Money is just one challenge to becoming part of a couple. Probably the most common question couples ask concerns how to manage cash, specifically whether to combine all money into one joint account, keep everything separate or use some combination. The answer: There is no one best method.
Let’s consider the advantages and disadvantages of each.
Combine into one joint account. This scenario offers total financial transparency regarding where the money comes from and goes to. Both of you have full access to and the opportunity to remain fully aware of the money flow. There are no secrets.
Which brings us to the downside: No secrets mean no autonomy. You both see the other’s spending – and spend the other’s money.
This works well in relationships where the shared belief is, “My money is your money and your money is my money.” It doesn’t work well absent that philosophy.
I find that this scenario causes trouble when one or both of the individuals want autonomy over spending without the watchful (often critical) eye of the other. This arrangement can fail especially in second marriages or where both individuals have careers.
Keep everything separate. This scenario allows each of you to exercise complete autonomy and control over individual amounts of money. This often works well for two-career couples or in second marriages where both partners married with significant pensions or assets. It may also be a good fit for unmarried partners.
If one person is a spendthrift, keeping money separate can protect the partner’s funds from unauthorized or extravagant purchases.
This arrangement can, though, make it more difficult to manage joint expenses such as housing costs. What if your spouse is supposed to pay the mortgage but cannot due to over-spending on entertainment? Suddenly, either you must shoulder the unexpected burden or the loan payment goes unmet. If you or your partner, say, have any addictions like alcohol, gambling or drugs, separate accounts can also hide the extent of the problem and enable the addiction.
Combination of joint and separate accounts. This scenario provides more autonomy than does a joint account yet offers an easier way to manage joint expenses.
Some couples maintain a system where each one’s earnings remain separate and each put fixed amounts into the joint account. Another method: Deposit all income into the joint account and set up a periodic allowance for each of you.
Disadvantages here include the need to manage three accounts and having to decide who writes checks from the joint account.
My wife and I use the third option. As the major breadwinner, I deposit most of my income into the joint account, from which she pays all the family bills. A smaller amount of my income goes into my separate account that I use to pay for items from tuition to haircuts.
Problems often arise when partners assume that money must be managed (or actually is managed) in one certain way. No matter which approach you use, the most important factor is discussing money management and agreeing equally on a system that works for both of you.
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Rick Kahler, MSFP, ChFC, CFP, is a fee-only planner and author. He is president of Kahler Financial Group in Rapid City, S.D. Find more information at KahlerFinancial.com. Contact him at Rick@KahlerFinancial.com, or 605-343-1400, ext. 111.
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