Have you ever been on your last day of vacation and thought, “Gosh, we should do this more often.”? Don’t get me wrong—I could go somewhere every quarter and still have that feeling.
Have you had an argument with your significant other over a big purchase? Most of us have been there.
We all struggle with how we spend money from time to time. Sometimes we spend too much on the things that don’t move the needle for us. Sometimes we pinch pennies or do less of what we value most because we think it’s the responsible thing to do.
And other times, we just don’t understand the financial decisions our spouse makes.
When you say yes to something, you’re saying no to something else. It’s easier to say no when there’s a deeper yes. A spending plan isn’t meant to keep you from spending money on what you want. Its purpose is to make sure you do.
Yes, you still need to save and invest. This is a major part of it. Figuring out the right amount to save, to which accounts, and how to invest within those accounts to align with your household financial objectives is important. Finding the right professional financial planner to answer those questions so you can make informed decisions can be worth many times the fees you pay.
What you do with what’s left over after you invest for your retirement, 529 plan, and other savings is also important.
Let’s pretend we just had our first financial discussion together, and this is what we arrived at as your financial objectives:
Now, imagine you were that person who thought, “Gosh, I wish we could do this more often,” on the last day of vacation. It might not be financially feasible in relation to other competing budget priorities. But it’s worth figuring out what’s stopping you from doing it.
If you’ve ever had an argument with your spouse over a big decision about finances, it was probably because one of you didn’t know where the other one was coming from. One spouse may have something else higher on their priority list that you aren’t aware of.
Take the car-buying decision for instance. Your spouse has an 8-year-old car that runs fine, but wants a new one. You both want to retire early. You know that homes and cars are two of the biggest ways to save money, so you think your spouse is irresponsible or doesn’t understand how much putting off spending money could help. Why not just drive the car until it dies? You didn’t know their parents always drove old cars until they broke down or even caused an accident. It’s not about status. It’s about safety.
When you have a spending plan, it’s easier to say no to the things that don’t matter to you because you say yes to the things that do. You’ll know what is ok to splurge on and when to choose a lower-cost option. You’ll care less about what other people are buying and focus more on what matters to you.
If you’re married, you and your spouse will be more aligned on how money is spent and have fewer arguments about finances. Being on the same page regarding what you both value and creating clear expectations will prevent stress down the road.
If you have children, you have a solid grounding for deciding what you’re willing to provide as parents. The question is no longer a matter of whether enough money is in the checking account. It’s a matter of asking yourself if it aligns with your established objectives and priorities—not just the options in front of you at the moment. This is also a good opportunity to be open with your kids about money.
When you have a plan, your decisions are less about how you feel in the moment and more about how you’ve weighed everything important to you at a time when you carefully considered your values.
There’s no single correct way to create a spending plan. The right way is what works for you. You can be as detailed as you like. Start with what you value most—time, family, health, etc.—and work from there. This can be your “why” for your spending habits. When you start with why, what you spend your money on will bring you more units of happiness per dollar.
Keep in mind we’re still human. This is less about being perfect about spending money and more about being less wrong.
Here are some suggestions:
Finances are commonly cited as one of the leading causes of relationship stress and divorce. Among financial decision-related issues, often one spouse thinks the other spends money foolishly. This is preventable.
Having a budget like $250, $500, or whatever you agree upon as a spending limit to talk about it first is a good way to create a clear expectation and avoid stress in your relationship. Money isn’t an easy subject to talk about for most couples. Talking with your spouse about what they value can help you better understand why they spend money. This is an easy first step that can open the door to other healthy financial discussions.
Write down the three to four things that give you the most enjoyment, and don’t share them with each other until you’re done. It’s important to write these things down, so neither one of you conform to what the other person prioritizes.
Compare your answers and talk about them. Having a financial discussion so you know what both of you value and why can help you decide which things to be frugal about and which things are okay to splurge on after your basic needs are met.
If you value time with your children but spend hours on your lawn each week, why not outsource this chore? Maybe it’s therapeutic for you, but what if it’s not? Could you skimp on another spending category to save the cash?
If you value health but can’t justify spending money on a Peloton even though you think it would make you exercise more, maybe you should reconsider.
I know people who enjoy searching for the lowest-cost option that meets their needs. They’ll spend two hours comparing options to save $50. But for them, declaring victory is worth it.
If that‘s not you, don’t sweat the small stuff. Prioritizing and focusing on the big-ticket budget items will get you most of the way to the impossible perfect budget in a fraction of the time.
There are some big-ticket budget items that, no matter how low they are on the priority list, we still need them. Being mindful of how much you spend on things like housing and transportation can lead to extra room for other things you value that cutting out those Starbucks coffees just can’t do.
To be clear, if you value entertaining friends and family, it’s perfectly reasonable to make a nice home one of your priorities—as long as it allows room for the others.
For my engineers out there and those who find joy in the details, you can get very detailed by going through your latest bank statements and finding an average monthly amount for each spending category.
Many items may not surprise you, but you might find one or two that you weren’t aware you spent so much on. It can be easy to get caught up in the day-to-day and not realize how much certain things add up.
On the flip side, you may find you spend a lot less on the things you do value. If you compare the total spent on different categories, you might find opportunities to shift money from one to another.
Don’t forget to include those not-every-month expenses like car and home maintenance and vacations. For those, it’s a good idea to estimate an annual cost and have an automatic monthly transfer from checking to savings to cover it.
Think you’ll spend $12,000 on trips this year? Have $1,000 per month automatically moved from checking to savings on the first of every month.
Know you’ll need new tires later in the year? Add an extra $100 to your automatic monthly savings.
These simple moves will give you a more accurate picture where you stand financially on any given month.
Our priorities change. If you wanted to renovate your kitchen a year ago and haven’t even started planning, maybe it wasn’t all that important to you. That’s okay. You don’t have to defend outdated priorities.
Redefining your priorities every so often is another easy way to lead into healthy financial discussions with a spouse when the spend or save subject feels uncomfortable. The conversations should be less about money and more about what you want to do. Money is just a tool to help you get there.
If you only remember one thing from this article, remember this: if you have a spending plan, you‘ll get more units of happiness per dollar spent and have fewer arguments stemming from financial issues with your family.
Everyone should have a spending plan to help make decisions. It doesn’t have to be thoroughly detailed, and you should revisit it at least annually.
A spending plan isn’t meant to force you to sacrifice. It’s meant to make sure you’re spending money on the items and experiences you value and that bring you fulfillment. Make a spending plan and lean into what you value most.
Author: Hugh Baker, CFP® | Financial Planner | Allegheny Financial Group | March 2021
Allegheny Financial Group is a Registered Investment Advisor. Securities offered through Allegheny Investments, LTD, a registered broker/dealer. Member FINRA/SIPC.