Family Finance
Module 3: For Richer not Poorer

Presenting a united front

One of the main reasons that Income is under pressure in a new partnership is because her twin sister, Expenditure, is suddenly growing up without clear direction. Like a wayward teenager with busy parents, she is off trying out new things unsupervised, sometimes with serious consequences.

We’ve all heard that children seem to have an in-built radar to detect and exploit any chinks in parental armour, especially those where parents might disagree on an issue.

Expenditure is the same.

It is crucial for financial stability that a couple understand each others spending habits, are aware of the others needs and wants and have an agreed plan. Then when expenditure wants to go on an unauthorised spree, both partners are clear what the other would say about that and can react accordingly.

Before you begin to think that all this asking and agreeing sounds like a financial prison take heart. As I have said many times already, and I will no doubt say again, such is the importance of the point, there are no rules except those you as a couple agree upon. Even those should be flexible and under constant review. We are human beings, growing and changing in an ever faster moving world and our financial plans should allow for that.

It is not Financial prison to discuss, agree and be working together towards the goals and dreams you both want. Financial prison is not having enough money to do the things you want to do.

That brings me to this weeks’ exercises. Before we go there I want to remind you to be kind during these exercises. They may stir up some of the darker sentiments such as resentment and frustration. In addition, it is not unusual for either or both partners to be just plain dog tired from grinding out their guts providing for the family so frayed nerves may also be present.

Go easy, right now you are just fact-finding. Reserve analysis and comment for later.

What is your income?

List all sources of income and how much they provide. The total you take in every month is your “monthly income” When you multiply that by 12 you get your “annual income”.

You probably won’t need any help with this part; it’s self-explanatory. I have however given you some headers, as it is easy to forget some less obvious items or not realize they should form part of your list.

The entire exercise should take you less than 30 minutes. Round off numbers to the nearest £. Estimate on the low side. If you are not sure of a value, make a good guess. Get a real figure as soon as you can get the information.

Salary, Business Income (net of expenses and taxes), Child benefit, Royalties, 2nd Job, Dividends.

• Salary
• Business Income (net of expenses and taxes)
• Child benefit
• Royalties
• 2nd Job
• Dividends.

If your salary is irregular or commission based, take your total annual salary for the last year (less any exceptional income that you might not usually have) and divide it by 12.

You can print out the form below to help you complete this task.

Income Calculation

Where does the money go?

The second action item is designed to help you identify how much your life is currently costing you. In financial terms this exercise is about establishing your “Expenses”.

What that means is that you will add up everything you spend in a month and list what you spend it on.

• The total you spend every month is your monthly “Expenses”
• When you multiply that by 12 you get your yearly expenses.

Don’t panic. Admitting to exactly what you spend is perceived as such a frightening thing. In reality, knowing what you spend and on what is one of the most comfortable pieces of information you can carry in your head.

Again, I have given you easy to follow instructions on how to complete this exercise. I recommend you take a moment and read all the way to the end to get an overview. The entire exercise should take you less than 2 hours in total during the next week although you may have to wait in between the beginning and the finish for some of your questions to be answered. Round off numbers to the nearest £. Estimate on the high side. If you are not sure of a cost, make a good guess.

List everything you currently spend your money on. I have given you a list of items to jog your memory at the end but replace these with your own personal list. You know what you spend your money on. The more detail you put into this list, the more information you will have for clear decision making later on.

Do not spend much time searching out exact figures, estimate and move through this exercise quickly. As you actually spend during the month ahead you can compare back to your estimates and update them until you have a more accurate picture. There is often a difference between what we spend and what we think we spend. The areas of difference will highlight your “blind spots” in your spending…. If you have any.

The easiest way to get the complete picture is to begin with your regular bills or your direct debits. Take each of these, for example your mortgage, and fill in the amount you pay each month. Then fill in the other items, such as groceries, etc with an estimate for each area of expense in your household.

Some commonly asked questions

• What do I do with bills that I pay once yearly?
  You divide these evenly by 12 and put the value in each month. If you pay your car insurance once per year, you still drive it twelve months so the cost is actually a cost to you each month you use your car.
• What do I do with bills that I pay twice yearly or quarterly?
  You also calculate the monthly figure. If you pay twice yearly, multiply the figure by 2 and divide by 12. And so on.
• My electricity/telephone/gas invoices are two months in arrears. How do I calculate what is for one year.
  Take the payments you made over any twelve-month period, add them together and divide by 12.
• What do I do if my expenses are mixed business and household or if I run two homes?
  I strongly recommend that you fill in a separate sheet for each household or for your business. It is not so important at this stage it will give you clearer information for decision making further into the exercises. If you have more than one household or a business, take a separate page for each.
• Christmas is a big expense in my household. Do I put it all in December?
  Even though you spend the money in December, estimate the amount you spend on Christmas and divide it by 12 and add it into your monthly expense. The same goes for your summer holiday and other seasonal events. You still need to earn the money throughout the year to finance these.

That’s all there is to it, so go back now to the start of this Expenses exercise and put in your own list and numbers. Focus on one item at a time.

Expenditure Calculation

Calculate your monthly net profit/loss

Now you have your monthly Income figure and your monthly Expenses figure. Subtract your Expenses from your Income.

• If the result is a positive figure, that is if your Income is higher than your Expenses, you have a “monthly Net Profit.”
• If the result is a negative figure, that is if your Income is lower than your Expenses, then you have a “monthly Net Loss.”

Actions of the Week

1. Use the forms above to calculate your income and expenditure.

2. Create your own financial structure (separately first if you prefer)

Begin to think about what might be the best financial structure for you as a family.

• Would the traditional model of the earning male and stay at home female suit you and if so how will that practically work?
• Will there be a joint family account for housekeeping or cash per week for example?
• Or might you prefer each to keep their own accounts and contribute an agreed amount to common bills?
• If so, what bills will that be and how will the contribution be agreed upon? Maybe you will split the allocation of bills between you.

3. Do Nothing

It’s not decision time yet. A little more information is required to make the best decisions. For now, just put the financial and psychological information on the agenda and begin to see where you sit individually and together.

Your next module will give you tools to analyse the answers to all these action items. For now, just put them all aside, relax and take a break. The hardest part is all behind you.

Have your night out and talk about anything but money.