Out of Two Comes One- Newlyweds and Money
Originally published in September 2011 issue of Southern Neighbor Newspaper, Chapel Hill, NC
by Todd Washburn, CFP®
With Fall arriving, the summer wedding season is drawing to a close. It’s been a hot one for saying “I do” but there are now a lot of happy people figuring out married life. Not surprisingly meshing finances is one project. Ideally this was discussed before the wedding, but often it wasn’t. So it’s left for now, when bills need to be paid and saving and spending decisions made. Some common issues are:
1. Separate or joint accounts.
2. Individual vs. joint spending.
3. Paying off individual debts.
Separate or Joint Accounts: These days most people have been on their own before getting married. They have their own checking, credit card, and investment accounts. What now? You can leave everything separate or make everything joint. Either will work. Another option is splitting the difference- separate accounts PLUS a joint account. This allows for private personal spending but uses the joint account for household expenses. Credit cards can be separate or joint. However, an individual card will help your credit score. Just agree how to pay joint charges on each other’s card.
Individual vs. Joint Spending: This can be tricky, especially if your incomes vary greatly. You really have two types of expenses- individual and joint. Some that were individual- like eating out- may now be joint. Others stay individual. The key is to agree which are which. Ultimately, though, they’re all joint expenses since money either of you spend is money you as a couple no longer have. To maintain some financial autonomy, some couples use an “allowance” system. Expenses deemed “joint” are paid from the joint account. Their individual accounts are funded monthly at an agreed upon level. You don’t have to account for this money. Some couples use this money for things like gifts, clothes, etc. Others make those joint expenses and designate their “individual” money for discretionary spending (whatever they want). The key is clear expectations. What’s to be covered by this money? Is it just “fun money” or are there other expectations? What’s to be covered dictates how much money is allocated. Be realistic and make it enough to do what’s expected.
Couples with similar incomes might contribute equally to the joint checking account each month, leaving the agreed upon amount in their individual accounts. Those with unequal incomes might contribute proportionately to the joint account. A spouse who earns 75% of the income pays 75% of the joint expenses. Otherwise the other spouse is left poor trying to pay half the joint expenses
Individual Debts: Most of us bring some debt to a marriage- school and/or car loan, or even credit card debt. The question is- do you only pay your own or do you help pay each others? It’s understandable feeling he should pay his $15,000 credit card bill, especially if you had none. But you got married and agreed to take the bad with the good. One spouse’s liabilities are the couple’s liabilities. If there are spending problems- that’s a separate issue. No matter what, those debts will impact you as a couple- like when you want to borrow money. It’s in your best interest to get the debt paid off- and together will be the quickest way.
Marriage is a wonderful thing. It’s also work. There are so many changes going on and you’re learning so many new things about each other. Saving, spending and investing will all greatly impact your life, now and in the future. Being on the same page is important. But it’s more than that. It’s important to develop systems that allow each of you to have some individuality and autonomy, while recognizing you are a couple that is economically stronger than two individuals. You solve problems and achieve goals as a couple, and you have to learn to manage money as one too.
Individual Spending: You’re individuals and need some financial freedom. How do you manage that? One approach is an “allowance” system. As part of your Spending Plan, you each receive a monthly allowance to spend as you wish. You don’t have to account for it. But this isn’t a blank check. Guidelines are important. What’s to be covered by this money? Is it just “fun money” or are there other expectations? Do you need to buy gifts or clothes with it? Clarity on expectations is crucial to making this work. That dictates how much money is allocated. Make it enough to do what’s needed without harming your joint goals.
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