With the exam season well underway, mine can’t be the only dinner table across the land recording conversations along the lines of
“How did it go?”
“Eugh – exams are so dumb. Who needs to learn this stuff anyway?”
Teenage lassitude or a waste of time?
I will allow for a dollop of traditional teenage lassitude when it comes to anything that looks and feels like hard work here, but I am increasingly sympathetic to this point of view. Why exactly are these young folk cramming their brains with facts and figures only to regurgitate them onto a piece of paper (what’s that???) in the space of a couple of hours to prove to a total stranger that they have… what? A good short-term memory?? And all the while knowing that these facts and figures are readily accessible in the palm of their hand on a minute-by-minute basis in the real world. I mean, really. Isn’t that what the internet is for?
How do you deal with that?
Well, I’ll leave that thought there as I am aware that my view may be coloured by just a hint of ‘when will this be over-ism’. But it is certainly not an outlying view to venture that something a little more practical could make its way onto the school curriculum and have a lifetime-lasting effect. I clearly remember as a child seeing random piles of typed letters and official-looking money statements about the place that needed to be ‘dealt with’. It worried me that I, too, would have to ‘deal with’ such things as a grown-up and that I would be expected to know what it was all about without ever having been taught.
Blame the roots of education
Indeed, calls for schools to teach more about personal finances and how to manage money are nothing new. If we think about the history of education in this country, its roots lie in the perceived need for sons of gentlemen to learn how to become clergymen, lawyers and doctors. I’m guessing back in the day that if you were privileged to enough to get an education then you were also likely to have someone to do your accounting for you.
The basics of money are not being taught
Much has changed in the world (ain’t that a fact). But still, the basics of money are not routinely taught. Getting the varying shades of politicians to agree on what the basics are might be tricky but, for me, the first step is about budgeting. We’ve all been there – a bit of pocket money and a stern warning that ‘once it’s gone, it’s gone’ in the hope that that will do the trick. And that might indeed do it when there is nothing more complicated to negotiate than a Jackie magazine and a packet of Wrigley’s in a young girls’ life.
Life’s layers of complexity…
However, life has a way of layering up complexity as you go through it. And one of the most common spanners in the works of a simple life is when you couple up and enjoin all your worldly goods with another human being for all eternity (or, at least, that’s the idea). In the olden days it was all quite straight forward. Your Dad paid your Husband-to-be a sum of money to take you off his hands and you had the happy prospect of a life of domestic skivvying to look forward to.
…it’s a lot
But hello twenty-first century! Blended families, single parents, part-time working, multiple employments, consultancy work, gig-economy, shift work, unpaid caring, gender pay and pension gaps, maternity leave, school league tables. It’s a lot. Which means there are a lot of different ways to tackle the issue of joint finances in a way that works for the individuals concerned.
Good ways to approach household money
So, it doesn’t hurt to take a look at some of the more common ways to approach household money and to scrabble around a bit to establish what good looks like. Let’s take a scenario where two working partners in one household are bringing in money each month. What might they do?
Option 1: Have their individual earnings paid into their own bank accounts and keep it separate at all times, splitting the bills that need to be paid.
Many couples work this way because it is the arrangement they had before they got together and they haven’t got around to changing it. It might work fine for some, but it does lack transparency – as no one has oversight of the whole picture and so no one can spot trouble when it comes over the horizon (Honey, I accidentally spent the gas bill money on a new car…)
Option 2: Have their earnings paid into their individual bank accounts and pop an agreed amount each into a joint account that would pay for all the essentials of daily living and possibly an element of joint savings.
This can work well if both partners are earning and if care is taken to make sure that there is not too much difference in the ‘disposable’ personal income that remains available to each (for example, if one earns more than the other, that person could put more proportionately into the joint account)
Option 3: Both have their earnings paid directly into a joint account from which an agreed ‘personal’ income is automatically transferred each month into the two individual accounts, leaving any surplus in the joint account for cash savings.
This also works well – and has the advantage of each partner having to agree to the amounts of personal spending that are allocated. And it is the option with the most transparency as both partners have access to the joint account and so can see exactly what is coming in and where it is going.
But what if you are not both earning?
So far, so good. But what happens if one of a couple is not earning – perhaps because there are children, caring duties or health difficulties? I would say of this scenario:
- Option 1 is knocked off the table
- Option 2 would need some tweaking as the person not earning would require a transfer from the joint account into their personal account – otherwise they would have no spending money
- Option 3 still works – the only difference is that, in this scenario, there is only one income going into the joint account; nonetheless an amount can still be transferred out for both partners to have ‘spends’.
The Entitlement elephant
There’s an elephant in the room here. And it has Entitlement running through its trunk. I don’t want to dwell on this too much as it gets in the way of making perfectly good practical suggestions for running household budgets, but I have to give a nod to it because it is incredibly common. Despite the whole ‘coupling up and enjoining your worldly goods for now and until the end of time’ thing that goes on in a marriage or any form of life partnership, many still hold onto the idea that financial equality means sharing the costs but keeping whatever is ’theirs’. Inevitably, under these rules, the one who has the opportunities, time and energy to earn more, has more. That doesn’t seem like a partnership to me. There, I’ve said my piece. Back to budgeting.
You need to know the numbers
The first rule of budgeting – whether for yourself or a household – is to round up everything that comes in and everything that goes out. To do this, you need to know the numbers. Even if you haven’t got around to opening a joint account, building a spreadsheet that represents a ‘joint space’ and that both parties can view regularly is a good start.
Remember, it’s only the joint stuff that requires this level of transparency. Once all the essentials have been paid for out of the money that comes in – and, ideally, a level of savings (eg for emergencies) has been agreed – then you should have an appropriate amount going into your and your loved-one’s individual accounts for your own stuff. And that can be as private as you like.
Sensible apportioning of the hair budget
At this point, some couples might want to consider that, if one of them spends the working day at home behind a computer screen with their camera off while the other spends their time travelling the country and presenting important messages to other professionals or the media, a sensible apportioning of the ‘hair, make-up and shoe’ budget might need to be factored in. Nonetheless, true equality would demand that you both have enough personal spends to whisk your Perfect Partner off for a surprise weekend in Paris, have a girls’ night out in Morocco or blow the lot on crypto-currency – all safe in the knowledge that the joint and essential spending is covered.
(A quick aside, here. It sounds simple enough to round these numbers up but it can be tricky to deal with the lumpier spending of one-off insurances, season tickets etc. If you think you could do with a hand, I’ve put a simple ‘How to’ in the section at the end of the blog).
But what if there is no surplus?
So, this is all well and good in that ideal world where you know everything that comes in and everything that needs to go out and there is still a surplus. But what happens if there isn’t a surplus? In that case, you have two options:
- Reassess the ‘essential’ spending and see where you can cut back
- Earn more money.
It’s a brutal message, but one that brings home the value of doing this budgeting exercise in the first place. If you’ve been limping along, wondering why there is always more month than money, this can help you both identify where it is all going and also think about the lengths you are prepared to go to, as Team Household, to turn the situation around.
Can you really afford it?
And it’s an exercise that really comes into its own if you know there are changes on the horizon – either to the amount coming in (change of job, change in hours worked, long-term maternity or paternity leave etc), or to the amount going out (a new mortgage, private school fees, car loan, uni costs etc). If there is no way that you can make the numbers work, then you really can’t afford it and it is better to find that out before you sign young Georgina and Harriet up to the primary school with the blazers and the boaters rather than waiting until new friends have been made and expectations set.
Working to the same notions of affordability
Furthermore, where you have true transparency of your joint commitments, you are both working to the same notions of affordability – and so can avoid the age-old scenario of one of you booking a family Christmas in the Caribbean while the other is persuading the kids to only wear their shoes every other day to save on the leather.
And that concludes my masterclass in household – or joint – budgeting. Like all good students, you will now read the extra notes at the bottom before dutifully trotting off to apply the theory to practice and get started on that spreadsheet.
“What’s that, you say?” “Eugh – budgeting is so dumb. Who needs this stuff, anyway?”
Well, the answer is – all couples do. Not just for the very prudent aim of spending within your means but also for the optimism and team spirit that can come from both of you treading the same path.
A bit more understanding
Detailed budgeting – how to do it
Before you do anything else, sit down together and pour a glass of wine, strong cup of chamomile or whatever fortitude you need, and…
- List the joint/home/family expenditure that is known (ie you have a number for it)
- Monthly Direct Debits (mortgage, gas/electric/ council tax/ TV licence, streaming/ water / phones etc)
- Average monthly spending on food and petrol
- Talk to one another and agree any other individual monthly spending that is essential to the running of the family (eg season tickets for trains to work, work parking permits etc)
- List any lump-sum bills – these might occur annually or termly or on some other basis (eg house/car insurance, breakdown cover, car tax, car service, school fees, children’s regular clubs and activities, uniforms). Add up the annual spend on these lump sums and divide by 12 for the monthly amount
- List any other joint/home/family spending that you would like to budget for
- Estimate an annual budget for any lump-sum spending that you have an element of choice over (eg holidays, school trips, house maintenance, replacement car, long-term savings). Add up the annual spend on these and divide by 12 for the monthly amount
- Emergencies: Aim for a pot of 3 to 6 months’ income in an emergency cash account. If you don’t have this, allocate a monthly amount to build this up. This is for a) unforeseen expense; b) unforeseen reduction in earnings
The total of all the monthly amounts is what you use for the calculation to see if there is surplus for individual spending:
Total monthly money in less total monthly money out = total surplus for personal spending for both of you
Dealing with the lumpier spending
The monthly Direct Debits are straightforward as these automatically come out of your account, but what about the lump-sum bills and the budgeted expenditure that come in on an irregular basis? How do you manage the monthly amount that needs to be allocated to these?
- The easiest way is to open a current account that allows you to ‘ringfence’ savings away from the main balance. The money is still in your account but you don’t ‘see’ it when you look at how much you’ve got left to spend this month. Look for a bank with an app that gives you the option to set up individually labelled savings ‘pots’ or ‘spaces’ that will automatically take a regular amount from your main balance and keep it safe until the lumpy bill comes in. At that point, you just move the money from the pot back into the main balance and pay the bill from there.
- Alternatively, have a running sub-total on your spreadsheet that ‘builds up’ to the month that a particular bill is due and subtract this sub-total from the balance in your account at the end of each month so that you don’t accidentally spend it.
For example: annual bills like insurances, car tax etc
- £2,400 a year = £200 a month
- Set up a savings pot/space into which £200 a month is automatically paid (ideally, you should start this immediately after a bill has been paid so that by the time the next bill is due you will have 12 months’ worth of saved budget). Move it back into the main balance when the bill is due and pay from there.
- Or, subtract a running amount of £200 a month on your spreadsheet as you move from one year’s bill to the next
For example: holiday budget
- £6,000 a year = £500 a month
- Set up a savings pot/space for £500 a month and use as above
For example: emergency pot of 3-6 months’ income
- Say, £150 a month until the pot is ‘full’ and then, either continue or stop until some of the pot needs to be used (in an emergency, obvs) and restart after that
For example: school fees
- £5,000 a term = £15,000 a year = £1,250 a month.
- Set up a savings pot/space for £1,250 a month (starting three months before the first term’s fee is due) and use as above
Talking Finances is a trading name of Talking Finances Ltd. Talking Finances Ltd is an appointed representative of Beaufort Financial Planning Limited, Kingsgate, 62 High Street, Redhill, Surrey, RH1 1SH, which is authorised and regulated by the Financial Conduct Authority, FCA Registration No. 583233
This article represents the personal opinion of Carole Haswell only and does not represent any opinion of Beaufort Financial Planning Limited. Financial decisions should not be made on the basis of this article