Money is one of the biggest stressors in a relationship. For many couples, the financial topic is a delicate one. They avoid and neglect it until it’s too late. I have written my opinion about the importance of having the money talk as soon as possible. Here I will outline a few ways in which you can handle your couple finances and my view on them.
The budget anarchy
It’s surprising how many couples handle their finances in a completely random way! One partner covers part of the household expenses, the other covers the rest of the expenses. Lifestyle expenses like dining out or vacations are also handled on a random basis. At the end of the day, no one really knows what they’ve paid for, where the money went, and it’s hard to spot potential budget optimization opportunities.
It might look easy and straightforward, but it will bite you in the ass in the long run.
What’s mine is yours
In this case, partners transfer their incomes to the same account. This account is used then for paying all living expenses. Some couples might discuss before using the money for personal purchases.
To me, this is very risky because you might lose the overview plus it strips you out of your privacy. What if you decide to surprise your partner with a nice gift? How would you do it without them finding out? What if for some reason you want to keep for yourself some (private) expenses? It doesn’t leave you with much space to manoeuvre in your life.
On the other hand, it can be a huge stimulus for achieving a common goal and keeping each other accountable. You have to totally be on the same page when it comes to spending money and trust each other unconditionally.
Split it two ways
This is a more fair approach. Regardless of each partner’s income, the expenses are divided in half and paid equally. This is the approach my partner and I use and it’s fairly easy: rent and all utility bills are automatically withdrawn every month from his account. I automatically transfer to him exactly half of that amount.
For everything else like groceries shopping, going out together, ordering food, trips, buying gifts for family members, we gather the receipts and once every few months I calculate the balance.
Apart from that, both of us have our independent bank accounts and we spend our money as we find fit. I know it sounds very precise and mathematical, but it works. I feel that fairness with money is important.
- Have an open conversation about it before you decide to move in together
- Automate as much as possible so you don’t even have to think about it
- Collect receipts or use an expense tracking software like Toshl
Three pots system
The partners keep their individual accounts for individual expenses and establish a third shared bank account for household expenses. Neither partner gives up independence or autonomy completely, but some finances mingle.
Here is how to make it work:
- Create a detailed budget together. This way you will know exactly where their money goes and how much they need each month to cover all expenses. Once you start spending someone else’s money, it’s important to account for it.
- The household budget must include only the things both agree to pay for together. It’s best to forge this agreement before you actually move together.
- You don’t have to contribute equal amounts (and shouldn’t if one earns significantly more than the other), but the total each month should cover everything you agree to pay together, such as the mortgage, utilities, groceries and insurance premiums.
- Then use your money – what you’ve got left – on what you want. Food, shoes: all the stuff that’s non-couple-related.
People like to keep their independence. It’s nice to have that bit of privacy and to be able to spend what you want without your partner having a go at you for being frivolous.
When it’s just the two of you, it is easy. But what about the kids?
For the time being, I don’t have any experience in budgeting with kids, so I will keep that for a later post. If you have a thought or two about it, contact me and I would gladly feature a guest post on this topic.
What is your method? What works or doesn’t work for you? I am happy to learn! Please leave your thought in the comments section below.