If you’re like most Americans, your household probably feels less like a well-run business and more like a barely-controlled free-for-all. While it may be unreasonable to expect your spouse and children to exhibit the financial discipline of a highly-paid executive charged with cutting costs and turning his or her company around, it’s not too much to ask for a little more restraint when it comes to managing household finances.
Bad habits are hard to break, however. Whether your household operates on a payday-to-payday basis or enjoys a basic safety net characterized by comprehensive insurance coverage and a solid store of savings, it’s probably far less efficient than it could be. Although your household’s multiple moving parts increase the likelihood of major unexpected expenses, like sports injuries or accidents involving the family car, managing your family’s money is well within your capabilities.
In fact, managing household finance is well within the capabilities of every member of your clan, save perhaps the family dog.
You may all live under the same roof, but you, your spouse, and your kids are all free-thinking individuals looking to get different things out of life. You’ll have an easier time managing your money if you view your household finances as a balancing act between these individual priorities and the family’s collective needs.
First, you need to decide how your family’s finances are to be shared. If you’re the head of one of the few remaining single-income households, there isn’t much to decide: Common sense dictates that you’ll be the one to pay for your family’s food, clothing, utilities and entertainment.
It’s more likely that you and your spouse both earn a decent income, which means that you’ll have to make some tough decisions about how to save, invest and dispose of each individual’s earnings. For convenience, many couples use a joint account to cover day-to-day expenses and maintain personal checking and savings accounts to store contingency cash.
Since most households can’t survive on cash alone, you’ll also need to decide how you’ll use credit. Again, many couples choose to open one or more joint lines of credit, complete with duplicate cards and shared security information. In addition to reducing paperwork, using a single high-limit credit card for all non-cash purchases keeps confusion to a minimum and decreases the chances that a misplaced card will expose you and your spouse to identity theft.
The semi-public nature of joint bank accounts and credit cards may also help to keep your household finances in order by making it harder for you or your spouse to get away with selfish impulse buys. If you find yourself habitually concealing ill-advised credit-card purchases from your spouse or suspect him or her of doing the same, you may need to invest in some couch time with a marriage counselor.
While merging your finances completely seems convenient, the “jealousy” issue isn’t the only case to be made for keeping at least some of your money to yourself. Since it increases accountability and decreases the likelihood that you’ll both miss a payment due to a mis-communication about who was supposed to cut the check, you may find it easier to pay for shared household expenses out of separate personal accounts according to a fixed schedule. For instance, your spouse might take responsibility for your mortgage payment if you agree to cover the cost of groceries and the loan on the family car.
They may technically be your financial dependent until they move out, but you shouldn’t let a label like that discourage you from asking your gainfully-employed teens to pay for a few things around the house. Since they need to start saving money for their own future, you shouldn’t overburden them, but part of their practical education has to involve learning how to manage their expenses as well as their income.
Make sure they pay for what they use, within reason. If they’re cleared to use the family car, they should return it with a full tank of gas or face reduced driving privileges. If their cell phone use isn’t covered under your family’s wireless plan, make them pay the difference or have them use a completely different account.
You can also subtly encourage them to make smart choices with their new-found financial independence. Make it clear that while you can’t control what they buy, you’re no longer able to indulge their culinary or cultural weaknesses. Now that they have some money to their name, junk food, movies, flashy clothing and other frivolous or unhealthy purchases are to be their sole responsibility.
Like your kids, taxes are no doubt a major expense for your household. Short of selling your house and car, you can’t control the cost of your property taxes, but you and your spouse can band together to significantly reduce your income tax burden. Unless one of you is eligible for a lower marginal rate or your marriage was conditioned upon a prenuptial agreement that maintains more or less separate financial identities for each party, opt to file your taxes jointly each year.
A joint filing confers several immediate benefits: It increases the value of the standard deduction, unlocks several other deductions that aren’t available for single filers, and increases the financial benefits of claiming dependents on your return.
Of course, by signing a joint return, you’re vouching for the veracity of your spouse’s income information as well as your own. Don’t file jointly if you’re not willing to do so. If you’re at all uncertain about the filing process or want to learn more about the advantages of filing jointly, visit the Internal Revenue Service’s official website at IRS.gov.
Once you’ve maximized your household’s take-home pay, draw up a budget and prepare to stretch it farther than you ever thought possible. If you and your spouse maintain joint accounts, save yourself the trouble of making separate budgets and lump both of your incomes and expenses together.
If you’re keeping your finances separate, maintain both personal and joint budgets. This will be somewhat more complicated: You’ll need to tally up both of your incomes in separate columns, then subtract the household expenses for which each of you is responsible from this total. Each column’s remaining balance denotes the amount each spouse has left over for personal use.
Since it can be a touchy subject, your household’s debt burden deserves special mention. Even if one spouse is technically responsible for making the monthly mortgage payment, you both share the house in which you live and should, therefore, account for the loan against it as a shared responsibility. The same logic applies to a shared vehicle.
On the other hand, debt incurred by an individual spouse probably shouldn’t be shared. This category most often includes loans for personal vehicles, but it can also stretch far back in time to include old student loans and nearly-forgotten credit-card debts. Unless you’ve fallen on hard times due to unemployment or health problems, it’s not fair to expect your spouse to pay for debts that you incurred on your own in the distant past.
It may seem more complex and risky at first, but managing your household finances requires nothing more than trust, discipline, and old-fashioned common sense.