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.
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.
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Your method of handling individual finances is exactly how we do it.
Would you mind if we included this post in our upcoming Relationship and Finances” extravaganza? Thanks!
I’d be honored and very pleased if you were to include my post. Thanks in advance!
—Andy
We also use this system because I really wanted freedom to spend money without needing to budget for it and I wanted the partner to be able to buy items without having to justify it. The other big item included in this allowance is eating out for lunch. Lunch expenses took a big chunk of our monthly spending and I wanted to encourage us to save money by taking lunch from home. The best way to do this was to just allocate a little more in the personal funds and budget nothing for lunch. For me, losing money from my personal funds is a bigger incentive to bring a lunch than just “saving money”. I can now thing – do I want to go get a sandwich or do I want to go on a mini-vacation in a few months instead…