Couples finance is a hard topic to talk about with each other, but it is definitely something that is worth a serious talk or two; falling in love passionately and having a whirlwind romance is probably the easy part compared to the rest. The reality is that you can’t pay bills with love and the both of you will need to figure exactly how the lights are going to be kept on and how food is going to get onto the table.
In the lead up to my own wedding, I read many comments from brides on wedding forums who talked about finances. This was inevitable as a wedding can be so expensive (if you allow it to be) so the topic of finances come around. The strongest argument for merging finances seems to be centred around trust. There also seems to be the big question surrounding how to deal with a huge pay gap between partners that is easiest dealt with if it is combined. I need to point out that it is essential to do what works best for you, and that I do not plan on pushing the merits of one way over the other. But let us look at a few pros and cons of merging finances.
Of course, these are not the only pros and cons out there, but it’s a few to get you started.
I personally think that the best thing to do is actually to have the best of both worlds. Have your separate personal accounts, but also have joint accounts. I am going to share my own experience with this and by no means am I saying that this is the way to do it. But this is the way that we have come to realise works for us and this is the way it will be for the near foreseeable future until we hit a snag and revise it again.
What we used to do…
Even before we were married or even de facto, we had a joint account. It was purely to pay rent from as it was just easier for the real estate agents to deduct from one account than two. Over time we started contributing more so it could cover other things like utilities and groceries as well. So our joint account is actually older than our relationship! But for all other expenses, we maintained our own accounts and dealt with our own bills. Everything that was incur’d as a couple was split 50/50, straight down the middle. So every time we went out for a meal or did anything, Mr BKLA would record the expenses on his spreadsheet and we would tally it up every month. There was never any ‘dating period’ in our relationship where Mr BKLA swept me off my feet, wined and dined me, or anything of the sort. That’s the stuff for movies and not my real life! From day one, it has always been dutch, and that has continued right on till today.
The problem with that…
I had no idea what our expenses were like. The spreadsheet lived in Mr BKLA’s computer and he would only update it once in a blue moon. So we would spend, and spend and spend without any real inkling as to how much we were spending. Every once in a while Mr BKLA would tell me if the spreadsheet was going in my favour or his favour and that would be the extent of our financial discussion. There had also been no talk about how savings should occur since it was assumed that we would be doing personal savings and paying 50/50 for holidays. Which sounds fine on paper, but we were putting more and more of our joint expenditures on my personal credit card. This meant that I had no chance to ever save. I was constantly chasing my tail trying to make sure that the credit card was paid up. So it didn’t matter that my income kept going up. I still had no savings because I was effectively paying for the both of us without realising it. I was relying on the spreadsheet to tell me that fact, but because it was never updated regularly (once a year was as regular as it got), life went on.
So very obviously, our ‘system’, if you could call it that, didn’t work despite what Mr BKLA said. And lo and behold, when we recently tallied up the spreadsheet from the last 3 years (before I implemented the new system) at my insistence, it was $14,000 in my favour. That, and the cold hard realisation that we had been spending money faster than we earned it.
What we do now…
I drew out a flowchart to illustrate our system. This is how we ‘live off one income’. We treat joint as a ‘3rd person’ so joint needs to have a liveable wage, thus the lower income number is used as its wage. Income B contributes the exact same amount in dollar values as Income A (because Mr BKLA is very big on equality.)
Joint covers everything that is a joint expenditure except rent/mortgage. This is because I own this house, and not Mr BKLA. So I am liable for the council fees, the emergency service levy and every other bill that comes with being a home owner, while Mr BKLA pays rent and enjoys the financial freedom of a renter. If maintenance needs to be done to the house, that is my liability. However, any renovations that we want to put into the house as a couple is a shared expenditure because it is a want, not a need. (For instance, the bathroom renos that are coming in January are a shared expense.)
Joint also has its own savings for holidays, emergency money and the like. With time, joint will hopefully have its own funds to do investments too.
The remainder of our incomes are then split in whatever fashion we see fit within our own accounts. So we can splurge it all, save it all or invest the lot. That is completely up to us. I have read arguments that argue for the higher income earner to contribute more into the financial future for the relationship but I disagree for the following reasons:
- I didn’t choose to squander my youth, instead choosing to pursue my career and worked hard. Why should I be penalised for doing so?
- I choose to work hard and have side hustles to boost my already higher income. As a trade off, I have a lot less down time. Why should I be paying for somebody else’s downtime?
- I have a lot more bills than Mr BKLA esp because I am the homeowner.
Somebody once asked: “How about when you are on maternity leave?” In which case, my personal savings will become my income and the baby’s expenses will be paid by joint. I will also have some income from my employer and my side hustles will always be there to keep me alive.
Should we choose to invest in a house as a couple then the deposit will be via joint savings. And if we never get there, then at least we have this roof over our heads.
The key differences to the current system to the old system are as follow:
- Joint expenditures are paid with their own card separated from our personal cards.
- I track the expenditures – not Mr BKLA
- We have a financial goal.
- The amount contributed to joint is a calculated decision, not an arbitrary number that we plucked out of nowhere.
- We no longer have to send random injections of money because joint is running dry.
I’d love to hear how you do it in your household. I do not personally agree with a complete merger of finances because people change and while the relationship is going well, it’s great. And when it’s not, the disentangling of merged finances is just about the last thing you want to deal with while dealing with picking up the shards of a broken relationship. But if you are doing that, and it’s going great, I’d love to hear about it! There is never any right or wrong way to do personal finance. If it works for you then that it is perfect.