Once upon a time, people in their late teens or early twenties moved out of their parent's homes when they were in their late teens or early twenties and married the person down the street. About a year later, they had their first baby and eventually, one of them buried the other. Step-children were the result of the death of parent, not divorce and out-of-wedlock births were rare (though out-of-wedlock pregnancies were not). Men were the head of the family and handled all the finances; if women were lucky they had a little "egg money" or "pin money". Today young adults establish lives and careers of their own, and generally move away from their parents' home (s) long before marriage. Divorce is not rare, nor are children born and raised out-of-wedlock. No longer do men control all the family finances. In fact, deciding how to handle family finances is one thing on which couples need to agree before they move in together or get married. Let's look at some of the options.
One Pot, Handled Jointly
This is the almost old-fashioned way, and being a rather old-fashioned woman, it is the way I think should be the default choice--the choice that is made unless there is a particular reason for another choice.
With this method, all the family money goes in one pot and the couple decides jointly how to spend it. There is no "yours" and "mine" with the possible exception of a small amount of pocket money. If her company has better health insurance, the health insurance comes out of her check; if his company generously matches 401k contributions, then the retirement savings are in his name. The cars are in the names of the one(s) who had time to go register them. Both paychecks go into the same checking account and leftover money is invested in both names. In their wills, both spouses leave everything to the other. It doesn't matter who makes more money; the standard of living is the one supported by the family income and if one spouse can't afford it, neither can the other.
One spouse may take primary responsibility for researching and making investment decisions, but that doesn't make that spouse the owner of the assets any more than cooking dinner means that the spouse who did so had any more right to eat it.
With this method, all the family money goes in one pot and the couple decides jointly how to spend it. There is no "yours" and "mine" with the possible exception of a small amount of pocket money. If her company has better health insurance, the health insurance comes out of her check; if his company generously matches 401k contributions, then the retirement savings are in his name. The cars are in the names of the one(s) who had time to go register them. Both paychecks go into the same checking account and leftover money is invested in both names. In their wills, both spouses leave everything to the other. It doesn't matter who makes more money; the standard of living is the one supported by the family income and if one spouse can't afford it, neither can the other.
One spouse may take primary responsibility for researching and making investment decisions, but that doesn't make that spouse the owner of the assets any more than cooking dinner means that the spouse who did so had any more right to eat it.
If members of a couple have very different financial values (not worth, values) and spending styles this in probably the method that will cause the most discord in the marriage. The thrifty person may hurt every time the spendthrift spends, and the spendthrift may always feel constrained by the thrifty one. On the other hand, having to talk about their values and decide how to spend the family income can be an important part of changing from "you and me" to "us".
Together and Apart
With this method, the couple decides what expenses are joint and what expenses are separate. They work out how they will contribute to a joint household account to cover the joint expenses. They can either contribute the same amount (works well if incomes are about equal) or a percent of income (works well if one spouse earns much more than the other). Other money remains the property of the one who earned it.
This method is popular in second marriages, particularly if one or both spouses have children from those previous marriages. It allows both partners the financial advantages of having someone with whom to split the bills and makes it possible for them to maintain assets they possessed prior to marriage so as to pass them to their own children.
The problem with this method with young couples is that it does not force them to set joint goals and work together to achieve them. It also can mean that one spouse has money to do things the other spouse does not. However, some people find security in knowing that they have money their spouse can't touch.
This method is popular in second marriages, particularly if one or both spouses have children from those previous marriages. It allows both partners the financial advantages of having someone with whom to split the bills and makes it possible for them to maintain assets they possessed prior to marriage so as to pass them to their own children.
The problem with this method with young couples is that it does not force them to set joint goals and work together to achieve them. It also can mean that one spouse has money to do things the other spouse does not. However, some people find security in knowing that they have money their spouse can't touch.
I'm in Charge; You Get an Allowance
Often used by couples who have a great disparity in income/earning potential and/or age, the person earning the most money makes the financial decisions and controls the spending. While this person may be generous to the spouse, the spouse is clearly "given" money and "allowed" to spend it. The problem with this method is that it keeps the grantee in an almost juvenile position rather than allowing her (or him) to be an economic equal in the relationship. If the person being given the money doesn't understand the total family financial picture he or she may resent efforts to economize when necessary and see requests to spend less as an imposition.
Every couple has to decide how to handle family finances. What method do you use? Is it the same one you've always used? Why did you pick the method you did? If you've changed, why?
*Part of Financially Savvy Saturdays on brokeGIRLrich and, Disease Called Debt*
http://brokegirlrich.com/accountability-july-2016/
1. Accountability: July 2016
http://wp.me/p6ZzsH-73
2. My Current Debt Situation
http://femmefrugality.com/can-i-afford-it/
3. Can I afford it? This app tells you in an instant.
Every couple has to decide how to handle family finances. What method do you use? Is it the same one you've always used? Why did you pick the method you did? If you've changed, why?
We married later, started separate and maintain separate investment accounts but have slowly replaced individual checking and savings with joint accounts. I think it was a lot easier to let things evolve naturally rather than start with trying to combine everything at first.
ReplyDeleteWe have one joint account out of which we manage most expenses. We each get matching retirement plans from our employers, so we each have our own retirement accounts. We also each have a small "pocket money" fund.
ReplyDeleteWe came upon this approach because splitting up major expenses, like childcare and the mortgage, seemed silly. With direct deposit, it's easy to contribute money to different accounts, so we pool the bulk of our money in that joint account.
I like having the separate side accounts because it allows each of us a little bit of spending money that we don't have to account to the other. I just think that's healthy.
It's a second marriage for both us, but we are all in together. We have similar financial values, which helps a lot, and don't feel the need for side accounts. We tend to discuss almost all of our purchases with each other anyway and we both work on tracking expenses and maintaining the budget. While I'm highly in favor of joint accounts, I think every couple needs to decide what works best for them.
ReplyDeleteMy parents were the last arrangement. That left a mess when Dad passed first. It took us three years to figure it all out.
ReplyDeleteWe have always been one pot. My husband made the majority of the money in our budget, I contributed when the job was available. There was never any discussion that I should work.
Before retirement I "ran the money". I made sure both had IRA's (I disagree that only the one with matching should have the account. That leaves a mess of taxes if the surviving spouse is not the account holder.) Cars are always in both names. We pay cash and replace about every 10 years. Motorcycle and boats are always in his- I have no interest to comply with the state to have them in mine. If he passes first- these will be sold immediately.
For the first twenty five years investing was my job. Investment decisions now sway between who is more interested at any given time. I am currently more risk adverse- so he does the investing.
Wills are drawn. Debt is gone.
Thirty two of our thirty four year marriage, we have had allowances. this amount is come to after all bills are paid and money is placed into savings. At first allowance was only $10 or20 a month. Now it is closer to $300. We do not consult each other on how that money is spent. It is spent on whatever we choose. My husband has his woodworking and I have travel to see grands :)
The best book ever was, "Master Your Money" by Ron Blue. We read it the second year of marriage and never looked back.
Fun to read how others do it. My sisters think I am crazy :)