The inspiration for this blog post came from my partner and I watching and photographing Ospreys recently. We watched as the Osprey partners worked together building a nest with the female on the nest arranging it and the male flying in with branches and twigs. It had me thinking about how things work more easily with human partners recognizing each other’s strengths and weaknesses and working together to accomplish tasks in life together.
When you’re in a relationship, money certainly becomes a talking point. Better sooner then later. Each couple has their own way of managing money. Some might combine their finances, while some others like to keep things separate. There is no one right way to manage money as a couple. Because both of you are unique and have unique mindsets and considerations about money.
Most couples try out many different ways to manage money, before arriving at a method that works for them. It takes a lot of discussions, trials and errors, sometimes even disagreements to settle down into an arrangement that both of you find comfortable.
A study by Money magazine found that 70% of married couples argue about money ahead of fights about household chores, togetherness, sex, snoring and what’s for dinner. Another study found that the most common points of disagreement among couples when it comes to money are: major purchases (34%), a partner’s spending habit (23%) and important investment decisions (14%).
What does managing your money successfully come down to?
You can put an end to these arguments and start managing your money together easily. All you need is to have a plan of:
- how to split expenses or savings, and
- how to split the responsibility of paying or saving.
While the first problem is mathematical and talks about how much each person will contribute or not to shared costs and savings, the second one is a more logistical issue about how to get this going without it being a burden to the partners. So let’s start with how to divide expenses.
How to share expenses with your partner?
If you’re living together, you’ll likely be sharing a lot of costs like rent, utilities, grocery bills, phone bills etc. So the main questions are how to split the bills and who takes the responsibility to pay which bill. Here are some of the common ways that couples split these expenses:
Equally: Some couples like the simple and easy way of splitting shared expenses by half and bearing 50% of the cost each. This means that when you add up your monthly expenses and it comes to $1000, then you and your partner pays $500 each irrespective of how much your income may be.
Proportional to how much they earn: Some couples think sharing equally is unfair to the person who earns less as they might be left with little or next to nothing for spending individually. So they share their expenses proportionately, with the person earning more paying a larger percent of the shared expense. In this case, if one person earns $5000 and the other $3000, the $1000 expense will be split proportionately. The person earning $5000 will contribute 62.5% of the bill, i.e $625, and the person earning less pays 37.5% of the bill, or $375.
Proportional to how much they use: Some couples don’t like the idea of paying equally or dividing proportionately according to their incomes because they feel this penalizes the high-income earner for earning more. They believe that this would lead to resentment in the high-income earner. So they find it fair to share expenses as per usage. This means that things like rent, heating bills and water bills may be paid together, but others like phone bills, gym fees or other things that one person uses more, will be borne by the respective partner. When it comes to execution, this is a bit more complicated, as usage of utilities and services can vary from month to month.
A little note on saving: Dividing savings also work on a similar structure. It depends on your financial goals. If, as a couple, you’ve shared financial goals, you can decide whether to contribute equally or proportionally to them. Most couples have both shared and individual savings goals, to which they contribute separately.
In short: You can choose to share your expenses equally, proportional to your incomes or proportional to your usage of utilities.
Once you’ve reached an agreement on how your expenses will be shared, you need to set up a friction-free system that’ll put this in action. And, that’s when we’ll talk about combining or not combining your finances. Here are some ways in which you can set up efficient payment systems and split responsibilities:
A joint chequing account for expenses
Both partners have separate chequing accounts, but they transfer their agreed share to pay off expenses and towards savings to a joint checking account. You can set up automated payments from this account.
This is best if: you want hassle-free payments, like to automate your transactions and want to maintain some level of autonomy on your finances.
One joint account for both partners
In this method, there is only one chequing account to which both partners deposit their pay. All payments and contribution towards savings are made from this single account. Couples who follow this method usually follow just a single budget and believe in complete transparency.
This is best if: you adore simplicity, you trust each other to death, you have shared financial goals, you have no secrets and you swear by 100% transparency. But remember that there’s nothing left to the imagination here. It can often be difficult to give surprise gifts to each other.
One joint account and fun money for both
In this method, both your pays get deposited to a single account. All payments and savings are made from that account, but you each have a separate chequing account to which you receive some fun money every month. This, thus, eliminates the lack of autonomy that the previous method poses. But the added step here is to figure out how much fun money each partner will get. Will it be equal amounts? Or, proportional to income? Or, expenses? And, you also need to figure out what expenses will fall under the fun expenses category. For instance, will eating out as a couple be a shared expense or a fun expense?
This is best if: you like simplicity, but you also value your autonomy and space. This fun money can be spent guilt-free and will, thus, bring down the arguments and discussions over spending.
Two separate accounts
This is when your money isn’t ready yet to mingle as much as you are. A lot of couples who’ve been together for years still keep their finances separate. The most common reasons that couples who don’t combine their finances cite are that they want to keep debts and inheritances separate, they may have to make payments for expenses arising out of a previous relationship or marriage, or they handle money better if it’s kept separately. In such cases, couples will have to agree upon who will take care of specific bills and make arrangements to pay them on their own.
This is best if: you prefer complete freedom and autonomy when it comes to money. If one of the partners are not too good with money, the other doesn’t have to bear the brunt of it.
One partner handles all the money; other partner gets an allowance
This usually happens when only one partner is working, or when one partner is significantly better at handling money than the other. The financial responsibility falls on one person. They pay the bills and make savings contribution, and pays the other partner a fun allowance every month. Although there is a clear power difference between the partners, studies have found that some people are more than willing to give up on their freedom and settle for a monthly allowance in exchange of not having to make money decisions.
This is best if: one partner is a financial genius and the other partner trusts them completely. The non-earning partner will get some access to guilt-free spending money. But they will be completely cut-off from the financial decisions they make as a couple and dependent on their partner when it comes to money.
Living on only one income
It’s like pretending that you only had one income. All expenses and savings contributions are made from this single income, almost always the higher income among the two partners. The lower or the irregular income is completely put into short-term and long-term savings. This works pretty easily because you can automate to send the pay you intend to save directly to your savings account. Treat the other pay as your income and go ahead as usual by making living and saving payments from it.
This is best if: you’re really bent on saving money. This will keep you living with your means and regularly put aside money in order to build your savings. However, this is only possible if both partners earn and if one income is really enough to sustain your family.
Which way to go?
These are just guidelines based on how different couples manage their money. You can follow one of them, merge two or more methods or create your own method. After all, the method you will stick to is the only method that will work for you. So start managing your money more efficiently together and avoid arguments about finances. If you think ahead and come up with a couple strategy that works for you, you will positively move forward Keeping Life Current.