Money money money: how we manage our household finances

A couple of friends have been curious about how the SO and I manage our finances, what with our eating out and other sheenanigans. Since it’s not really a secret, I thought I might share how we do it.

Flickr image by 401K

 

I once read somewhere that Jews apply the rule of thirds to managing their money.

Whether or not this is true, the SO and I chose to apply this rule with our household income early in our marriage. And after 4 years, it’s proven to be relatively successful in putting us well on the path to achieving our long-term goals, despite our lack of investments (such as shares or property) and my (very) low tolerance for risk taking.

Obviously what works for us might not work for you and we’re not financial advisers, but perhaps this might inspire you with your own household financial situation, or give us some pointers how to improve ours.

So what goes where?

Our total income (after tax) is divided into thirds.

One third goes into a joint high interest savings account.

This account is the nest egg – meant for any long-term and/or joint large purchases (eg. buying our own home, furniture, larger holidays).

  • It is only accessible via online banking (ie. No bank cards attached to it).
  • Any purchases being made from that account must be agreed to jointly.

One third goes into a joint daily transaction account.

This account is for joint living expenses (ie. Rent, electricity, groceries, insurance, petrol).

  • We each have a bank card linked to this card.
  • Purchases from that account need not be agreed to jointly, but items should not cost more than $300 per item.

One third is for our own individual savings/expenses.

This account is for personal purchases (ie. Hobbies, gadgets, dining out) or savings. It is basically up to us individually to manage this sum.

The SO and I surprisingly manage this third in a similar manner: we divide this third in half – one for savings, one for personal purchases. I should also mention this includes clothing purchases, which is terrible for me.

 

Of course we are not perfect and have on many occasions overspent in one or another account (Christmas is the WORST offender), but with this model, we know our limitations and are better able to budget on a weekly/monthly basis.

What’s your household budget model?