Can a budget help your marriage?

There are three rings involved with marriage. The engagement ring, the wedding ring, and the suffering
–Unknown

The sum which two married people owe to one another defies calculation. It is an infinite debt, which can only be discharged through eternity
–Johann Wolfgang von Goethe

The bonds of matrimony are like any other bonds – they mature slowly
–Peter De Vries

I’ll admit it: I’m not usually a fan of budgets. They are hard to create, hard to follow, and impractical tools for managing the randomness of life. I’ve written in the past about why I don’t budget and what I do instead of budgeting.

But I now see that there is a very important reason to budget: in marriage, all of the rules change.

I learned about this perspective in an email exchange with Erik, a long-time reader. Erik not only explains why budgets are useful but he also relates budgets to game theory. Here is his insightful email:

Presh, I agree with you that budgets can take the form of a “diet” with all of the associated perils. Often this is how budgets are pitched by so-called experts.

In a household headed by 2 people, however, a budget can serve a different (I would argue much more valuable) purpose: a CONTRACT to cooperate for a better outcome than would be achieved if the 2 individuals acted on their own.

Think of it as a 2-person game where each player has the following possible outcomes:

• Spend some now, spend some later = 5 points
• Spend lots now, spend none later = 3 points
• No money to spend (all spent already) = 0 points

In 2 person households without a budget agreement in place, it is too easy to end up in the (3,3) outcome. Each person will want to “spend now” so that they other person doesn’t spend everything and they end up having nothing to spend. (in households that use credit, the practical reality is likely to be debt — an even worse outcome)

In a 2 person household with a budget agreement, a (5,5) outcome is more likely because the budget agreement facilitates cooperation.

Many couples are losing the game of household finances. As you so often say, “change the game” when you are losing. In 2-person household finances, a budget agreement might do the trick.

Yes, the couple would still need to collectively “diet” to avoid going into debt. But dieting will be remarkably easier to do when a budget agreement is in place to help them avoid the sub-optimal Nash equilibrium of “spend now before the other person spends it all.”

What are your thoughts?

I love how Erik equates budgets with contracts, somewhat related to the game theory idea of focal points.

What are your experiences? Do budgets help you communicate in relationships, or are there other complications? What tools* do you use to budget?

*I am working on adding a budgeting feature to the Simple Expense Tracker, a free spreadsheet offered on this site. Suggestions would be welcome!