Cash Flow for Couples: A Simple Framework for Combining and Managing Your Finances

Many couples I work with are millennials in their first 5-10 years of marriage, and life is happening fast. They're getting married, traveling the world, buying houses and investment properties, starting a family, moving cities, changing jobs, raising young children, and everything in between, each phase as transient as before. 

Their dreams and goals as individuals, as a couple, and as families are moving targets, constantly evolving and adapting to the circumstances. 

I think about how this is just beginning for my younger sister and brother-in-law. This past weekend, I witnessed them tie the knot in a beautiful ceremony overlooking Mt. Hood near the Columbia River Gorge. It is such a happy and exciting time for them in their lives - they're moving into their first apartment together, and over the next year, they have goals of enjoying lots of travel as newlyweds.

Even before marriage, when you're in a committed relationship, your financial life can quickly become intertwined with someone else's. It's essential to make sure that you're on the same page regarding your finances and that you have a plan for how you'll handle money together.

Today, I’m sharing a simple cash flow framework for combining and managing your finances as a couple. This framework allows you to communicate more effectively with each other around money decisions so that you can be confident the way you’re using your financial resources is genuinely in line with what you value most.

BEGIN BY SCHEDULING REGULAR MONEY DATES

In his bestselling book The 7 Habits of Highly Effective People, Dr. Stephen R. Covey says, "beginning with the end in mind means to think about how you would like something to turn out before you get started.”

With this statement of intentionality as our inspiration, one of the most important things you can do when you first get married or find yourself in a committed relationship is to talk about your finances early and often.

These recurring “money dates” initially provide space to discuss your relationship and upbringing around money and your current income, debts, and spending habits. During your first money date, consider asking one another some questions that get to the heart of your personal money story:

What is your earliest money memory?

What does the word “money” mean to you?

What events or situations reinforced your beliefs about money or caused them to evolve?

How do you typically spend your time and money now? What values are these behaviors reflecting?

Are there any changes that you’d like to make?

It’s essential to listen to your partner’s answers to these questions with empathy and understanding. We’re only human, and we’ll each have particular strengths and weaknesses when managing our money. Openness and honesty from the start of your financial journey together provide a practical foundation to fall back on when money arguments inevitably crop up in the future.

From there, regular money dates allow you to hold each other accountable for your family's financial health and check in on your joint progress toward future goals and dreams. By having an open dialogue about money, you'll be able to work together to create a spending and savings plan that suits both of your needs.

Even those of us who are 10+ years into marriage will benefit from scheduling regular money conversations with our spouse so that we can talk openly about our financial goals and what we want to achieve individually and together. 

WHY TRADITIONAL BUDGETING & MONEY FLOW DOESN’T WORK

The majority of successful, dual-career couples don't bother with budgets. Who can blame them when traditional budgeting is a backward-looking approach that's all about judging ourselves regarding the money that we already spent?

Another problem arises in how most people set up and manage their household income by having direct deposits flow into one primary checking account. When you’ve got one bucket where your paycheck comes in and expenses go out, paying attention to how money flows in and out of your lives is difficult.

The result? Without clarity around money flow, especially when you’ve got two partners making purchases, we overspend when we didn’t mean to, and savings goals are merely an afterthought.

 A NEW FRAMEWORK: THREE BUCKETS OF MONEY

A more effective approach is to implement a forward-looking cash management strategy. You can divide your incoming cash into three buckets of money:  the Static Bucket™ (past expenses that are recurring), the Control Bucket™ (current expenses that will happen within the next seven days), and the Dynamic Bucket™ (future expenses aka savings goals). 

This framework, known as the First Step Cash Management™ system, was created by Marty Kurtz, CFP® and founder of The Planning Center. Marty worked closely with an organization called Money Quotient to make the tool available to other financial planners like myself so that I could leverage it effectively with my clients.

FSCM is an excellent structure for couples and families to come together and decide what matters most and how they want to categorize their expenses moving forward. It’s also easy to make changes along the way as priorities shift. There are even some specific ways you can think about joint vs. individual spending accounts that provide more independence in how spouses spend some household money.

Let’s analyze each bucket in more detail by using my family’s expenses as an example. 

THE STATIC BUCKET™ - PAST EXPENSES

This category represents recurring expenses that you’ve committed to in the past. These expenses would include monthly or annual regular expenses, all broken down to a monthly timeframe. Think of this bucket as your 30-day money.

Klingaman Family Static Expenses

• Mortgage Payment

• Car Payment

• Services/Utilities

• Subscriptions (Netflix, Amazon Prime, etc.)

• Full-time childcare (3-year-old)

• Dance & Piano Lessons (6-year-old)

• Charitable Donations

• Annual Taxes & Insurance

THE CONTROL BUCKET™ - PRESENT EXPENSES

This bucket represents your household variable or discretionary expenses you need to pay for in the present, specifically over the next seven days. The weekly timeframe makes this category unique - again, you’re only considering the money you’ll need for variable expenses over the next week.

Klingaman Family Control Expenses

• Groceries

• Eating Out

• Gasoline

• Coffee

• Target/Amazon

• Recreation & Entertainment

• Yours & Mine Expenses

The last item, Yours & Mine Expenses, represents individual checking accounts for me and my husband where we can spend/save on items related to ourselves without judgment from our partner. I cannot recommend this structure enough! Now my husband doesn’t have to hear me complain when he buys what I deem as excessive/unnecessary mountain biking and disc golf gear. 

We’ve also used these accounts to save for and purchase gifts for each other in the past. However, we recently decided to stop buying gifts entirely for birthdays, holidays, anniversaries, etc. That’s one less thing to worry about when you’ve got two young kiddos running around; plus our love languages are more focused on quality time than receiving gifts. Instead, we always try to have a fun experience/vacation to look forward to, whether it’s something we’re doing solo, as a couple, or as a family.

THE DYNAMIC BUCKET™ - FUTURE EXPENSES

This category represents your future expenses, and it’s where you’ll automate your savings goals. Rather than have just one savings account that you add money to at the end of the month after you’ve paid for your other expenses, you’ll create multiple savings accounts tied to specific goals. You’ll allocate a certain amount of money into these accounts, ideally right from your paycheck. 

When you get married, setting some financial goals together is essential. Plans might include saving for a down payment on a house, an international vacation, launching a business, or creating an emergency fund. Having shared goals will help keep you both accountable and motivated regarding your finances.

This setup frames your savings goals as non-discretionary expenses, so you prioritize saving first rather than collecting what you have leftover at the end of the month. It’s also much easier to visualize reaching these goals when you set up one account for each future expense and watch the balance slowly grow over time.   

Klingaman Family Dynamic Expenses

• Emergency Fund

• Vacation Fund

• Home Improvement Fund

• Birthday & Holiday Gifts Fund

• Selfcare Fund

Currently, in our family, we are not adding any more money to our emergency fund; it holds steady at an amount equal to 3-6 months of our family expenses (static and control categories). 

Our other dynamic accounts are more like sinking funds where we add to them monthly in anticipation of future expenses in those categories. Next year we plan to take a trip to Italy with our extended family. In the meantime, we’re adding a monthly amount to the Vacation Fund and will eventually pay for any travel expenses related to the trip using money from that account.

REROUTING YOUR MONEY FLOW: HOW IT WORKS

I want to suggest some mechanisms for success with this cash management system. It might look good on paper, but what’s the best way to put this into practice?

Using my household again as an example, here’s how money flows in and out of each bucket:

The Static Bucket™

• Checking Account (monthly recurring expenses)

• High Yield Savings Account (sinking fund for annual recurring expenses)

• Direct deposit into these accounts from our paycheck

• Pay for these expenses with a credit card and pay the balance in full each month out of these accounts

The Control Bucket™

• Yours, Mine & Ours Checking Accounts

• Weekly transfer from Static checking account to the three Control accounts that cover our estimated variable expenses over the next seven days

• Pay for these expenses with a debit card directly tied to the checking account, so we can monitor the balance and not overspend

The Dynamic Bucket™

• High Yield Savings Accounts for each future savings goal

• Direct deposit into these accounts from our paycheck

• Pay for these expenses with a credit card and pay off the balance with money saved in advance in the corresponding savings account

A note on credit card points: I realize some of us are very protective of those points and prefer to use our credit card for every transaction if we can manage it. Even high-income earners tend to overspend on their credit cards since you can rack up a balance and pay it off later. Utilizing a debit card, especially on your Control Bucket™ expenses, enforces more guardrails on your spending habits and helps you protect those future savings goals with greater ease. 

WHY USE THIS OPERATING SYSTEM?

If you’ve seen my process for working with clients (or if you’re a current client!), you’ll know that before anything else, I work with you to clarify what you value most and help you envision all the possibilities that would define your most fulfilled life. Doing so gives us a lens to look through when making future financial decisions.

From there, the First Step Cash Management™ system is a bridge between defining what matters most to you and making that happen through the organized flow of future money. As Napoleon Hill says in his book Think and Grow Rich: “You become what you think about.”

Focusing on a goal-oriented cash flow system is vital as a foundation for more complex financial planning strategies. Otherwise, clients won’t have the success they’re looking for to use their money to enjoy life in the moment and grow their net worth over time.

For the professional women and dual-career couples I work with, we continually revisit how they want to use money as a tool to support their great life as dreams become a reality and new possibilities emerge. This cash flow framework easily adapts to those changes. 

I encourage you to sit with your partner and discuss how you might implement this system together. I hope that it allows you to communicate more effectively with each other and have better insight into the spending behaviors you might want to curb to better align your money with what we value most.

If you’d like customized help using your financial resources effectively in order to make the most out of your wealth-building years, please schedule a free consultation here or email me with questions kelly@kkfp.co

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Disclaimer: This blog post is not intended to be a substitute for specific financial, tax or legal advice. The article is for general informational purposes only. Reproduction of this material is not permitted without written permission.

© 2021 Money Quotient, Inc. All Rights Reserved. First Step Cash Management System™is owned by The Planning Center, Inc. and distributed via licensing arrangements with Money Quotient, Inc.