Home budgeting: Money matters

The 101 on how to manage your money — and your husband’s!

He gives a huge chunk of his salary to his mom. You splurge your entire paycheck on shoes and chocolate. That car you’ve been meaning to buy since you got engaged is no closer to materialising than when his salary was a fraction of what it is now, but both of you want to take that vacation every year, if only to  put up exhibitionist photos on Facebook.

Congratulations — you are the typical Pakistani couple who has no idea what to do with your finances. Is your money just yours or should you contribute a fraction to the household expenses, even though that’s ‘the man’s job’? Does he really need to be the main contributor any time a major expense comes up on his side of the family? These questions most likely turn up every time the two of you have a fight but how many times have you really tried to have a calm, mature discussion on your financial obligations and goals? With inflation and economic uncertainly, a financially secure future cannot be taken for granted. Cohesion between you and your spouse is pivotal in guaranteeing the smooth running of your house’s monetary engine, and rather than frittering away the money you’re earning now, you should be planning for the years when expenditures will exceed earning power. Here are some dos and don’ts financial experts suggest for keeping couples out of rough financial waters.

1. Understand your financial earnings and budget

The most important thing is for the couple to thoroughly understand their financial situation, sit together and create a budget outlining income and expenses. Both partners should be involved in setting financial priorities and plans. Budgets allow you to have a clear picture of the inflow and outflow of money. It’s easy to spend on impulse and forget about it, but that has countless repercussions which you have to face when it’s time to pay the bills. Even though budgets are hard to make, they should be prepared immediately after — or possibly, even before — the wedding, as they help identify your priorities and give you a blueprint for future spending.

Money is one of the most common factors behind marital discord, so budget-making, regardless of who the primary breadwinner is, should be considered a team activity. This is because both partners are involved in spending the money and also because they have to be on the same page as far as goals go. Budgets should be kept flexible, with room for certain deviations to be made when the need arises. But no matter what, the short and long term targets should be kept in focus. “Whether it’s saving up for a car or for retirement, focusing on the goals is better than micro-managing,” says Marium Fahad, savings expert at UBL Funds.

She also warns that budgets should be kept realistic: “Unrealistic budgets either end up stressing your life or land you in a deficit later on. Respect your spouse’s needs and opinions and agree on a mutual goal, which both of you think is achievable. Budgets are perfected after trial and error, so analyse your spending every month to make timely alterations,” she says.



2. Devise a Sound Financial Plan

Though it is important for every individual to have a thorough financial plan, its importance magnifies after marriage as expenses tend to go up and income may not always scale accordingly.  Additionally once a couple has children, they have to plan for big expenditure in the future, like school and then university. After fulfilling all monthly financial requirements, couples find themselves unable to save, which can have devastating effects later on in life.

Couples should make a meticulous financial plan that suits their lifestyle and income level. The most important components of this plan should be medical insurance, which every couple should get, if it isn’t provided for by their employers. Besides that, the financial plan should also cover aspects like children’s education. Moreover, couples must have an annual savings target and stick to it by contributing a fixed amount every month to savings.

Sharing the secrets of a successful saving plan, Fahad says, “You should allot a certain percentage of your take-home salary every month and put it aside. The best way to do that is a direct debit facility that simply transfers the predetermined amount to an inaccessible savings account the day the pay arrives — no temptations and no unnecessary splurging.”

Another way to go about this is to open a joint savings/investments account, in which you can put in whatever money is left by the end of the month. “Idle money can earn a sizable interest, based on the level of risk you are willing to take, the least being an average of 10% in a risk-free money market. When you see the money growing every month, your motivation to add to it will increase,” says Fahad.



3. Manage and Track your Money

You may think you know how you spend your banknote, but having a written document in front of you makes it easier to rectify deviations. It is very easy to overspend unless you keep a track of your current and short-term expenses. Fahad suggests that you should meticulously document all minor outflows of money: “Small purchases that appear trivial can sometimes add up to cause more tribulations than bigger purchases. Make sure they are accounted for either by documenting them or retaining the receipts.”

But don’t forget, this is not so you can blame each other for spending more than the other; it is just an effective way of determining the spending habits of the husband and wife. It also helps in setting financial goals both partners are comfortable with, as both are aware in which direction more money is flowing into and how to plug it.

4. Manage Three Accounts

Managing accounts is a key element in financial management and one that goes through the most modulation after marriage. Most financial experts agree that managing two separate accounts and one joint account is the most viable option. Keeping separate accounts gives each person financial autonomy and the freedom to manage their own spending. The joint account, on the other hand, is used to pool in a mutually decided amount of money to be utilised for the monthly running of the house and savings.

It is even better if the joint savings account has no ATM card since this limits the urge for spontaneous purchases. We are more liable to take out our cards and swipe them, than we are to driving to the bank to cash a cheque. The joint savings account should have a joint cheque book though, so that both husband and wife are on the same page as far as big purchases go. Fahad proposes that the joint account should be an online account so that both husband and wife can view the inflow and outflow of money and see their spending patterns.

Whichever way you choose to handle your accounts, as long as you operate two single accounts and one joint account you have the key to monetary bliss. You and your partner will be able to retain your autonomy and it will prevent both of you from using money as a tool in your relationship.



5. Discuss Finances Regularly

Another crucial aspect of financial management that experts suggest is to discuss all major spendings, like buying a car, a laptop, in short, anything that constitutes more than 5% of the monthly income should be discussed. It may not be the easiest topic to have coffee over, but having regular discussions about finances maintains a good understanding of who stands where.

Abdul Ghafoor Baloch, Assistant Director Headquarter of the National Savings Centre, says that for smooth financial management, couples should discuss their finances regularly. “Instead of feeling coy about such matters the couple should sit together and discuss their earnings versus their expenses and track how well their financial goals are being met,” adds Baloch. “This helps in creating financial harmony between the couple and avoiding recurrent squabbles and misunderstandings later on in the marriage.” Though seemingly trivial, financial conflicts can have detrimental effects on the relationship sometimes even leading to divorce.

One way to go about this is to have ‘weekly money meetings’, rather than bringing up money every time you have a fight. You can discuss everything from budget, upcoming bills, financial goals to anything else related to money. Meetings of such nature are beneficial as they strengthen communication and trust in a marriage.

6. Keep an Open Book

Honesty remains a key element in a marriage, especially as far as money management is concerned. Deceptive behavior can have detrimental effects on your finances as well as your marriage. If you stray from your plan, make a financial blunder or purchase something you shouldn’t have, admit your mistake. Initially your partner may be displeased with you, but after he or she cools off you will earn respect and trust for your honesty. Lying about money will not only get you in trouble with your spouse, it will also make you stand alone to bear the repercussions.



7. Go to an Expert

Whenever you find it difficult to steer your finances, it is best to visit an expert. “From wanting to buy a new car in two years, your child’s college or wedding fund, to your own retirement, you can choose any number of formal plans offered by several asset management companies,” says Fahad.

Moreover she recommends you and your spouse to sit down with a wealth advisor who can assist in chalking out your short and long term goals and recommend plans and the level of aggressiveness required to fulfil those goals. However, the commitment to contribute to that account regularly needs to come from both husband and wife.

In short, managing money can be a little tricky but if these key do’s and don’t’s are followed, you and your spouse are looking towards a monetarily prosperous future. The key is to start early and develop a good financial base as a newly married couple. That done you’ll be able to work as a team through whatever life throws at you.

Published in The Express Tribune, Ms T, March 31^st, 2013.

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