My wife and I knew we weren’t saving enough for retirement and other worthy goals. Month after month there didn’t seem to be anything left over to throw at our Roth IRAs. Additionally, she was frustrated because of my constantly trying to justify purchases related to my hobbies, and I felt like she was spending too much on decorating the house.
Chatting with a friend one evening, I described our concerns. He indicated that he and his wife had a monthly allowance program. They started by looking at their budget. From there they determined how much each person would get on a monthly basis. The rule was that one spouse didn’t have to answer to the other for how the money was spent.
If the husband wants to blow it at the arcades, no problem. If the wife wants to pamper herself with a manicure, so be it. No purchase could be too frivolous because it’s money that was budgeted to be spent.
We started this practice back in May setting aside $25 per month for my wife and $25 per month for me. We also established annual budgets for clothing for individual family members, craft supplies for the kids, and tools (we like to think of ourselves as do-it-yourself-ers). I should add that money received from birthdays and holidays is added into our allowances, so we also get to spend that however we’d like.
If the budget for one of those categories (e.g., clothing, craft supplies, etc.) isn’t enough, we might meet to change the amount. If only one of us feels that a budgeted amount was too low, we’re welcome to spend our allowance on purchases beyond the original allocation. For example, if I don’t think I had enough budgeted for my clothing but my wife thinks I had more than enough, the only way I can spend more than the budget is to use my allowance.
We’ve decided to allow a little bit of operating “in the red” in order to take advantage of an occasional good deal on something that we’re looking for. I’m not sure what it says about each of us personally, but I tend to be more the saver and my wife is more the spender. She’s very pleased with what she gets for her money, but of the two of us, she’s more likely to be at (or just beyond) her budgeted allowance.
The honor system has been working well for us so far (as far as I know anyway!), and we have our own Excel spreadsheets to keep track of allowance spending. Depending on how good each of us is at demonstrating delayed gratification, we could build up a decent pile of money. If I were to save up my allowance for a couple of months and invest it in some way, I could potentially increase my monthly allowance since the money (and any proceeds from investing it) are mine, all mine.
The result of this program has been that we’re both much more careful with our spending. Purchases are no longer made with money coming out of a large pot with no personal accountability. We think through buying decisions knowing that there’s only so much and once we spend it, it’s gone.
Will this approach to personal finances alone make you wealthy? Probably not. But it does offer a great way for you to bring some of your spending under control. It’s also a constant reminder of the importance of budgeting and living within the boundaries you set.