Finances are amongst the most important part of life for people anywhere in the world. Getting finances right is one of the pillars to building a successful marriage. Research has shown that money is the primary reason for marital conflict in couples, regardless of their age bracket.

Disagreements about money are the top forecast parameter of whether a couple will stay together or not. Arguments about money take longer to recover from and cause resentment and further conflict.

In managing money together, there should be clarity about who will bear what expenses, especially if one partner earns more than the other. If both partners are earning and plan to continue to do so, managing money as a couple can be awkward to sort out with two salaries and two (different) financial situations joining. Or one partner has an existing debt burden or financial responsibilities like family support or student debt to pay off. In such cases, a clear decision needs to be made by both partners to ensure a clear distinction of finances.

Regardless of whether you are just getting started on the financial aspects of your relationship or you’ve been trying to work things out for a while, there are some different ways money can be managed as a couple. Follow the tips below to improve your money management and marital life.

Managing Money with a Single Income

If only one spouse is earning, they will be the one managing the marriage’s finances. However, the non-earning spouse can help reduce expenses by managing the budget in any way possible.

Insurance

If a spouse is unemployed and looking for work, learn from this and opt to get some form of insurance to cover any emergency. Insurance in any form acts as a buffer between financial crises in case the earning partner falls sick or is unable to work due to physical issues.

Having an insurance policy helps to protect the couple financially, allowing them to maintain their expenses and pay bills.

Joint Account for Expenses

Managing the expenses of a household and managing to save is even more important if only one is earning. It is better to manage savings and limit expenses by having a joint account for household expenses. This will allow for the budgeted expenses to be managed better.  Savings should be kept separate in another account that is not easily accessible by either spouse. Plan for any emergency and make sure that your spouse knows which accounts are for which purpose and enlist them as next of kin so that in case of sudden death or incapacity, your finances are manageable by your spouse.

Combined Finances

If both spouses are working, an agreed amount from both incomes can be deposited into the joint family expenses account, and both spouses use the account for all joint household (or agreed upon expenses). This allows for tracking the expenses and should help control the joint budget. All expenses and savings are managed from the pooled income.

Doing this will require both spouses to sit down and discuss their incomes and household expenses. After this, a reasonable household budget for joint use should be easy to finalize. This joint budget should be set according to a mutual agreement, and it should be manageable for both incomes.

Doing this will require cooperation about personal expenses and impulse buys. Whatever the parameters, they should be clarified here so that there is no argument about spending in the future.

Combined Finances with Individual Pocket Money

In this option, both partners combine their incomes into the joint account, and all expenses and savings are managed from the pooled income. One of the expenses is pocket money for both spouses for their personal use.

This can be a better option for couples with a shopaholic spouse. This helps to avoid arguments by giving the impulsive partner money to spend as they wish, without affecting the joint expenses or affecting savings. The other partner also gets money to spend as they wish.

The details need to be agreed upon; however, is the pocket money equal? Or based on the contribution to the joint account? What spending will be done under pocket money? Dining out? Gifts for each other? All these questions need to be settled.

Separate Finances

In this method, both incomes are kept separate. Both spouses manage their budgets, bills, and expenses. There are no joint bank accounts, budget, or bills. Both control their income and are financially independent. However, this is an impractical (and impossible to manage) option as you will be living together and managing the house, its utilities, and grocery expenses.

This separation allows the responsible spouse to protect their income from their spouse’s irresponsibility. Ideally, the couple splits expenses in this situation, like the husband pays the utilities and the wife manages the grocery bill. This may be a better option for higher-income earners as they can manage their separate responsibilities without needing assistance. It can also allow for better financial management if one spouse is not responsible for financial management.

Share all Expenses Equally

In this technique, all expenses are divided equally for all agreed expenses. This means that all agreed-upon expense heads like dining out, groceries, utilities, and insurance payments are all split equally and shared. Many couples swear by this method as agreed-upon expenses are easily managed without argument, and most have money left over to save and spend as they want.

However, this method is only fair if both spouses earn in similar income brackets. If the income brackets are different, the lesser earner will face a strain and have lower money left for saving and personal spending. If added to the joint spending pool, this method will also affect long-term decisions like insurance policies, house loans, etc.

The lower earner will not afford the new expense and may not agree to opt for it. in such cases, you can decide to reevaluate the joint financials for long term financial planning

Share Expenses By Income Percentage

In this method, a fixed percentage of each partner’s income goes to paying the joint bills. This ensures that the person making more money contributes a larger percentage for the bills. The person making less pays less. If you earn 60% of the income, you will pay 60% of the bills.

There are various ways to manage this, but the easiest is to have all accounts separate, with one joint account for joint expenses with equal access for both spouses. List down how much you both earn and add it up. The individual income divided by the total income w3will give you the percentage income for both partners.

Add up total average expenses and multiply by the income percentages to get the amount you will need to pay to manage the joint expenses.

To sum up, there is no fixed formula to budgeting, and when there are two individuals and incomes involved, the task becomes even more complex. However, you can always use a mix and match approach, using the larger income for spending and the lower-income for savings.

While saving and managing expenses is the main goal, you can always change the approach to see which works best. You can always try one method and switch to another after a month or more. The key is to remember that you are a team now and need to work together to plan for a better future together. It is important for a couple to be involved in financial decisions and agree upon all major decisions.

Sadia Zaheer

Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.

The post Tips On How To Manage Money After Marriage appeared first on Smartchoice.pk.

This is particularly true with the growing inflation that makes money fly out of our wallets. Inflation rose to 11.5 percent in November 2021, compared to about 9 percent in October.

This state of being broke at the end of the month is not the norm, and it can be avoided by having some discipline in your spending patterns. To do this, sit down and acknowledge that you have a problem. Once you do this, you are ready to build your budget around your income.

Budgeting is the basis of every savings plan. Whether you earn six figures or live paycheck to paycheck, you are likely wasting money somewhere you shouldn’t be if you don’t budget your income. Unlike the common misconception of pinching expenses and not doing anything fun, budgeting is just a process of keeping track of your income and going.

You can download many of the free budgeting apps available online for free to plan your budgeting campaign.
Words of caution, getting your spending habits on track and following the budget pattern can take time. You will have to follow it and keep following it regardless of failing initially.

Ignore the fails and keep on following your plans to achieve financial success. There is a step-wise process that you can follow to financial independence.

Steps to Financial Freedom in Pakistan

1. Set quantifiable financial goals

These are not the ‘mein bara aadmi banoon ga’ type of goals we all have as kids. This step is about consciously setting aside a fixed amount of money and giving up on some of your unnecessary spending to achieve it.

The amount should be realistic and possible to do. For instance, if you earn PKR 70,000 per month, saving PKR 20,000 may be difficult now if you are running a 4-member household with no other income.

Your goal should be achievable and realistic. Maybe try to save 10,000 but be prepared that a maximum of 5,000 may be used up in emergencies and month end money crunches.

The more detailed this goal is, the more possible it will be to work (and save) towards it. Break your goal into numbers to see how much you need to get there.

2. Split up your income into different bank accounts

Now that you have set a goal to save up a fixed amount every month, you should invest in opening two different accounts.
You already have a salary account to pay your bills, utilities and draw money. If you don’t get paid through bank transfers, open an account ASAP to deposit your salary as soon as you get it.

Having different buckets, or in this case, accounts, to keep your cash in will help to follow a financial plan.

You need to have separate accounts for the following purposes:

1. An account for your daily and fixed monthly expenses. This can be your salary account if you have one. Ideally, this account should have good online banking services and an efficient ATM network. It should also allow for automated monthly transfers.

2. An account for your savings. This should ideally be one WITHOUT any ATM or online banking support for withdrawals. You can have your savings amount directly debited via automatic transfer from your salary account.

The next account may seem to be a little extra, but it is for those who have multiple goals to save up for and don’t know how to prioritize or want to have different heads to organize their savings:

3. An account for your savings. Ideally, this should also be without any ATM or online banking support for withdrawals. You should be able to automate the savings amount transfer from your salary account. If you want to save up for a car or your kids’ higher education, or a house, have separate accounts for these heads setup.

3. Budget your spending to less than 50% on necessities

Now that you are clear about your goals and what you want to do with what you save, it’s time to deal with the practical stuff. If your take-home salary is Rs. 50,000, try to restrict your spending to PKR 25,000 on necessities.

A well-made financial plan can help you keep track of your spending habits and help you identify where your cash is going. Documenting all spending heads can expose areas where you are spending more than you should. Maybe you spend more on groceries because you go somewhere that charges more. A budgeting exercise would help you identify where you free up additional cash.

Now necessities are the groceries, utilities and rent that you pay. If your take home pay is Rs. 50,000, living in a rented place of PKR. 25,000 doesn’t make sense unless you share rent with others and save on commuting expenses.

Similarly, lunching out regularly or fancy coffees from expensive cafes do not make economic sense. If you have children, their school fees and van expenses are necessities. Outings to Sindbad and fancy tablets do not count as necessities no matter how much social media tells you otherwise.

Keeping to this 50% necessities rule means 50% of your earnings on savings and non-essentials.

4. Limit non-essentials to 20% of your income

Keep 30% of your income for savings and investments. At the same time, the balance of 20% should be used for hobbies, non-essentials like clothes, shopping, and entertainment.

The challenge here would be restricting yourself to stay within the 20% amount you get each month. This amount can be spent on high end clothes, tech gadgets or saved up for a vacation abroad, and it is entirely up to you. All you must focus on is to stay within the budget of PKR 10,000 (20% of Rs. 50,000).

Now, supposing you want to travel to Dubai, you will need to save at least Rs. 100,000 for your trip. This means that you must put aside some money from your 10,000 a month to save up for this holiday.

5. Save the remaining 30% by investing in high return accounts and investment options

Those who continued to get a paycheck during the lockdown in 2020 and 2021 are extremely lucky. Those that were laid off and had to rely on their savings would know just how important it is to have a sizable amount saved up for emergencies.

Ideally, this 30% of 50,000 (PKR 15,000) should be saved up in a high return savings account or other investment options like mutual funds, stocks or insurance policies. All options should be such that withdrawal can be possible at a week’s notice. Deposit interest rates in 2020 were 7.47%. The same deposit will earn you over 11% if placed in Defense Savings Certificates as of December 2021.

The charm of this is that you can diversify your savings into multiple heads. A fixed deposit for emergencies, a savings plan for children’s education or marriage, your marriage, and another long-term plan for retirement or health emergencies like disability.

• The emergency fund

The emergency fund can be used to save up money to get enough to make a down payment on an insurance policy, car, or even a home. This is also your backup funds in case of job loss, or medical emergency, or any other unexpected sudden expense like a microwave burnout or UPS battery replacement.

A basic rule to follow is to have 6 months’ salary or living expenses always saved up in this account. Anything over that can be placed in short-term investments. If you are in a stable and well-paying job that will give you a severance package if they fire you, keep up to 3 months’ salary in this account and invest the rest.

• Insurance or savings plan

If you get medical coverage from your employer, count yourself lucky. If you don’t get coverage from your employer, you need to invest in good medical insurance to cover medical consultations, investigations, and procedures.

Getting insurance is particularly important if you have dependents like your parents or children. Take a policy that offers payouts to dependents on your death or yourself in case of a disability or health issue that stops you from working.

Deciding on an insurance policy will require research into mixing and matching policies. You can visit our insurance guides or book an appointment for our insurance advisors to guide you on your insurance plan.

• Investments

Investing in higher return plans for long-term and retirement goals is a smart financial decision to make. You can opt for stocks, property, unit trusts and savings certificates.

Starting this early and saving up a little every month is key to keeping your investment growing. Compounding will do the rest for you.

Final Advice

According to the break-up detailed above, you can manage your money well by following the 50-20-30 rule. The rule is a standard for savings globally and should stand by you well.

In the case of dual-income households, the rule should apply to both incomes, or break up should focus on more savings and less spending on luxuries. Having more income will mean that you can save up more and have an effective savings plan lined up for your future wellbeing.

Sadia Zaheer

Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.

The post Managing Income in Pakistan: A Guide to Budgeting Money and Expenses appeared first on Smartchoice.pk.