Red, Yellow, Green: Easy Budget Planning for Couples

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Financial Planning for Couples; The Red, Yellow, Green Budget Planner

By: Gelasia Steed, CFP®

I’ve heard the most common marital fights are over intimacy and money. While I’m not a relationship expert, I do think that one way to improve your love life is to tackle your money problems!

Many newlyweds make exciting plans to save for this and that because they think they’ll have so much extra money once they combine households. However, when the honeymoon is over, many couples find themselves arguing over where all the money is going each month.

Husbands question the “need” for a new pair of heels and wives quickly counter with the “need” for another round of golf.  What is the answer to this age-old problem? Why not try setting up a realistic, easy-to-manage budget, then kicking off those high heels and golf cleats and spending some quality time together.

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Envision 3 buckets of money – red, yellow and green.

Red Bucket is your household account where you deposit your paychecks and pay your fixed monthly bills. Whatever is leftover will determine how much you have for your other buckets. See if you can cut some of these expenses. For example, inquire about cable promotionsrefinance your mortgagepay off your credit cards and cancel that gym membership you’ll never use now that you are married!

Yellow Bucket is your weekly allowance.  Remember how much fun it was to get your allowance as a kid? Each of you have this weekly allowance to spend however you want. Want to bring your lunch to work and splurge at the spa or driving range? No problem. The key is that neither of you have a right to question what the other spends that money on; your allowances are within your budget, so it doesn’t matter.

Setting up individual allowances is a fantastic way to manage weekly expenses that are hard to monitor such as dining out, coffee, groceries, wine, manicures, etc.  Of course, if you’re supposed to do the grocery shopping, you can’t skip that so you can get a massage! And if you run out of cash before the end of the week, you might be in for a boring weekend.

To help ensure your allowance lasts, withdraw it in cash each week. On average, people spend 30 percent less when using cash. It’s important that this allowance is sufficient to cover your weekly needs without you feeling deprived, but it should not be more than you need.

Green Bucket is for future spending needs. You probably already set aside money for retirement in your 401(k) or IRA. You may even have a college savings 529 account for your kids. You set aside this money in separate accounts because you would spend it if it were readily available in your checking account. Designated accounts make it easy to save and easy to spend within the parameters you set.

Want to go on a lavish vacation each year? Autodraft a monthly amount into a vacation savings account and watch it grow. Do you tend to go overboard on Christmas gifts? Set up a separate gift account with a monthly autodraft so you are limited to the amount you can spend. You might have to skip the “Rock-n-Roll Santa,” but you’ll be glad when you get your credit card bill in January!

House and car repairs are never expected, so set up a separate account that is designated for emergencies. You should keep three to six months living expenses in this emergency account in case you lose your job or get sick, so be sure to replenish it if you dip into it for AC repair.

The red, yellow and green budget is very user-friendly. It takes a little tweaking in the beginning, but then it works automatically without much thought. Setting up a bunch of accounts may seem like a bookkeeping nightmare, but you don’t need to balance a savings account because you only transfer the money to your checking account (red bucket); you don’t debit or write checks out of it.

If your accounts are getting drained monthly, you may need to add more to your weekly allowance to cover the frequent expenses. If you’re running out of allowance each week, consider increasing your allowance. Just remember, when you increase one bucket, you must decrease another – typically, your future fun accounts.

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So, did this give you some ideas for improving your love life?

Thanks to Marty Kurtz with First Step Cash Management for developing this innovative cash flow system.

Gelasia Steed is a Certified Financial Planner® professional licensed with a registered investment adviser that provides personal financial advice online for a fee. She enjoys skiing, scuba diving and entertaining friends. Contact Gelasia for help with virtually any financial advice need.

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