Monday, 23 April 2012

Money Saving Monday - Couples Finance

When I got married, my wife and I both worked full-time.  We agreed that, when we had children, she would stay at home.  With this in mind we both knew that we would eventually be a one income family so we decided to combine our finances from the beginning.  We moved to joint bank account and haven’t looked back. It has worked for us but, for many of my clients, this becomes a very delicate subject. 

Here are three options to consider.

Maintain Separate Accounts

Couples maintain their separate finances, and split joint expenses as they come in. This may work well for couples who value their financial independence, but can be difficult in other ways.

Sorting out how to divide every expense takes some effort from each partner and can cause confusion.  Also, budgeting as a couple can be complicated when you both maintain separate accounts.

How you decide to arrange your finances as a couple can affect your individual credit reports.  If you have a credit card together, only the primary card holder will develop a credit history by paying it off on time.

If you are thinking about expenses using a joint line of credit or a joint credit card, don’t forget to consider your responsibilities as a joint borrower before making your decision.  If you co-sign a loan, you become equally responsible for repaying the loan.

The Combination of Separate Accounts and One Joint Account 

With this approach, couples use their personal chequing accounts for individual expenses, but open a joint account to use for shared expenses like groceries, rent or mortgage payments, and utility bills.

Couples that choose this option can split their shared expenses easily.  Because individual purchases are separate, though, budgeting as a couple can be more difficult.

If you choose this method, you need to decide which expenses will be paid for jointly, and how much each of you will contribute to shared expenses.  Will you split them 50/50 or contribute a percentage based on your incomes?

In some cases, having separate spending accounts can avoid problems. I’m talking about problems that face many people when they need a few bucks to go out with the girls (or guys) or want to buy something on a whim.  In this situation all income goes into the joint account and the couple’s determine how much spending money goes into their individual accounts (kind of alike an allowance) and at what intervals.  This can be the same amount of money for each person (recommended) OR a percentage of income.  Just remember that if you decide to go with the percentage of income because it means YOU get more spending money, things change, people lose jobs, get better jobs or get raises and you could find yourself on the opposite side at some point in the future.  Also, one very important thing to know is that no one has to justify where their spending money goes!  Whether you decide to save up for something or just spend it the same day you get it – that’s up to you and you alone.  If you spend it, you don’t get more until the next time.

One Joint Account

With this approach, couples combine their incomes and pay all expenses—both joint and individual—from their shared account. This makes tracking expenses very simple and helps build an open and transparent relationship. However, this arrangement can be hard for people who enjoy their financial independence.

If you choose this method, consider whether there will be some exceptional expenses you handle individually, such as paying off debt that you had before you entered the relationship. 

There are many things for couples to consider when deciding how to arrange their finances.  I suggest seeking the advice of a Financial Advisor as their expertise in this area may avoid potential conflict down road.

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