How to cut your budget while keeping your marriage (Part II)

You and your partner have done the hardest work of making a budget: you have talked about why you want to budget and what is important to you.  You have created a list of all of your expenses and sorted them by category.  You may have downloaded one of the budgeting tools mentioned in this article or you may be using your own spreadsheet.  Now you are ready to sort your expenses into needs and wants. (If you haven’t done these things, start with Part I.)

Identify the needs

The next step in making the budget is to identify those things that the family can’t live without.  This would include taxes, mortgage or rent, utilities, insurance, food, childcare while both spouses are working, and healthcare.  Be honest with yourselves about these expenses. Do they include a little bit of want?  Perhaps a clothing expense is 80% need, because you need clothing, and 20% want because you could by a less pricey brand.  You don’t have to divide it out that specifically, but put a star next to items in the need category that include a discretionary amount.  When it is time to make choices later, we will revisit these items.

Can you meet your needs for less?

Many of these expenses will be a fixed amount each month, but that doesn’t mean that you can’t work on reducing them.  Is it time to consider a mortgage refinance?  When was the last time you got a quote for property and casualty insurance?  Perhaps you could get a better price on that now.  Are there promotions you could take advantage of for cable, phone, internet, or cell phone service?  Do you use a “cash back” card or a card that gets you a discount on purchases? You may or may not find a couple of ways to save a few dollars in your needs category while still getting all the needs met. Add these needs to make a total for the category.  Subtract the needs from your monthly income and find what is left.  This is the amount that you have available for family wants and individual wants.

Identify, rank, and total the family wants

Go through the list of monthly expenses and find the ones that are in the “wants” category but that apply to the whole family.  For example, family entertainment, family vacations, services such as getting the house cleaned or the yard maintained.  Rank these in order from most to least important.  Are there any that you are willing to live without? If one spouse is willing to live without it and one isn’t, move it to the next category, the “wants” for each person (we will address those in Part III). For the ones that remain, are there ways to reduce the cost?  For example, if a family trip to the movies every week is one of your wants, could you go to a matinee instead?  If an annual beach trip is on your list, is there a less expensive place to stay? Subtract the total family wants from the amount left at the end of step 3.  This is what you have left for individual wants. Congratulations, you have made it through more than half of the budgeting process!  At this stage you have identified your family’s needs and wants, and you have ranked the wants.  Do you still have some money left for your individual wants?  If so, congratulations again!  If not, spend some more time here looking for ways to get the needs met with less money, or go back and consider ways to increase your family income.  When you are ready, move on to Part III.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations may vary. Therefore, this information should be relied upon when coordinated with individual professional advice.