[Prefer to listen? You can find a podcast version of this article here: E154: How to Manage Money as a Committed Couple]
Whether you’re a new couple just beginning to merge your lives or a couple that has been together for a decade or two, money management can be a tough topic to handle. For the context of our purposes, a “committed couple” is a married or committed couple that is in a long-term, lifetime relationship.
Money arguments are the 3rd most common disagreements that can lead to couples splitting, but when couples make intentional decisions about their money management, those arguments can be mostly avoided.
Elevation Financial is a judgment free zone. While there are many "experts" out there that will tell you their opinion about how to manage money as a couple, there’s really no right or wrong to it. Your job, as a couple, is to figure out the best way of doing things for your relationship. What’s right is what’s right for you in your particular relationship. In your partnership, your marriage, your relationship, that’s what’s right for you. What makes sense for both of you, what you’ve agreed on, what you’ve intentionally decided to do, if it’s healthy and if it’s working.
There are three main methods we will discuss.
- 100% separation
- 100% combined
- And a hybrid model also called the “yours, mine, and ours” method
In every scenario, you’ll need to be financially naked with your partner. Every method has its pros and cons, but each will only work if you are 100% transparent. You’ll need to be honest about your current debt, future goals, and what your relationship with money is.
Every person comes with their own money story. It’s important to mention that you can’t project your own money story onto your partner. Your relationship with money is your own but it’s important to also make space for your partner's money story as well.
Method 1: 100% Separation
This method may be a good choice for you if:
- Both partners are very committed to their careers.
- You may have had a previous relationship that has led to more caution.
- You prefer being 100% financially independent.
- You may have grown children from a previous relationship and want to protect your legacy for your children.
- Your spending and money management habits are very different from your partner’s.
- One partner has a complex financial situation or outstanding debts.
In this situation, all of your liquid and investment accounts are completely separate and couples share expenses similar to being roommates but the split may not be 50/50. As a couple you need to decide what expenses will be shared and how those expenses will be divided. It could be 50/50, or you could decide that it’s more equitable to split expenses based on a percentage of your incomes.
Other factors that could help determine the split include what percentage of income each partner brings to the household, if a partner has children living in the home from a previous relationship, and who in the partnership does more unpaid labor for the household.
Upsides for this type of method include complete autonomy over finances as individuals. Maintaining your autonomy could reduce friction between you and your partner about money. You won’t have to worry about explaining why you love to spend your money on expensive meals out, while your partner may prefer saving money and cooking at home.
This method doesn’t come without complications though. It may be challenging to determine how to equitably divide expenses. You’ll also need to play out possible scenarios, like how to handle one partner financially assisting the other if a situation arises that one partner can’t handle on their own. Will it be a loan? Will there be interest involved? Or will the assistance simply be a gift? These scenarios may become even more important to plan for as you get older and into retirement.
Open communication is paramount to making this situation work. You don’t want to ambush your partner by being in default on debts. Hiding your financial situation can lead to resentment and distrust. You’ll also need to clearly communicate what your financial goals are and how you’ll reach them together. If you are saving for a down payment on a house, how will you stay on track as a couple?
Method 2: 100% Combined
In this situation, all of your income, assets, and expenses are combined. Once money flows in, it’s considered “household” money.
This method may be a good choice if you:
- Need flexibility for one partner to go back to school, start a business, or take a career risk.
- If partners plan to take parental leave in the future.
- You have similar spending habits and attitudes around money or can easily compromise on money habits and behaviors.
- You and your partner feel “in sync” about life and money to the extent that there is a high level of trust.
This option can often feel simpler than keeping things separate. There’s no discussion about how expenses are divided when you go out to dinner or take a family vacation.
This option can also lead to a more unified “team” approach for the future goals. There’s also research to back that couples who combine their assets are more satisfied with their relationship.
This team approach often leads to faster progress towards financial goals such as saving for a down payment or retirement savings.
Combining finances 100% can lead to money arguments if partners are not on the same page about planning. For example, what if one partner wants to pay down a mortgage faster while the other wants to put the extra money into savings or investments? It can also lead to resentments if partners handle money differently and aren’t able to compromise. Partners can also sometimes feel a bit of resentment with the lack of financial independence.
Some helpful practices to make combining resources successful you’ll need to budget, budget, budget. There are many budgeting tools that can help, but even a simple spreadsheet can work. You’ll need to openly communicate about money and to set aside the “what I want” mentality and think in terms of “what is best for our household”.
Both partners will also need equal access to the accounts and budgeting tools. Don’t fall into the trap of one partner handling the finances while the other isn’t aware of what is going on. It may also be helpful for there to be a threshold of spending that a partner can make unilaterally and purchases above that threshold need to be discussed and agreed upon by both parties.
With open communication and practice, this method can work really well for both parties.
Method 3: Hybrid or “Yours, Mine, and Ours”
In this scenario, each partner has individual accounts and there is at least one joint account for household and joint expenses.
This system can work well for couples that:
- Want to share expenses but maintain some autonomy.
- See the value in working towards common goals as a team.
- Reach financial goals without your partner’s influence.
As a couple you’ll want to decide what expenses are shared that need to be covered. Mortgage/rent, utilities, groceries, insurance, home improvements, and joint kids stuff among other things can make up this list. Will lunch or saving for a new car be included?
You’ll also want to decide how money flows in and out of the household account. Will all income go to the joining account and then be distributed out to individual accounts or will your income go to individual accounts and then flow into the joint account in agreed-upon amounts? What is the method of funding? Will it be a 50/50 split or a percentage of income?
You’ll also want to address how an emergency fund or short-term savings fit into your system. Will savings be joint or live with each individual? Or maybe you’ll have a combination of both. Again, there’s no right answer where. It’s what works best for your relationship and your household.
A hybrid system can provide each partner with a level of financial independence. If independence is valued by you, this is a great option. You can purchase gifts for your partner without them seeing exactly where you shopped and what you spent. If you have drastically different financial habits this system can also reduce arguments over money.
Just like the 100% separate system, handling your finances this way can also be more complicated, like deciding what percentage each partner contributes to the joint account. It’s easy for money to be an emotional topic and you don’t want to diminish the value of a partner by tying it to their salary. You’ll want to openly discuss your individual spending habits and agree on what’s acceptable in your relationship. You also have to discuss how financial assistance will work between individuals. You’ll want to discuss what would happen in the event one party loses their job.
Just like the other systems you’ll need to talk openly about money to avoid financial pitfalls and budget your joint account even if you don’t want to have a strict budget in your individual account.
It's a Spectrum
You can have small individual accounts for “fun money”. Or you can do the exact opposite and have a small joint account for just a few household expenses. You get to decide what works best for you and your relationship.
These methods are examples of how to handle your “right now” financial situation.
While it’s important to handle the present, it’s also a great segue to also think through “future finances”.
How will you handle keeping your finances separate and one partner has saved adequately for retirement but the other hasn’t. Will that person be on their own? Does their partner help them? Will finances be managed differently in retirement? Will the partner that was able to save feel resentment over helping the other party?
Your system can also change over time as your financial situation changes or your goals change through the different seasons of your life. You may start with completely separate finances until one partner cleans up their messy financial situation. You can later decide on a combined or hybrid method because you want to purchase a home.
Making Sure the Method is Healthy
Money conversations can be hard. It’s important that both partners feel heard during your conversations. Does each person feel like the decisions were fair? Do they match your values as a family? Does each person understand where the money comes from, where it is, and what you’ve decided its purpose is going to be?
Side note: while financially “healthy” may not look the same for every couple, it’s important to be mindful of understanding and avoiding financial abuse. When one partner starts controlling the other’s "ability to acquire, use and maintain money" that is financial abuse.
Signs of financial abuse by a partner include:
- Inappropriate control over money or creating a budget without your input.
- Making you account for every penny you spend.
- Limiting your access to financial resources.
- Feeling entitled to your money or savings.
- Spending your money or savings without your permission.
- Threatening to cut you off financially if you disagree with them.
- Maxing out credit cards or creating debt in your name.
To find out more information or if you believe you are in a financially abusive relationship, call the National Domestic Violence Hotline at 1-800-799-7233.
Communication is Key
Talking about finances can be emotional. It’s important to create a space that is judgment-free so you can discuss your situation without shame or fear. Transparent communication also strengthens your relationship and can avoid financial infidelity by one partner.
Create money rules for your relationship. This will help you get on the same page about your current situation, future goals, and how you’ll deal with the “what-ifs” that may happen. This is also a great way to define what is frivolous and what is considered a necessity as well as lay out what tools you will use together.
The conversation isn’t “one and done”. You won’t be able to create a financial plan for your life together in one session. You’ll need to continue the conversation and have regular check-ins with each other so you can both remain on the same page. It may be helpful to set designated times for money conversations at regular intervals. This gives each of you adequate time to be mentally prepared.
Communication will also give you the opportunity to evaluate and do better as time goes on. With healthy communication, you’ll be able to come up with a system that works for your relationship.
Working with a financial planner can help you wade through the questions that need to be answered to come up with the method that will work best for you. If you feel like you need a little extra help, don’t be afraid to seek out professional assistance.
Having a plan and a foundation of strong communication about money is one of the best ways to help nurture a happy and fulfilling relationship.
About the Author
Michael Reynolds, CFP®, CSRIC®, AIF®, CFT-I™ is a Financial Advisor and Principal at Elevation Financial LLC. He is also host of Wealth Redefined®, a weekly podcast on finance and wealth-building.
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