I recently came across this article in the Wall Street Journal titled “The Best Ways for Couples to Manage Finances“, and thought it was worthy of a post. In the article, the author asked several financial “experts” and readers how they personally handle money in relationships.
As a financial planner and investment advisor, I get asked similar questions about relationships and money from both a personal and professional standpoint. Since we work closely with our clients on all aspects of their financial lives, we get to see and advise those clients on ways to handle their finances.
In this post, I share some experiences and thoughts on managing finances as a couple.
Combining Finances
In talking with friends, family, and clients, there is a wide range of ways in which couples manage their finances. In general, I have found it falls into three main categories:
- Joint – In this scenario, relatively all income, expenses, and investing are done Jointly. This is how most people that I’ve encountered do it, especially when one spouse doesn’t work.
- Joint AND Separate – While there are some shared expenses, in this scenario most of the spouse’s income and expenses are managed separately. I see this more frequently when both spouses are working and have separate and different levels of income. They typically would share house/childcare expenses, but other expenses, are paid separately.
- Separate – The last scenario is there are almost no shared finances, everything is done separately with the occasional combination. I’ve seen this more frequently when one spouse has a much higher salary than the other and can thus cover more of the expenses by default. However, I’ve also seen it in other circumstances in which the couple just prefers it to be separate based on spending habits or other reasons.
After the category strategy is determined, it now shifts to who is the Responsible Person?
Responsible Person
Typically, when I am working with clients who are a couple, one of them will be the de-facto leader and is in charge as the overseer of their finances and investments. In personal finances circles, this is typically called the Responsible Person. Regardless of which strategy you are using above, it’s fine for one to take the lead but the other spouse should always have input and understanding of the finances. For example, me being a financial professional, I am the overseer of our household finances. Cameron, while in finance/banking has the knowledge, has a general overview but leaves the day-to-day management to me.If fact, I need to do a better job of explaining the full picture and details to her more regularly. This is a big part of the duties of the Responsible Person. In this role, a few tips, and important things to remember:
- Money is a continuous part of a relationship. While important, it should not be the driving force.
- No right or wrong way. There are no right or wrong ways to manage finances (for the most part!) so you should do what works best for you and your spouse!
- Do a monthly financial meeting. Do a high-level overview or drill into the details if needed. Be a team.
- Simply, Simply, Simply ***
- Automate! This includes bills, transfers, investing, etc…
- Have a Financial Professional to help provide guidance. If you don’t have the time or expertise, outsource it to the pros.
- Bucket Approach – Take a “bucket approach” for short, medium, and long-term goals
- Long-Term Plan – Don’t just focus on the monthly/annual finances but also on the long term – retirement, second houses, education, etc….
- Create a Net Worth Statement – This lists out your assets and liabilities. Plan to update at least annually, if not a few times a year to make sure your plan remains in place.
***This is one of my favorites – simply everything – subscriptions, payments, number of accounts, etc…..A client recently told him he uses the KISS principle – Keep It Simple Stupid.
Expenses, Investments, Financial Goals
Now back to the article, I thought the strategy from Ted Jenkin was worth mentioning:
In our family, it’s all about setting up a “divide and conquer” strategy while maintaining our unique financial independence. We combine our income, and it essentially hits three buckets monthly—after we’ve saved 20% off the top. Bucket No. 1 (a joint checking account) is used to pay monthly bills. That gets 70% of the income. Bucket No. 2, which gets 5%, is a savings account for my spouse for buying gifts, entertainment, or personal items. Bucket No. 3, which also gets 5%, is a savings account that allows me to do the same. Giving each partner a safe financial space—where they can have some money to do what they want when they want without having to ask—is a really important step to a healthy marriage when it comes to money.
My spouse is the chief financial officer and manages paying the monthly bills. She’s also in charge of making vendor changes when she feels it’s appropriate. My role is the chief investment officer, and I’m responsible for picking our investments, managing our real estate, and allocating our 401(k)s. We act as a joint team when it comes to making financial decisions regarding our children—whether it’s allowances, mobile phones or the credit cards they use.
We act as co-CEOs when it comes to mapping out financial family goals and objectives. Each year, we assess our one-year goals in terms of savings, net worth or possible purchases. We review our long-term financial plan to make sure we are on track for goals such as college education and retirement. Having an open and transparent relationship with our money has allowed us to minimize arguments and discrepancies and focus on maximizing our mutual financial goals.
And then as the author notes that is worth remembering:
Of course, there is no single right or wrong way for couples to divvy up their finances and financial duties. How tasks and decision-making are split can depend on a partner’s existing financial know-how, interest or willingness. Some people want a 50/50 split of duties; some defer all tasks to one partner. Others, meanwhile, have each partner focus on their individual strengths: One person may be a good at the nitty-gritty of budgets and bills while the other is a big-picture thinker when it comes to money.
Personal Strategy
If you’ve made it this far and are still reading, a few personal tidbits about how Cameron and I handle our personal finances.
- Retirement Savings – We each contribute to our respective 401(k) plans. We largely leverage Cameron’s employer benefits in other aspects such as insurance and reimbursement accounts.
- Joint Savings and Checking – All of our income flows into our joint accounts and all expenses flow out of those same accounts.
- Credit Cards – We have 3 credit cards to maximize benefits and points. We are both authorized users.
- Discretionary Expenses – We are each aware of each other’s normal expenses. The large discretionary expenses such as vacations, trips, house purchases, etc.… are discussed prior to spending.
- Goals – We discuss and agree on both our shared and individual goals including buying a new house, professional goals, and education funding for children.
In closing, if you have any questions/comments/feedback about the above or wish to discuss in further detail with me, feel free to reach out anytime!
Tom
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