With arguments about finances being one of the strongest predictors of divorce, how are you and your partner when it comes to talking about money?
Money and finances are considered one of the most private subjects in today’s culture. You rarely, if ever, ask other people are how they manage their money and it can be seen as rude to comment on someone else’s spending. However, when you’re sharing a bank account with someone, not talking about money may be costing you big time. Research suggests that the more couples talk about money, the fewer financial arguments they tend to have. But talking about money with your partner can lead to a lot of difficult questions. Are you spending more than me? I make more, so I can spend more, right? You bought that?!
Very few of us realize that there are different approaches to managing money with your partner. What works for one partner may not work for another and each couple can tailor the following plans to fit their needs and budget. Here a four of the most common ways couples manage their finances together:
1. Head in the Sand – No Plan Approach
This approach tends to be surprisingly common despite its drastic disadvantages. Many couples avoid talking about money altogether and have no explicit agreement about spending or financial goals. This tends to be a more popular strategy at the beginning of a committed relationship, but often catches up with couples in the end. Debt, lack of retirement savings, and hidden credit cards are just a few of the problems that can arise when couples refuse to discuss their finances. In fact, avoiding early discussions about money can easily lead to full-blown arguments later, weakening both the trust in your relationship and your investment portfolio. For these reasons and more, this plan, or lack thereof, is not recommended.
2. Finders keepers – Separate and Not Necessarily Equal
A large amount of couples find that they want to be in control of their finances, but manage money in a completely different way from their partners. These couples may decided to retain separate bank accounts in which their incomes are directly deposited. The advantage of this approach is that each partner can maintain their pre-relationship spending habits and make decisions about their money without having to compromise. However, this approach gets awfully complicated when partners are making drastically different amounts of money. Similarly, kids, mortgages, and retirement can be difficult to navigate when using separate accounts. Do you pay a percentage of the utility bill based on your income or do you and your partner split it 50/50? This is just one of the questions couples who use this approach have to answer. It can certainly work for many couples, but definitely will not work for single-earner households.
3. Better Together – Combine Everything
This strategy for managing money is more traditional and tends to be what most couples expect will happen once they get married. But for couples who may never tie the knot, it can be tricky to decide when to combine incomes. In this approach, each partner’s paycheck is deposited into a single account and living expenses are paid via this account. Personal spending also comes out of this account and this is where conflict is most likely to arise. Does each partner have a set allowance? How much can you spend without needing to consult your partner first? Are you okay if your partner is more of a spender and you are more of a saver? If partners can get on the same page regarding these questions, this approach has a lot of advantages – mainly partners may perceive a greater commitment to one another and can work more easily toward shared financial goals.
4. Yours, Mine, and Ours – Combined with Separation for Personal Spending
I find that this plan tends to offer the most freedom compared to the other three. In this approach, couples’ paychecks are still deposited into a single account from which combined expenses (mortgage, bills, insurance, etc.) are paid, but then a chuck of money is taken out and divided into two separate accounts, one for each parter. This money can then be used for personal spending (e.g., shopping, independent travel, dining out without your partner). In some ways this is the equivalent to having separate allowances, but gives the option for one partner to save for large purchases and the other partner to frequent Starbucks guilt-free. It reduces the need to explain purchases to your partner or hide the credit card bill each month. This plan does require trust that your partner is spending within the allotted amount. In addition, each partner’s spending account doesn’t have to be equal. If one partner is earning more and working much longer hours, it’s not unreasonable that they could have a higher percentage to spend- given, of course, that their partner agrees with this division.
Overall, money is a sticky subject that couples can’t afford to avoid. For the sake of your partnership and bank accounts, consider with your partner what plan might work best for the both of you. Plus, choosing a plan doesn’t mean you can’t change your approach in the future as life together, and your financial picture, changes. And if the negotiations with your partner are getting you nowhere, consider meeting with a couples therapist who can help facilitate a plan.