When Shari VanderWerf got married 25 years ago, she and her husband didn’t create a budget. To deal with their household expenses, they pooled their money into one account and paid all their bills out of this pot. A comedy writer who also runs an Airbnb, VanderWerf says her husband has always been the higher earner and perhaps this is why he initially paid all of the couple’s bills. Yet, about ten years into their marriage, they ended up with a mountain of credit card debt.
"He paid the bills but he didn’t have a sense of urgency and things just got out of hand with credit cards. I wasn’t happy about that so now I pay the bills, I do the taxes. I have my finger on the pulse of the wallet even though I’m not the big earner," says VanderWerf.
As for that non-existent budget? The VanderWerfs now have one. Last year, they created a budget that encompassed their earnings, retirement goals and spending habits. "This was the first time that looking at our finances (on paper) didn’t give me a panic attack."
Indeed, couples like the VanderWerfs often have to learn how to budget - even if they don’t initially write everything down. To help you create a budget when one of you earns more than the other, use these four tips:
1. Decide together how you will pay bills.
There is no one right way to do this but this is essential when creating a budget. This way, you’ll know where your money is coming from and how you’ll pay your bills. "I think there’s generally an acceptance that the spouse who earns more will pay more toward the bills," says Andrew Comstock, CFA and president of Castlebar Asset Management LLC in Leawood, Kansas. This doesn’t mean that things can’t be equitable, he says. For example, he recommends that each spouse contributes the same percentage of his or her earnings into a joint account. In other cases, couples may decide to have the higher earner pay larger bills such as the mortgage and car payment, while the other pays for groceries, cell phone, cable and other expenses. In other words: Figure out how you can both contribute in a way that works for you. "I always tell clients to look at the ‘we’ and not the ‘I,’ " says Comstock.
2. Be equal partners with defined roles.
Expanding on #1 above: For a family budget to work, everyone has to have an equal say in financial decisions, regardless of their paychecks, according to Intuit’s Mint. To that end, formulating a budget takes input from both of you. And, having defined roles can go a long way in helping partners feel equal in their monetary contributions, as well as other skills they may bring to the table. Like the VanderWerfs discovered over time, Shari was more skilled at keeping their finances in check while her husband focused on his all-consuming job. "He makes most of the money but I make most of the financial decisions," she says.
3. Be honest and realistic.
This means openly talking about your spending habits (both individual and as a couple), future financial needs, household expenses and debt (incurred before the marriage as well as during). It’s a good idea to set up regular monthly money meetings, or financial "date nights" to discuss your finances in a relaxing forum. Once you are comfortable talking about money, you can begin to track how much money you have and create a workable budget to meet your current and future goals. You’ll likely want to spend money on fun stuff. So, build an equal amount of spending money into a splurge budget for both of you. Keep in mind, this is equal and that means that one spouse, regardless of his or her income, doesn’t have carte blanche to spend more fun money than the other, says Comstock.
4. Write down your budget.
Fifteen years ago, the VanderWerf’s financial advisor handed them a worksheet to write down their total income, expenses, debt and spending. Anxious about money at the time, Shari stuffed this worksheet in a drawer. Now that they have everything written down, VanderWerf recognizes that doing this years ago could have helped them save money faster, avoid credit card debt, cut down on expenses, and map out a financial plan much sooner. Luckily, it’s never too late to create a budget and start living within your means. "I think we’re like everyone else - you have credit cards and you spend. Now, the credit cards come out when we need them." Not only that: "We can pay bills early, our only debt is our mortgage and we take a conservative approach. We don’t have worries." And even if you don’t use a spreadsheet, budgeting apps and programs like You Need A Budget to get your spending on track.