Q. My husband and I have been married for a little more than one year, and he wants us to go on a budget. I think that is ridiculous, and I am very uncomfortable with keeping track of every little expense.
The only debts we have are $19,000 on a credit card and a car payment. The credit-card debt is justified because we had to buy some basic things to make our apartment feel like a married couples place versus a college hangout. We pay our rent and all of our other bills on time. We are also saving $50 a week toward a down payment to purchase a home.
Ive agreed to write to you, and if you say we need to budget, Ill try it for six months, but I hope you agree with me based on the facts provided that we are doing fine without one.
Youre uncomfortable with a budget, but your husband might be uncomfortable with $19,000 in credit-card debt. Disagreements over finances can put a big strain on a marriage; dont let this happen to you. A recent poll on the National Foundation for Credit Counseling website ( nfcc.org) revealed that 57 percent of respondents misunderstand the purpose of a budget, viewing it as a restriction on their spending, when in fact, just the opposite is true.
A budget actually provides the structure through which a person can be in charge of his or her spending, directing the dollars to their best use, NFCC spokeswoman Gail Cunningham said. Spending should be a reflection of a persons priorities, but without a plan, the priorities often get pushed aside in favor of the tyranny of the urgent.
I suggest you make a budget, track your cash flow, and get your spending under control. Having $19,000 in credit-card debt is not a small matter. If you have a tendency to spend more than you can afford, credit-card debt will always be a problem. Youll never be able to achieve important financial goals without a struggle if you dont get a handle on your debt. It may make sense to divert the money you are saving toward a home to the credit-card debt because of the interest rate on the card versus the rate of return on savings.
The following budgeting steps may be helpful:
1. Keep track of what you spend each month for up to six months. Use a notebook, a software program, your check register or anything that works for you. Make sure you keep track of all expenses. Most people can tell you what they spent $50 or $100 on, but its the consistent $10 or $15 dribble that builds into $100 of wasted money.
2. Analyze your spending patterns. Categorize your expenditures into groceries, eating out, entertainment, and so forth.
3. Separate the categories into fixed and variable expenses. Fixed expenses are things like rent and insurance. Variable expenses are those over which you have control, such as groceries, eating out and clothing.
4. Add up all your monthly expenses in each category, and write down the totals. Arrive at a total for both fixed and variable expenses.
5. Add up all your after-tax income for the month, and subtract your fixed expenses. The result is what you have left to spend on variable expenses.
6. Review your variable expenses, and allocate the money you have left after paying all your fixed expenses. Take a look at where you can cut down so more money can be applied toward your credit-card debt or your 401(k) plan.
7. Keep track of what you spend in each category, and readjust your budget or your spending habits if you need to.
There are many helpful budgeting tools on the Internet, and a very good source of information is the NFCC website.
Holly Nicholson is a certified financial planner in Raleigh. She cannot answer every question. Reach her at askholly.com or P.O. Box 97128, Raleigh, NC 27624