All (other) things being equal…in personal finance (relationships/ marriage)

All other things being equal OR ‘Ceteris paribus’ is a phrase that rolled off easily from my Economics Professors’ tongues frequently in college. Add this phrase to any theory, and you can almost always justify your theory within its defined context. For example, we can say that ‘having a personal finance plan in place is beneficial to a couple’s financial stability, ceteris paribus’. In this context, what are the factors that can prevent your joint financial plan from being effective? A key component to executing a financial plan is budgeting.

Whilst talking about budgeting, I’d like to zoom in on the steps that I highlighted in the last article and also talk about 3 things that could prevent you from sticking to a joint budget. As a re-cap, last weekend I mentioned that when putting numbers to your financial plan, you should make a list of all your needs, estimate the cost for the needs, make a forecast for future years and then each determine/ agree your individual contribution to the joint plan.

In your joint financial plan, budgeting comes in when making the list of needs and putting numbers to those needs. There are various guidelines suggested by financial advisors for budgeting, such as the 50:30:20 rule. Such guidelines typically suggest budget allocation ratios to three main categories including Needs, Wants and Savings/ Investments. For each of these categories, you’ll need to decide on what you’ll like to jointly aspire to and which goals (if any) you’ll like to set as individuals. The 50:30:20 rule for Needs, Wants and Savings is pretty standard but you can adjust this ratio as you wish. I recently read an article about a couple (Amon and Christina Browning) who retired at 39 and 41 respectively by saving 70% of their income. For this couple, their joint lifestyle goal was to pursue financial independence and retire way before the average age of 65. Together, they decided to front-load their financial obligations to allow them spend more time with each other and live each day to the fullest. As mentioned previously, your joint lifestyle goal, is as unique as your personal relationship and should be defined by you.

What should I categorise as Needs, Wants and Savings/ Investments?
Maslow’s hierarchy of needs is a good starting point for prioritising in your budget, what you need to survive versus your wants. Your physiological needs (Food, Shelter, and Clothing) and Safety needs (Health, Property, Security, and Employment) should be prioritized over wants. Your wants are still important. As a couple you could decide that it is absolutely important for the sanity of your relationship to go on vacation at least once a year. Savings/ investments are critical to your plan as they act as a buffer when your income cash-flow is impacted.

What factors can hinder my budget?
Whilst diligence and discipline are traits required for sticking to a budget, it is important to understand that certain factors could hinder a budget. These include;