Although some of us want to go into a marriage sharing everything, smart financial planning actually dictates that you don’t have to and in many cases shouldn’t put all of your money into a single account. You can have both cooperation and autonomy in your financial marriage.
Money is one of the biggest stressors in a relationship. A survey by the American Institute of Certified Public Accountants found that money is the biggest cause of arguments between men and women. Financial matters caused 27% of spats. Children only caused 16%. Some couples feel that a joint bank account signifies trust and discourages regretful impulse spending by either party.
Maintaining separate accounts isn’t a sign of distrust. In fact, the opposite is true. Allowing your partner to maintain financial independence says that you trust that person to not keep secrets about finances and to contribute responsibly to your financial life together. Autonomy also fosters self-confidence. That feeling of control over your own money is critical.
Many couples use what I call the “three pots” system, where each spouse contributes money to one account for household expenses, and has a separate account for individual expenses. Especially with the proliferation of Internet-based banking, it’s very easy to set up separate individual and joint accounts. Neither partner gives up independence or autonomy completely, but some finances mingle. Here is how you can make it work:
Keep a joint bank account for joint expenses. This can really simplify bookkeeping for the household budget. You don’t have to contribute equal amounts (and shouldn’t if one earns significantly more than the other), but the total each month should cover everything you agree to pay together, such as the mortgage, utilities, groceries and insurance premiums.
Create a detailed budget together. You need to know exactly where your money goes and how much you need each month to cover all of your expenses. Once you start spending someone else’s money, it’s important to account for it. The household budget must include only the things you both agree to pay for together. Forge this agreement before you actually wed.
Keep separate accounts for separate expenses. Costs related to one spouse’s hobby need to be in separate budgets. Maybe one enjoys concerts and the other collects books. Make these optional purchases with money each person sets aside in a personal account. If you have just one account, one partner’s spending might cause friction.
Use the same rules for credit cards. Consumer debt should not be shared. Consider opening a joint account for charging things such as family vacations that you plan to pay off together. Successfully managing credit cards in marriage requires total honesty. Don’t hide purchases, especially debt. Your separate credit card debt doesn’t affect your spouse’s credit score, but it does affect your ability to move forward as a team with large, important purchases like a home.
Save together and don’t keep secrets. This is the most important key to financial success as a couple. Part of your financial life together must be saving. Make a plan for building an emergency fund and retirement accounts for each spouse. If you have children, discuss whether and how you plan to help them pay for college.
One might be willing to borrow money later on while the other prefers to start saving early. Touch base about financial details at least several times each year. It helps if you both visit your financial advisor together so each partner is up-to-date on the family’s finances and participates equally.
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Kimberly J. Howard, CFP, CRPC, ADPA is a Certified Financial Planner and the owner of KJH Financial Services, a Fee-Only practice located in Needham, Mass. (781-413-4879). Please visit us at www.kjhfinancialservices.com