Developing a personal budget and annually adjusting it is a mentally taxing, sometimes frustrating process. Every cubicle of expenses requires some portion of the given funds available. For fixed expenses, the allocations are set to known amounts and the only frustration is how much is left over after making those allocations. Setting the variable allocations requires judgment and the month by month and annual tracking of expenditures in those categories. In my preceding blog post Creating an Accurate Monthly Budget – On the fly! I explained how to go about that effectively.

Discretionary allocations cause the most challenge as those expenses are in a tug-of-war for the limited remaining funds. They also involve some degree of emotional pull and wishful thinking. One would like to set all the discretionary expenses at the highest allocations possible. The reality is most of them must be set at allocations much less than one desires. There simply isn’t enough money to do all the things completely. Some cannot be done at all in a given year, those being set at zero allocation.

When two people are involved in the family budget decision-making the challenge is heightened greatly. Each person imagines his or her own discretionary expense needs and relative sense of allocated amounts. For a husband and wife; he wants golf lessons and she wants dance lessons, he wants an overseas vacation and she wants a domestic trip etc. etc. etc. Those different wants magnify the tug-of-war process. To minimize the stress and tension the author strongly recommends the use of a budget planning retreat. Here’s how that’s done.

The budget planning retreat should be held at a comfortable location in a nearby other town or city. A nice hotel on a slow weekend for hotel traffic is an excellent choice. Avoid or minimize using the hotel room itself. The hotel should have a large enough atrium area or lobby area for finding a privacy spot. Comfortable seats and a table large enough to spread out items are musts.

February is an excellent timing. All expenditures for the prior year have cleared. Other than at resorts and beach areas, hotel rates tend to be at their lowest rate. Pay for the retreat from the Rainy Day Savings Account. If the saved funds are adequate then you might travel by air to a more unique location.

Prepare in advance by compiling the budget information (allocations versus expenditures) for the past year. Usually one of the two people is responsible for this tracking and would have it nearly ready. By Creating an Accurate Monthly Budget – On the fly!, the information is fully available already. Mark categories that were either overspent or underspent by noticeable amounts. Review the expenditures for overspent categories. Make notations of the specific expenditures that led to each result. Noticeably underspent categories provide options to shore up overspent ones.

Independently, each person develops his or her own wish list for discretionary expenses. List the items in order from highest to lowest priority. Annotate each with the applicable expense category and the tentative budget amount or likely range. This should be completed in advance of  the retreat.

Many readers will want utilize their laptop or notebook and electronic records at the retreat. The author brings his laptop but only uses it for limited referral. Subsequent writing and annotations are done on previously printed hard copies. That makes the retreat much more personal than having a financial interlude with computers placed in between the two people. Sometimes I don’t bring my laptop. I never do when the retreat involves airline travel. That avoids having the retreat spreading to a prelude and epilogue unfolding at your seats. Use the flights to rest, as you need to start fresh after you arrive at your retreat location and after you return home.

DAY 1:

After arrival at the hotel, have an early lunch. Then move to a private location. “Walk through” the budget material from the past year, pausing at expense categories that were marked either overspent or underspent and look at the notations as to why. Discuss the likelihood of each occurring again.

Take a break and walk around for 10-15 minutes. Over coffee or drinks, use the rest of that afternoon to discuss the fixed expenses and variable expenses, one by one, in the order listed in the budget. Jointly settle on a trial range for the budget amount for each expense category. Annotate those on a copy of the  previous year’s budget sheets. You may have to add new expense items.

Enjoy the evening apart from the budget process.

MORNING OF DAY 2:

After breakfast, discuss the individual wish lists for discretionary expenses. Take turns. In each turn discuss a single item from your wish list in the order of indicated priorities. If they are not prioritized, then just pluck one off the list. That tends to happen by impromptu priorities anyway, as also does a tendency to alternate between easy items and difficult ones. Explain the motivation and the basis for the tentative budget amount or range for each selected item. Do not debate them. Some items might appear on both lists. The combined range can be used as the tentative one.

Take a few minutes to independently reconsider one’s own order of priorities and possibly adjust them. Then compile the results into a single list, in alternating order of each person’s priorities. If needed, toss a coin to determine who goes first. Transfer the budget range amounts as annotations to a copy of the previous year’s budget sheet. Assign them to the applicable expense category. If necessary, assign them to a new expense category.

Sum up the trial expanse category amounts twice, once for the low values of the ranges and once for the high values of the ranges. The result is your first trial budget and its range of allocations. Compare the results with: a) the current take home pay, and b) the budget total for the prior year. The result will bring a reaction which can range from broad smiles to overheard gasps. Regardless of the reactions, stop!

Have lunch on the premises, but away from the budgeting area (especially if it is becoming a combative arena) and the subject matter. Adjust mindsets as to action needed next.

AFTERNOON OF DAY 2:

Once feeling renewed, return to the budgeting area. Review the trial budget range for each expense category and overall results determined that morning. Spend time in an initial give and take about the budget amounts. In mid-afternoon take a break for either coffee or wine or snacks or a stroll outdoors. Upon returning, chat and settle on agreeable budget amounts (specific amounts, not ranges) for as many expense categories as possible and to the extent possible. For expense categories with troublesome amounts, agree to “sleep on it.” After an evening dinner out or pizza in the room, do exactly that.

MORNING OF DAY 3:

Have breakfast in the hotel room. Mid-morning, start again and resolve the budget amounts for the troublesome expense categories. All amounts end up as annotations on a copy of the previous year’s budget. The total must equal the available take home pay. If not, then make adjustments. You’re now done, so put the stuff away.

Check out of the hotel. Enjoy the rest of the day and the trip home.

AFTERWARDS

During the following week, the main budget tracker formalizes the new budget in a computer file. You then discuss it in a mini-retreat of a half-day at your favorite quiet local place and confirm or tweak the expense category amounts.

RAINY DAYS:

From time to time during the year financial rainy days arise. Those too should be discussed and resolved away from home. Having a mini-retreat for a few hours over coffee or drinks at your favorite quiet location should suffice to come to a mutual conclusion. Indeed, for any financial matter requiring a significant decision, the author strongly recommends “Never discuss significant money matters at home. Always get away to a quiet public location”. By doing so, it is highly unlikely that tempers and emotions will flare up.

By using the described cooperative approaches, joint budgeting will be accomplished calmly and effectively. Conflicting individual priorities will be resolved mutually in a non-combative manner. When surprise high-cost expenditures spring up, you’ll take them in stride and handle them peacefully. Now, being buoyed and encouraged put that first budget planning retreat in place and mark it on your calendars!