How to manage household finances (income & expenses) [duplicate]
"My wife and I have close to equal incomes, and are not young.  What we have is this: Some people would classify our system as a bit draconian as we each have ""allowance""; however, it makes sure spending does not get out of wack and we work together to meet our goals." Obviously, there are many approaches. I’ll describe what we do and why we think it is successful. I have seen many couples having disagreements and even divorce over money; it seems that this is a typical reason to fight and sometimes fight badly. The realization is that different people have different preferences what to spend their money on, and if you are not rich, it continuously leads to disagreements - ‘did you really need another pair of shoes?’, etc. Our solution is a weekly allowance. First, all our money goes into one pot and is considered equal. Many couples find that a difficult step, but I never thought twice about it - I trust my spouse, and I share my life with her, so why not my money? From this, we agree on an ‘allowance’ that is used to cover any non-common cost; this includes all clothing, dining out, buying things, etc. The amount was chosen to match about what we spent for those things anyway, and then adjusted annually. The main point is that there is no critique allowed about what this is spent on - you can blow it all on shoes, or buy books, or wine and dine, or gamble it away, whatever. We are doing this since 23 years now, and we are very happy with the results; we never have financial ‘fights’ anymore. Disadvantages are the effort - you need to keep track of it somehow. Either you use a separate credit card, or hand it out in cash, or have a complete accounting (I do the latter, because I want to). Regarding all other spend, we use the accounting to plan ahead for at least a year on all cost and income that are expected, and that shows us the available cash flow and where it might get tight. It also shows you where the money goes, and where you could cut if cutting is needed (or wanted). Again, there is some effort in collecting the data, but it is worth it (for us).
"According to your numbers, you just stated that you spend approximately $1500 in discretionary expenditures per month, yet are unable to save. I fully realize that living in a big city is usually expensive, but on your (presumably after-tax) salary, I think you can easily save a substantial portion of your income. As others have already noted, enforcing saving of a significant portion of your discretionary income is the most obvious step.  It's easy to say, but I suspect that if you are like most people who have difficulty saving, the psychological impact of quitting your previous spending habits ""cold turkey"" is likely to be very harsh, all the more so if you have an active social life.  You may find yourself becoming depressed or resentful at ""having"" to save.  You may lose motivation to work as hard because you might think that you're putting away all this money for the distant future, whereas you are young now and want to enjoy life while you can. It is in this context, then, that I looked at your other financial obligations.  Paying $1300/month to your parents is a lot.  It's over 20% of your after-tax salary.  You do not specify the reasons for doing this other than a vague sense of familial duty, but my recommendation is to see if this could be reduced somewhat.  If you can bring it down to $1000/month, that $300 would go into your savings, and you would psychologically feel a lot better about putting, say, $600 of your own discretionary income into savings as well.  Now you have, all told, about $1000/month of savings without severely curtailing your extra expenditures. But I would start with that $1500/month of luxury spending first.  And yes, you do need to view it as luxury spending.  The proper frame of mind is to compare your financial situation to someone who is truly unable to save because their entire income is spent on actual necessities:  food and shelter; their effective tax rate is 0% because they earn too little; and they usually find themselves in debt because they cannot make ends meet.  Now look back at that $1500/month.  Can you honestly say that you cannot afford to cut that spending?" I don't think you need double-entry bookkeeping. To quote Robert Kiyosaki (roughly): Income is when money enters you pocket, and expenses are when money leaves your pocket.  Income is an addition; expenses are subtractions. But if you want double-entry accounting, I'm not qualified to answer that. :) Other than the two answers (both of which recommend waiting until marriage to actually combine finances, and which I agree with), there's the general question:  how does a couple choose to manage finances? In our marriage, it's me.  I'm more numbers-minded than my spousal-unit.  I'm also more a sticker for time.  I work and spousal-unit does not. We had some good friends -- upon marriage, spouse1 felt like he should take on the role.  He went on a several-week trip (leaving spouse2 at home), and upon returning home asked spouse2 about the late fees.  Spouse2 was appalled.  Spouse2 ended up keeping the job of managing household finances. There's enough pieces to the puzzle that it can be divided any way you choose -- any way that works for you and your spouse/virtual-spouse. One other point:  talk about how to manage your money, before you marry.  Dave Ramsey recommends a strict monthly budget.  I like listening to Dave Ramsey, but we've never had a budget.  Instead, we agreed during marriage counseling two things: I won't answer in a detailed manner because most people at this site like answers with certain bias' on these questions, like pool resources always relative to which partner is asking.  If you follow the above advice, you are hoping things work out.  Great!  What if they don't?  It will be very messy.  Unlike most of my peers, I did NOT follow the above advice and had a very clean exit with both of us feeling very good (and no lawyers got involved either; win-win for both of us with all the money we saved). One assumption people make is the person with the lowest income has the strictest limits.  This is not always true; I grew up in poverty, but have a very high income and detest financial waste.  I can live on about €12,000 a year and even though my partner made a little less, my partner liked to spend.   Counter intuitive, right?  I was supposed to be the spender because I had a large income, but I wasn't.  Also, think about an example with food - sharing expenses.  Is it fair for one partner to split whey protein if one partner consumes it, but the other doesn't (answer: in my view, no)? My advice based on your questions: Balance the frugal vs. spendthrift mentality rather than income ratios.  If you're both frugal, then focus on income ratios - but one may be more frugal than the other and the thought of spending €300 a month on housing is just insane to a person like me, whereas to most it's too little.  Are you both exactly the same with this mentality - and be honest? Common costs that you both agree on can be easily split 50-50 and you can often benefit from economies of scale (like internet, cell phone). Both of us feel very strongly about being financially independent and if possible we both don't want to take money from each other. This is so healthy for a relationship.  My partner and I split and we both still really love each other.  We're headed in different directions, but we did not want to end bitterly.  What you wrote is part of why we ended so well; we both were very independent financially.   Kids are going to be a challenge because they come with expenses that partners don't always agree on.  What do you and her think of childcare, for instance?  You really want to know all this upfront; again a frugal vs. spendthrift mindset could cause some big tensions. "My own personal point of view. I earn about twice what my wife to be earns. We are planning on getting married next year.  I ultimately do all the finances (basically because she hates that kind of thing) not because I'm in charge or whatever. To work out how we do this I wrote a spreadsheet:  At the top it has my monthly pay in one column and her's in another. I add all our bills (against me initally). At the bottom I have a total of both of our ""spending money"". Spending money is wage - bills - savings I then move money out of my column into her column. My goal is that we pay all the bills and save a decent amount and have roughly the same amount to spend each month. So each persons spending money should be roughly equal. I then fine tune this as things change (if we get a pay rise we alter it, if a bill goes up or down we alter it) To manage this we have 4 accounts, a joint account to pay bills (both give a set amount to each mont), a savings acount (both give a set amount to each month) and our own accounts (where we get paid and where our spending money lives). Like everyone else says, this seems fair to me. I don't earn more, we both earn ""an amount"" and this should be split equally." Your problem is one that has challenged many people.  As you said there are two aspects to balancing a budget, reducing expenses or increasing income.  And you state that you have done all the cost-cutting that you can find.  Looking at ways to increase your income is a good way to balance your budget. How big is your problem?  Do you need to find another $100/month, or do you need $1000/month?  There are many part-time jobs you could obtain (fast food, retail, grocery), you could obtain a sales-job (cars, real estate, even working for a recruiting firm) where you could connect buyers and sellers.  If your need is $100/month, a part-time job on weekends would fill the gap. When I was trying to solve my budget problems a few years ago, I thought that I needed to increase my income.  And I did increase my income.  But then I realized that my expenses were too high.  And I re-evaluated my priorities.  I challenge you to revisit your expenses.  Often we assume that we need things that we really cannot afford.  Consider a few of your (possible) expenses, My problems included mortgage debt, auto loans, high utilities, high car insurance, too much spending on kids activities, and a few other problems. "Another way to look at budgeting: give yourself an explicit ""allowance"" -- possibly in a separate account -- and if something isn't a clear necessity it must be paid for out of your allowance, saving up first if necessary. You can get those concert tickets, but only if you cut down on expensive meals and toys and other entertainment for a while. You can have anything you want, but not everything and not immediately unless you learn to maintain an adequate balance in this account." For any android device you can try: Daily Expense Manager - to track your expenses and a host of other apps to suit your specific needs. I agree with Option 3 from the accepted answer (His/Hers/Joint), but with one caveat (that my wife and I are finding out). Once you have children, if your income is in the mid-range where you are not paycheck to paycheck, but are not floating in excess money either (ie, you can have a vacation, but you have to plan for it and save up for a few months to do so), the child-relative expenses begin to be a huge factor in your overall budget, such that (particularly if one partner does more of the child-related buying) it can be hard to really keep up the 3 account separation, because those child-related expenses may end up being all of one earner's paycheck. We originally did the 3 way split, where we took rent, car, and utilities from joint (ie, each transferred a reasonable portion to the joint account to cover), and just bought groceries each occasionally such that it was generally a reasonable split (as we both shopped for groceries and both earned close enough to each other that it worked out).  But once we had kids, it ended up being very different, and we eventually had to more properly budget all of our funds as if they were basically joint funds.  While we still do have separate accounts (and, largely, separate credit cards/etc., except for one joint card), it's almost pro forma now due to the kids. My wife and I do this. We have one account for income and one for expenditures (and around 7 others for dedicated savings.) Doing this we are forcing ourselves to keep track of all expenditures as we have to manually transfer funds from one to the other, we try to do this periodically (every Wednesday) and then keep the expenditures within what is actually on the account. It is a really good way to keep track of everything. Bear in mind that our bank provides a fast handy smartphone app where we both can check our account as well as transfer funds in less than 10 seconds. (Fingerprint authentication, instant funds transfer as well as zero fees for transfers.) Right now we have a credit card each attached to the expenditures account, but earlier we only had a debit card each and no credit cards. Meaning that when the weekly funds ran out we where simply not able to pay. We did this to mimic living only on cash and when the cash runs out you simply have to stop buying stuff. And at the same time we could accrue quite a bit of savings. I would definitely recommend this if you have problems with over expenditures. "Make a list of all your expenses. I use an Excel spreadsheet but you can do it on the back of a napkin if you prefer. List fixed expenses, like rent, loan payments, insurance, etc. I include giving to church and charity as fixed expenses, but of course that's up to you. List regular but not fixed expenses, like food, heat and electricity, gas, etc. Come up with reasonable average or typical values for these. Keep records for at least a few months so you're not just guessing. (Though remember that some will vary with the season: presumably you spend a lot more on heat in the winter than in the summer, etc.) You should budget to put something into savings and retirement. If you're young and just starting out, it's easy to decide to postpone retirement savings. But the sooner you start, the more the money will add up. Even if you can't put away a lot, try to put away SOMETHING. And if you budget for it, you should just get used to not having this money to play with. Then total all this up and compare to your income. If the total is more than your income, you have a problem! You need to find a way to cut some expenses. I won't go any further with that thought -- that's another subject. Hopefully you have some money left over after paying all the regular expenses. That's what you have to play with for entertainment and other non-essentials. Make a schedule for paying your bills. I get paid twice a month, and so I pay most of my bills when I get a paycheck. I have some bills that I allocate to the first check of the month and some to the second, for others, whatever bills came in since my last check, I pay with the current check. I have it arranged so each check is big enough to pay all the bills that come from that check. If you can't do that, if you'll have a surplus from one check and a shortage from the next, then be sure to put money aside from the surplus check to cover the bills you'll pay at the next pay period.  Always pay your bills before you spend money on entertainment. Always have a plan to pay your bills. Don't say, ""oh, I'll come up with the money somehow"". If you have debt -- student loans, car loans, etc -- have a plan to pay it off. One of the most common traps people fall into is saying, ""I really need to get out of debt. And I'm going to start paying off my debt. Next month, because this month I really want to buy this way cool toy."" They put off getting out of debt until they have frittered away huge amounts of money on interest. Or worse, they keep accumulating new debt until they can't even pay the interest." "I think you misunderstand the purpose of the liability account.  I would suggest you review the standard accounting model, but to give you a brief overview: Income and expenses are money coming into and out of your possession.  They are the pipes flowing into and out of your ""box"".  Inside your box, you have assets (bank, savings, cash, etc) and liabilities (credit cards, unpaid debts, etc).  Money can flow into and out of either asset or liability accounts, for example: deposit a payment (income to asset), buy office supplies with cash (asset to expense), pay a bill with credit card (liability to expense), customer pays one of your debts directly (income to liability).  Paying off a debt with an asset does not affect your overall net worth, so paying a check to your credit card bill (asset to liability) doesn't decrease your total balance, it merely moves the value from one bucket to another. Now to your question: Mandatory payments, such as taxes or insurance (or for that matter, utilities, rent, food- all things that ""must"" be bought occasionally) are not liabilities, instead they are all expenses.  They might be paid FROM a liability account, if they are paid on credit for example, but the money still flows from liability to expense.  In my own records I have Expense:Taxes and Expense:Insurance, with sub-accounts in each.  Where the money comes from depends entirely on how I pay my bills, whether from cash or banks (asset) or whether it's a charge (liability).  Sometimes you receive payments back from an insurance company.  I find that rather than treating insurance premiums as a positive balance in a liability (with eventual payments as debits to the liability account), it is better to treat any payment from the insurance as income. Hope that helps!" First:  great job on getting it together.  This is good for your family in any respect I can think of.  This is a life long process and skill, but it will pay off for you and yours if you work on it. Your problem is that you don't seem to know where you money goes.  You can't decide how whacky your expenses are until you know what they are.  Looking at just your committed expenses and ignore the other stuff might be the problem here.  You state that you feel you live modestly, but you need to be able to measure it completely to decide. I would suggest an online tool like mint.com (if you can get it in your country) because it will go back for 90 days and get transactions for you.  If you primarily work in cash, this isn't helpful, but based on your credit card debt I am hoping not.  (Although, a cash lifestyle would be good if you tend to overspend.) Take the time and sort your transactions into categories.  Don't setup a budget, just sort them out.  I like to limit the number of categories for clarity sake, especially to start. Don't get too crazy, and don't get too detailed at first.  If you buy a magazine at the grocery store, just call it groceries. Once you know what you spend, then you can setup a budget for the categories.  If somethings are important, create new categories.  If one category is a problem, then break it down and find the specific issue. The key is that you budget not be more than you earn but also representative of what you spend. Follow up with mint every other day or every weekend so the categorization is a quick and easy process.  Put it on your iPhone and do it at every lunch break.  Share the information with your spouse and talk about it often. I concur with pretty much what everyone else said. Let me break it down in a concrete plan of action.  First, though, note that at least the minimum payments for the credit cards needs to be on this list of fixed expenses. Also, you have $868 remaining in a normal month -- food could be $500 or more easily for a family, so find out how much!  Adding in just those 2 things, and you're already at your max. And there are other expenses in life.   Ok, cutting from the top: DirectTv -- gone. Pure luxury, and between netflix, hulu and your   internet connection (hook your computer to the tv), there's no need   for it. $80 savings.  Cell phones -- you're already moving in the right direction, but not   far enough. In a financial crunch why does your stay-at-home wife have   a cell? Especially when she could just as easily use Google Voice for   free? Both plans gone, replaced by one of the prepaids @$45. $105   savings, total $186 savings.  529 plans -- Of course you want to save for your kids college, but it   doesn't help them for you to drown financially. Gone until your credit   card debit is too. $50 savings, $236 total. Ok, we're already up to $236/month in savings just cutting items you don't need. That probably gets you back into the black, but why stop there?  Trimming expenses  Electric -- ok, I know it's summer, but can you cut this back? Is the   thermostat set as high as you can comfortably bear? Are you diligent   in turning of lights, especially incandescent? Do you turn off your   computer when you're not using it? See if you can get the Electric   down by 10%. That's $20/month savings. Doesn't seem like much, but it   adds up.  Gas -- same with gas. Do you have gas hot water? If so, cut shower   length. Saves on water too.  Food -- this one you didn't list. But as I said, you could be spending   $500 or $600 a month easily for a family. Do you guys plan meals, and   thus plan shopping trips? If not, do it. You'll be surprised how much   you can save. Either way, 10% reduction should be doable. That's   $50/month. If you don't plan now, 20% is within reach -- that's   $100/month. Ok, that may have added as much as $130 or so. If so, you're now up to $366/month savings. That's like a 15% raise.  Simply cutting, however, is only half the plan. You want to improve your situation, so you can get the Directtv back (assuming you'll even want it at that point), and the wife's cell phone, for starters.  To do that, you've got to nail down that debt. I figure you've got minimum $567.23/month in debt payments. That's not including your mortgage, and including an assumed $80/month minimum credit card payments. You pay over 21% of your take-home to short term and consumer debt!  Yea, that's why you're hurting. Here's what you do  In both cases, apply the extra payments entirely to one balance at a   time. Pick either the smallest balance (psychologically best because   you quickly see a loan & it's payment dissappear), or the highest   interest (mathematically the best). Roll each regular payment that's paid off into the extra debt payments. You didn't list total debt balances, but you did say you had $4000 in   credit card debt. Applying an extra $250/month to debt (out of that   $366 savings), plus two extra paychecks of $1300 each, is $5600/year   paid off. In under a year, you could have those credit cards paid off, and likely that window loan too. Start the 529s again, but keep going   paying down the rest. When you have the car paid off, bring back the   wife's cell (you and I both know that's going to be #1 on the list :)    ), then finish off those student loans.  Then bask in the extra $567/month - 21% of your income - you'll have in sweet, sweet green cash! Try the Envelope Budgeting System. It is a pretty good system for managing your discretionary outflows. Also, be sure to pay yourself first. That means treat savings like an expense (mortgage, utilities, etc.) not an account you put money in when you have some left over. The problem is you NEVER seem to have anything leftover because most people's lifestyle adjusts to fit their income. The best way to do this is have the money automatically drafted each month without any action required on your part. An employer sponsored 401K is a great way to do this.