How to Create a Budget as a Couple (in 7 Easy Steps)

Last updated on September 13, 2024

Knowing how to create a budget with your spouse is essential for a strong financial foundation in your marriage.

Whether you’re newlyweds or have been together for a while, learning to manage your finances as a team is crucial.

Marriage is often described as an equal partnership, a merger, or a union. Regardless of how you see it, one thing is clear: effective communication is the key to a happy marriage.

You and your spouse will need to discuss various important matters, such as your lifestyle choices, parenting, intimacy, and, of course, money. Money matters, in particular, can be a major source of tension in marriages and even a leading cause of divorce.

In this guide, we will walk you through seven simple steps to create a budget with your spouse, promoting financial harmony and reducing conflicts in your relationship.

➤ Why create a budget as a couple?

Money doesn’t have to be a constant source of disagreement in your relationship. Regardless of whether you’re about to get married, newlyweds, or seasoned partners, having a financial plan or budget is the key to managing your finances together.

Budgets might sound complicated, but they don’t have to be. At its core, a budget is a simple projection of your expected income and how you intend to allocate it over a specific period.

To pave the way for financial harmony, start by creating a basic budget plan together. Once you and your spouse have a budget in place, staying on track is merely a matter of regular communication and monitoring, ideally facilitated by free or low-cost budgeting software that simplifies the process (more on this in Step 6).

Let’s explore the seven steps to achieving financial unity as a couple.

1️⃣ Set S.M.A.R.T. Goals

The first step to budgeting as a couple is setting S.M.A.R.T. goals, which stands for Specific, Measurable, Achievable, Realistic, and Time-based. This helps you plan for both your short-term and long-term financial needs. Your goals will shape your budget and guide your financial decisions.

1. Specific: Clearly define your goals. For example, “We want to own a condo in the Bahamas.”
2. Measurable: Determine how you’ll measure your progress. Ask, “How much will it cost to achieve this goal?”
3. Achievable: Ensure your goals are financially feasible based on your current and projected income. Ask, “Can we realistically save enough given our income?”
4. Realistic: Consider whether the goal makes sense in your current situation. Ask, “What trade-offs are we willing to make?”
5. Time-based: Set a timeline for your goals, distinguishing between short-term (1-2 years), medium-term (up to 10 years), and long-term (often retirement, spanning several decades).

Use the S.M.A.R.T. framework to assess and, if needed, adjust your goals. If owning a condo in the Bahamas seems unattainable, you might consider alternatives like a timeshare or a domestic beach resort. Some goals may need to be postponed until your financial situation improves, such as after a significant raise or promotion.

2️⃣ Calculate Your Net Income

After setting your financial goals, the next step in creating a budget with your spouse is to calculate your monthly net income. Net income is the money you take home after taxes and deductions, making it the amount available for budgeting purposes.

Here’s how to determine your net income:

• Gross Income: Begin with your total earnings before any taxes or deductions. Note that contributions to retirement, pensions, or Social Security should still be considered as they impact your overall budget.
• Net Monthly Income: Calculate your net income by subtracting taxes and deductions from your gross income. This represents the actual amount you receive and can allocate in your budget.

If you and your spouse receive regular salaries or hourly wages, your net income is likely consistent. However, if either of you has irregular income due to seasonal work, self-employment, or commissions, you should revisit your income assessment regularly, at least on a monthly basis. This ensures your budget remains accurate and adaptable to changing financial circumstances.

3️⃣ Add Mandatory Expenses

Now, it’s time to identify and calculate your mandatory expenses. These are the fixed costs that you must pay each month, and they include:

• Housing: This can be your mortgage payment or rent.
• Transportation: Costs related to your vehicle, including car payments, gasoline, parking, and maintenance.
• Utilities: Monthly bills for essential services like electricity, water, gas, and internet.
• Loan Payments: Any payments toward student loans or other outstanding loans.
• Insurance: Premiums for various types of insurance, such as health, auto, or home insurance.
• Credit Card Payments: Payments toward outstanding credit card balances.
• Food: While food can be flexible, it’s crucial to estimate a minimum amount needed for groceries and include it in your mandatory expenses.

To calculate your available budget for non-mandatory expenses, subtract the total of these mandatory expenses from your net income. For example, if your combined monthly net income is $8,000 and your mandatory expenses total $4,000, you will have $4,000 remaining for Step 4, which involves allocating funds for non-essential expenses.

4️⃣ Determine How Much You Need to Save

Now, it’s time to determine how much you need to save to achieve your financial goals (as identified in Step 1) and consider any contributions to retirement accounts like a 401(k), IRA, or pension (as calculated in Step 2).

Include the total savings amount in Step 4 before proceeding further. To find your available budget for discretionary spending, subtract the required savings amount (which includes retirement and other goals) from the remaining balance calculated in Step 3.

For example, if you need to save a total of $1,600 per month and the remaining balance from Step 3 is $4,000, you will have $2,400 available for the next step—discretionary spending. This step will help you allocate funds for non-essential expenses.

5️⃣ Divide Discretionary Spending

Discretionary spending is all about the things you desire but don’t necessarily need. It’s where you and your spouse might have some interesting discussions. Discretionary spending covers expenses related to shared activities like dining out, vacations, entertainment subscriptions, or even matching outfits for themed parties.

Additionally, it accounts for individual spending, such as personal nights out with friends, hobbies, or personal purchases like clothing, electronics, or car preferences.

Create a list of potential discretionary expenses and categorize them as “joint” or “individual.” Discretionary spending often requires its own budget, which should be reviewed and adjusted monthly based on available discretionary funds.

For instance, if you have $2,400 remaining for discretionary spending as per the example, remember that this amount may vary each month. Hence, you and your spouse should engage in monthly negotiations about how to allocate these discretionary funds.

Compromises may be necessary, but working together can minimize conflicts. Despite the need for negotiation, marriage can have a positive impact on your overall financial well-being.

6️⃣ Download a Budgeting App

Now comes the exciting part—selecting budgeting software that suits your needs and is comfortable for both you and your spouse to use. While almost any budgeting software or app can work, some are specifically designed for couples.

Here are three options:

You Need A Budget (YNAB):

• YNAB operates on the principle of zero-based budgeting, where every dollar has a purpose.
• It’s ideal for those willing to actively manage finances and make necessary changes.
• YNAB is available on Windows, Mac, iPhone, Android, and even Alexa.
• The software connects to bank and credit card accounts but doesn’t track investments.
• YNAB supports shared budgets for couples and provides resources on budgeting as a couple.
• It’s beginner-friendly with tutorials, videos, and a podcast.
• YNAB offers a 34-day free trial and costs $11.99 per month or $84 annually.

Honeydue:

• Designed exclusively for couples, Honeydue allows you to choose how much financial information you want to share with your partner.
• It’s available as an app for both iPhone and Android but lacks a web or computer version.
• You can set monthly spending limits for various categories, chat within the app, and discuss shared expenses.
• The app is compatible with over 10,000 U.S. banks, and it’s completely free.

Goodbudget:

• Formerly known as EEBA, Goodbudget employs an envelope budgeting system, where you allocate income to different virtual envelopes for spending categories.
• The budgets sync across devices, and there’s a web version for computer access.
• Goodbudget is cross-platform and user-friendly.
• The free version allows up to 20 categories on two devices with one bank account and requires manual transaction entry.
• The paid version, priced at $7 per month or $60 per year, supports unlimited categories, bank accounts, and up to five devices, with email support.

Choose the software that suits your budgeting style and preferences as a couple.

7️⃣ Set a Money Date

Now that you’ve chosen your budgeting software and set up your budget, the final step is to maintain open and consistent communication. Plan a “money date” each week to review your progress and reassess your goals.

Regular financial discussions will help both you and your spouse stay aligned and motivated to achieve your financial objectives. These conversations don’t need to be lengthy; your budgeting software will handle most of the heavy lifting.

You can enjoy discussing your budget over a glass of wine or while preparing dinner, making it an enjoyable way to bond while managing your finances effectively.

➤ Final thoughts

In summary, creating a budget, monitoring it diligently, and conducting weekly check-ins can significantly reduce financial disagreements and empower couples to achieve their set objectives. It’s a fantastic approach to commence a new marriage on a strong foundation or reinforce a well-established partnership.