Before my wife and I got married, we had a long conversation about how we wanted to handle our finances as a married couple. Previously, we were using a shared checking account for shared expenses like rent and utilities when we were living together, but marriage was an entirely new ball game. There were very different levels of student loans to pay off at various interest rates, as well as vastly different salaries with which to pay them. We needed to find an approach that allowed us to share in our financial successes and failures that also helped to control some of our worst financial habits.
It should be noted that our approach has worked for us, but that is not to say it will work perfectly for everyone else. People have different attitudes about money, financial situations, and financial goals, all of which should be factored in when decided on your own approach.
The Share Everything Approach
Many people would argue that a marriage means complete melding of two people when it comes to finances. This is the “what’s mine is your and what’s yours is ours” mentality, and is by far the most common approach among the people in my life. Under this approach, all income and assets are pooled into one cohesive picture, and allocated based on the shared decisions and spending habits of the family.
I think there are a lot of benefits to this approach, which is probably why it is the most common in my experience.
- Relationship: Because every financial decision impacts both partners equally, this approach can facilitate a strong foundation of communication and openness in the relationship. As finances are widely known as the biggest strain in a couple’s relationship, maintaining constant, open dialogue can head off issues before they become major problems. It is impossible one person to hide spending or open secret credit cards with this approach because everyone’s finances are an open book.
- Financial: Pooling resources and allocating them to the best use of those resources can put a couple on the best path towards reaching their financial goals. Debts with the highest interest rate can be paid off first, regardless of whose debt it may belong to (ex. student loans). Savings in your 401k can be maximized across 2 accounts instead of individually (particularly useful if you have disparate salaries).
- Career: As two people build their lives together, it’s highly unlikely that they will see the same opportunities at the same time. One partner may have a major promotion on the horizon, but needs the other partner to sacrifice a little so they can get there (by spending more time with the children, taking over more home responsibilities, etc.). Having shared finances allows the couple to think about the combined happiness and success of the family and to be able to share in the successes of the other person.
However, there are some things to watch out for with this approach.
- Weighing of Needs: One major issue I see with this approach is that it necessitates the need to weigh one partner’s wants and needs against the other’s. One partner’s morning coffee routine could eat into the other’s ability to purchase the new set of golf clubs they want (this oddly specific example may give you some insight into what we were thinking about). Even if the money priorities for the couple line up exactly for major purchases like early retirement or buying a house, it can be impossible to balance the wants of a couple at such a micro level. This would necessarily lead to lots of compromise around the most routine of purchases, adding strain and possibly resentment into a relationship.
- Spending Habits: Another major concern I had with this approach is that Mrs. NFF and I have slightly different focuses on our spending habits. I am much more meticulous and am constantly finding ways to reduce what I spend money on. Mrs. NFF, on the other hand, is a bit more free-wheeling. She is pretty good at sticking to a budget, but if the money is there she will spend it (as she likes to say). Not that she is selfish, but it is unlikely she would factor in my spending needs and habits when she is decided to buy something or not.
The Split-Everything-Down-The-Middle Approach
On the opposite end of the spectrum is the split everything approach. Here, both partners are responsible for covering their half of the family expenses and goals. While very common and highly recommended among pre-marriage relationships, I have not seen this in practice very often among married couples. I have come across is a couple of times online on other blogs, but it very rarely works out and in my opinion leaves a lot of gaps in the relationship.
There are some pros to this approach that are worth pointing out:
- Personal Responsibility: Particularly in an age when student debt is skyrocketing, this approach can be valuable for ensuring that each partner is coming into the relationship on equal footing. It ensures that a partner won’t look to the other to bail them out of financial predicaments they have gotten themselves into in the past. (It is worth nothing that, even with a prenup, this is purely psychological. Both of you will suffer if one person’s debts go unpaid.)
- Independence: Because each partner is in charge of their own finances, they are able to allocate their money in a way that brings them the most happiness. They can purchase their new suite or pair of jeans without worrying how it will affect their partner’s wants or needs. If early retirement is more important to one person than the other, they can chose to save and invest more of their salary. For some people, this can be extremely relieving and unburdens them from the stress of thinking about the consequences of every financial decision.
Understandably, there are some major draw-backs to this approach as well:
- Inequality: Consider a couple that makes very different salaries. Because each person must contribute to expenses 50/50, you are both living a life that is sustainable by the lower-salaried person. This leaves the higher-salaried person with much more money to save or spend, providing them with a lifestyle that just can’t be matched by the other. Even couples who start out with similar salaries are unlikely to continue that way as job paths can lead in very different directions (not to mention child-rearing and the impacts that can have on salaries for women).
- Career Advancement: A pro in the earlier approach is very likely to show up as a con in the opposite approach. I mentioned before have partners working together can help to maximize each other’s careers by making small sacrifices at different times. I look to my parents, who were constantly dialing up and down their own careers to support the other as they pushed for big promotions or job changes. A split everything approach means that the sacrifices of one person are only felt by that one person, while the gains of the other are not shared equally. It is not hard to see how, in the long run, both parties are left worse-off than they would have been otherwise.
Mrs. NFF and I decided to follow the first approach, but adopted some aspects of the second the counter some of the cons. We combine our salaries into one account, however we each carry a separate credit card and checking account for personal expenses. Both accounts are funded monthly out of our paychecks, $300 per month for her and $250 per month for me (it’s amazing how much more expensive women’s things are compared to men’s, even for similar products).
Out of this “allowance”, we are able to purchase things for ourselves that bring nothing to the other person. For example, my wife likes to go the ballet at the Kennedy Center in DC (which I appreciate but wouldn’t spend a lot of money on) while I like to play golf (something she enjoys but likewise wouldn’t spend her money on). We can spend freely, but to a point, on things that we want without having to sacrifice the wants and needs of the other.
Additionally, by combining both of our salaries, we have been able to accomplish many of our goals.
- Maximize our 401k contribution: Mrs. NFF and I make very different salaries and this has shaped how we contribute to our 401ks. If we treated our salaries differently, we would likely both want to contribute ~20% of our salaries. For Mrs. NFF, 20% would leave her below the $18,000 maximum contribution, while I would only be able to legally contribute ~10%, having to invest the rest in taxable accounts. By combining our salaries, we are able to contribute ~40% of Mrs. NFF’s salary to her 401k so that together we can invest the full $36,000 allowed.
- Pay off our student loans: Coming out of business school, I had a much higher loan amount than my wife did and with a higher interest rate. By making minimum payments on her loans while we aggressively paid off mine first, we were able to become debt-free much faster than if we treated our debts equally.
How do you and your spouse handle your money? Are there any approaches I missed that have worked well for you?