an end and not an end in itself.
  • We agree that the budget isn't to be used as a weapon against the other person(s).
  • We agree that the budget should be a guideline and not shackles.
  • We agree that the budget is general enough to allow for minor deviations without someone making a "federal case" out of it if there are deviations.
  • We agree that the idea of the budget is to have a better, not worse, life and relationship.
  • We agree that the idea of the budget is to support our highest priority goals and keep money out of the way vs. undermining our happiness and relationships. 
  • We agree that it is "only money" and needs to be kept in perspective relative to the "big picture".

The third step is to get a spreadsheet with income and expenses categories and fill it out. Fill it out together. This may not be a pleasant experience as the expenses keep mounting up, but we have to mature as individuals and couples -- and face the facts of life sometimes. There are many tools available. Try to get you started. Use a very simple version if you can't understand the spreadsheet. More options are found at

Sample budget spreadsheet from MoneyUnder30

Source: Budgeting Spreadsheet

The fourth step is to start tracking and communicating the expenses. You aren't actually running a business with this, so informal communication about, 'I bought $40 worth of vitamins' will allow you to keep a general idea of whether everyone is OK or not. It is very handy to put notification limits on your credit cards to flag both partners. Credit cards are, after all, the #1  or #2 way you can overspend with money you don't have. (The #1 way may be one of you buying big "toys" via loans for cars, boats, ATV's, etc.). If you have budgeted for contingencies or "mad money", one great technique is to actually get the cash for this amount and put it in your wallet. Each partner just spends from their wallet and is "out" when it is gone.

The fifth step is to review and adjust -- hopefully not panicking!  You may need to adjust categories. You may need to use some credit for a temporary situation. You may need to stop all spending except for "X".  You may, actually, have some extra money and decide whether to invest, go on vacation, or buy something special that you have been deferring. The point here is that you are working together as a team for success.

Random Words of Wisdom

Don't get into credit card debt. If you do, pay it off first. It is generally the highest interest rate by a factor of 2, 3, 4, 5, or 10 compared to other lines of credit. It seems unbelievable that people could still charge 20% interest in a world where home mortgages and bank interest are 1% to 3%. Someone should look into this. In the meantime, don't be a sucker.

Borrow from your parents if you need to. Especially to get rid of credit card debt. Sure, you have to check your ego, but they may be happy to have you paying them instead of some credit card company.

Feel free to buy things with steady or increasing asset value on credit (not high interest credit). An example would be a house. The value, in dollars, is probably going to go up if you make a smart purchase. It will go up with inflation unless a disaster hits. Don't, however, buy such an expensive house that you can't make the payments if one of you loses your job. Don't buy with an adjustable mortgage unless you absolutely have to -- as this interest rate will jump with inflation. Cars decrease in value, so look very hard at a lease or paying cash upfront so you aren't "upside down" (owe more that the asset is worth). Many famous conservative (financially conservative) financial advisers tell you to never borrow. If you are buying assets that appreciate, you should be fine in most cases.

Put money in your budget for "flings", contingency, vacations, toys, etc. Total seriousness gets old quickly.

Make sure each person has some individual funds to spend on totally personal items -- no group decision-making or oversight required. Just like total seriousness, total lack of independence also grows old very fast.

Don't underestimate how much pets can cost you -- especially if they have medical issues or you travel frequently. 

If you want children, don't bother waiting until the numbers work out. They never will. Just go ahead after you have a "reasonable" income and nest egg. You will have to adjust your budget. This is an understatement. Your whole life will change, so why wouldn't your finances? Don't worry too much, though. Many have gone before you without a clue as to how to afford having children. (How's that for pitiful financial advice?)

Save if you can. Try 5% of your income if you can't do 10%. 10% is solid and will serve you well. What you invest in is another story, but stay away from hunches and gambling with the family nest egg. Few people will second-guess you with gold (ETF's GLD or IAU).  Don't buy on margin when there can be a "call" if the stock price drops -- with a demand (not request) for more money just when your whole portfolio took a hit. There are many mutual funds that have solid long term records of returns -- so look for them. Unless you are professional and want to spend a massive amount of time on this, you should stay away from individual stocks and day trading. Shoot for a nest egg by the time you retire that will sustain you if you can make 5% on your money.

Give to causes you are interested in. This is "pay it forward", giving back, serving others, tithing, altruism, or whatever you want to call it. 10% is a good number. You will feel better about yourself. It will help free you from the tyranny of measuring your worth only by how much money you have. You will be amazed by how much this helps save you because "materialism" won't drive your spending as much. You don't have to "keep up with the Joneses" when you know you have donated to good causes. This will also change the attitudes of your teenagers toward needing so much "stuff". All in all, it may not cost you anything -- although you should really be giving because it helps people.

Final Thoughts

It is much better to take the simple approach of minimal documentation and record keeping to get started than to have a "perfect" approach.

The attitude toward budgeting can be one of "constraint and lack of freedom" or one of "path to independence, stress-reduction, happiness, and goals achieved". It's a choice of perspective. If one of you can't see the positive side, this needs to be worked out early in the process.

Just stay out of high interest rate (especially credit card) situations. You will greatly regret this one single thing more than almost any other financial move you make. It fuels stress, resentment, and feeling like you are on an endless treadmill. Don't do it!!!

Don't buy such an expensive house or car that you are constantly under pressure to handle these payments. If you stay reasonable at first, you will eventually get your shot at a better car or house -- and you can enjoy life more in the meantime.

Remember that budgeting is a means to a better relationship (including your relationship with yourself if you are single). It isn't an end in itself. It's just a tool and needs to be kept in perspective when mistakes are made -- and there will be issues from time-to-time.


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