I caught up with a newly married couple the other day for a preliminary consultation.
A normal question I ask is “Are you pooling your income and sharing your expenses?”
Over the years, the answer to the above questions would have been “yes”.
More and more though, we are seeing committed couples keeping separate finances.
Being someone who doesn’t beat around the bush, I usually ask “is there a reason why you do that?” In my line of work, the answer is very revealing.
A lot of the time the answers that come back include “we have never see the need”, “it is too hard” or “I want my own identity”.
Could this answer merely be an excuse to mask the truth?
In reality, it comes down to one thing. Accountability.
By pooling incomes, you have two people deciding over one bucket of money. For example, who decides if you can spend $100 on that new nice pair of shoes? Are you accountable to your partner, or yourself? Or do you just do it because it feels good? There is nowhere to hide.
You are asking someone else to look at what you are spending and at the end of the day it needs to be justified. 100% accountability.
Most of time in life we run away from those difficult conversations. Instead, it is just easier to manage my own money and only be accountable to oneself.
So what can we learn from this insight?
Regardless of whether you decide to pool your money here are some tips to help you manage money in your relationship.
1 – Allow some fun money
Set aside a parcel of money that fits your in your budget that you can spend on whatever you want. You may want to spend it on your partner or it may be purely self indulgent. Either way it doesn’t really matter. Just don’t spend a dollar more. Promiscuous, guilt free spending without any consequence is the key here.
2 – What is the bigger picture plan?
Have the honest conversation amongst the two of you about what the big picture goal is. It may be saving for a house. Potentially there is something big that an individual wants to buy for themselves? Discuss it and jot it down. Whatever it is, it needs to be defined. That way you are both moving in the same direction.
3 – How much money do you want to save?
What is the big picture goal? Where is the money going to come from? Maybe there is a disparity of income. How will this be split? The conversation needs to be had so that the goal is set, rules of engagement are clearly defined and there are no grey areas.
4 – Who pays the bills?
When it comes to couples, usually one individual takes charge of the day to day finances such as paying bills. There needs to be a clear set of responsibilities and systems in place to ensure there are no grey areas and things don’t get missed.
5 – Who actually disperses the money?
If we decide that money is to be shuffled around accounts, towards savings goals or distributed to each other, who is responsible for this?
6 – What is the process for managing unexpected expenses?
There needs to be an agreement around unexpected expenses. Who makes the decision on this? Is it done together or individually? What is the procedure? Does the expense end up on a credit card which is then paid down? Do you re-draw against savings or the mortgage? Define the thought process that you need to go through to cover this scenario.
In all the of the above, the general theme is openness and transparency. Getting all fears and hesitations out on the table and having an honest conversation around them. Secondary to this is when things go haywire, there is a plan in place to address any bumps in the road.
Money can be a very sensitive topic in relationships, especially when you have two independent people coming together as one. Be conscious of this fact that there may be resistance in the early stages. The key is to keep talking and keep refining. By keeping the conversation flowing and sticking at it you have a much better chance of implementing a united financial solution that moves you closer to your financial goals.
“This document or website contains general advice only. You need to consider with your financial planner, your investment objectives, financial situation and your particular needs prior to making an investment decision. Charter Financial Planning Limited and its authorised representatives do not accept any liability for any errors or omissions of information supplied in this document except for liability under statute which cannot be excluded.”