Starting discussions about money
Before you begin to discuss budgeting, it’s a good idea to start having general and more open conversations about money with your partner. This will help you to see if you’re on the same page about things such as:
- How you currently budget, including your spending and saving habits.
- If you’ve had any past issues with budgeting or money management, especially serious ones such defaulting on a loan or bankruptcy.
- How much you know and/or are willing to learn about financial news, market cycles, and money-related topics.
- How much debt you currently owe and what type.
- How you prioritize “wants” versus “needs” when budgeting.
- If your future together involves any big purchases like buying a home, a car, or planning a wedding.
- If and how you’re currently saving for retirement, and what your dream retirement looks like.
If after you’ve talked through these and other important topics and you’re ready to start budgeting together, the first step is to see how much money you’ll be working with.
Add up your income
It’s good to have an idea of how much you’ll both be contributing to the budget, starting with how much income you both generate, and what type.
There are 3 main types of income:
- Active income – This is money actively earned through work, such as hourly wages, annual salary, tips, commission or a bonus.
- Passive income – This is income earned indirectly, such as receiving royalties or rental income.
- Portfolio income – This refers to the money generated by your investments such as dividends or capital gains.
Start by tallying up how much income you each receive a month so that you and your partner know how much money you have coming in – so you can figure out what you can afford to go out.
Create a list of fixed expenses
First, you’ll need an idea of what your monthly expenses are. Fixed expenses are those that occur on a fixed date each month, and are usually essential bills and utilities such as:
- Rent or mortgage payments
- Insurance
- Car payments or transit costs
- Childcare
- Internet and phone bills
- Credit card and loan repayments
- Subscription payments
Figuring out how much debt you have along with how you’ll tackle it is also important. Some couples may choose to chip away at repayments together, while others feel more comfortable paying off their debts individually. Some helpful tips to tackle debt include:
- Paying the smallest debt amount off first.
- Once this has been paid off, take the payment you’d be making to that debt and roll it into the next 1.
- Continue this process until you’re only paying off 1 outstanding amount.
- Make sure to make minimum payments each month and on time to avoid costly fees.
Create a list of variable expenses
Once you’ve isolated when your fixed payments are due, you’ll need to work out how to cover your variable payments.
The money left over from your paycheque once you’ve accounted for essential bills is known as disposable or discretionary income. This is used to cover expenses that aren’t bills or payments, but still amount to your overall cost of living, such as:
- Groceries
- Entertainment
- Eating out
- Gas
- Clothing
- Toiletries and personal care
- Beauty and haircare
You’ll need to budget for this around how much disposable income you each have every month.
Of course, bill payments and expenses aren’t the only things you’ll need to factor in. Saving by paycheck is also important to help you cover unexpected costs in the short-term, as well as to plan for your long-term financial future.
For example, it’s wise to have an “emergency fund”, or money saved to cover large unexpected expenses that could impact your income, such as job loss or illness. You could also set up a ‘rainy day fund’ which may only have $500 - $1,000 saved to cover smaller, one-time purchases like car or home repairs.
On top of savings to help you out now, it’s important to make sure you’re saving for your future together as well. Products like a tax-free savings account (TFSA) or a registered retirement savings plan (RRSP) are ways to help you save for the longer term.
However you choose to do it, saving a little is better than nothing. There are many benefits to starting to save early, including taking advantage of compound growth.
Budget for longer-term financial goals
If creating a budget is the first step in planning a long-term financial future together, it’s a good idea to start thinking about how you’ll save towards big plans. This could include:
- How you’ll buy your first home together
- How you’ll budget for a wedding
- How you’ll cover the costs of starting a family
- How you’ll save for your children’s education
Of course, 1 big thing to consider is how you’ll save for retirement together.
You may both have individual savings such as registered retirement savings plans (RRSPs), or perhaps 1 or both of you contribute to a workplace savings plan. To help you determine how much you need to save for retirement, you should first start by talking about your dreams for retirement, and what you’d like your Golden Years together to look like.
If you’re ready to take the next step in the planning process and get help from an expert, an advisor can help with retirement planning for couples.
Keeping track of your budget
For your budget to work, you’ll need to track it. You may want to schedule time each month to sit down together and review, or perhaps 1 of you feels more comfortable keeping on top of things. It’s a good idea to talk about who will manage the budget along with how.
You can use tools like a cash-flow calculator to help you break down your bills and payments, as well as excel sheets that can help you track your spending. You can also match your bank statements to your budget at the end of each month to make sure you’re sticking to your plan as best you can.
Tracking your budget for a few months can also help you identify any areas of problem spending, areas you could save or invest more, and any areas you might want to improve or change. If you feel you want to tighten up your budget, you could look at ways to:
- Cut back – Look for ways to cut costs from your monthly spending. For example, you may curb eating out or limit yourself to 1 meal out per paycheque, cancel subscriptions you don’t use (or don’t use often), substitute less expensive items when grocery shopping or switch to a different store, and use points where possible to pay for things like movie tickets or shopping. Having a clear idea of where your money goes each paycheque will help you to see where you can scale back.
- Consolidate debt – If you’re struggling to keep on top of loan repayments or are finding they take up a substantial chunk of each paycheque, you may look at trying to consolidate this debt into a single lower payment.
- Generate additional income – If even after creating a budget you’re still finding it hard to make your money stretch between paycheques, you could consider a second stream of income. You could have a clear-out and sell items you don’t need from around the house, or take on a second job to earn some more money.