If you do an informal interview with married couples and ask them the number one cause of their fights, a high percentage of them will probably say money.It makes sense. Different people have different approaches with money. For example, one parent in my family is a saver; the other picks up plastic, blow-up football figures for the lawn just because.
Matt and I happen to both be savers. But we still had to come up with a plan for our joint, financial approach. We had to sit down and talk through how we would merge finances in the most agreeable, amenable way.
In the end, we came up with a system that seems very complicated on the surface. It involves a lot of accounts and a lot of banks, but, if you remember that everything happens electronically and automatically, you'll begin to see it's actually pretty simple.
Our goals are to maximize our savings (for things like vacation, home improvements, cars, and retirement). We also want to avoid having to ask permission from each other to purchase things (while also avoiding unfair spending by one of us).
That's why this system emerged (see photo above):
- Account #1: This account is home base. All of our paychecks are electronically deposited into this central account at ING Direct. From this account, we have set up several automatic transfers to happen monthly.
- Money is transferred into another ING account. This account is used to pay for joint things like groceries, dinners out, entertainment, Netflix, yoga classes, etc. We don't pay for this directly out of home base because we put a cap on how much we can spend monthly. If we just took out of our central pot of money, we would be much less conscientious and frugal (i.e., you spend what you have).
- Money goes into my Bank of America account for my personal allowance. I can spend this money on whatever I want. New books, clothes, craft classes, etc.
- Money goes into Matt's Wells Fargo account for his personal allowance. We do not have to ask for any sort of permission to spend our own allowances. Despite the fact that we have different incomes, we both receive an equal allowance.
- Money is automatically transferred to our home improvement fund. When we have enough money saved up, for example, we can fix our fence.
- Money is automatically transferred to our vacation fund. Right now, we're saving for a trip to Florida, Christmas vacation, and our honeymoon (oh, there's also Thanksgiving--oi vey!).
- Money is automatically transferred to our car fund. Both of our cars are currently paid off, so now we're trying to save money for our next cars. We want to be able to pay in cash, so we can avoid paying unnecessary money for interest.
- Retirement money is set aside in a Roth IRA through Vanguard and Matt's 401k (we only put in as much money as his company will match; the rest goes to the Roth).
- What are our financial goals together?
- What will help us achieve those goals?
- What are potential areas for disagreement related to our finances?
- How should we prevent those potential disagreements?
9 comments:
my fiance and i have a similar system where we thrown both of our checks into one pot, then get an equal personal allowance to spend as we wish. so far, so good!
i also think it's important to look at the money you bring in separately as "ours" instead of yours and mine. it reinforces the mentality that we're a team now and we're focused on common goals. all of our spending is in the open, we talk about how the joint money will be spent every month, and we're attacking our financial obstacles together. i'm sure this approach wouldn't work for everyone, but for us, anything else would just feel like we're roommates paying our share of the bills.
If I may be so bold, it really is imperative that you also have an emergency savings fund. Six months income at least is what is suggested. That way, if something happens, like an illness, an injury, a lay off, etc., your bills are still covered and you don't have to totally freak out over where the money is going to come from.
My fiance and I are figuring this financial stuff out, too. Since right now everything we own is separate and we pay for it all separately and we have separate businesses, I think right after we marry we will just open a joint investment and savings account of some kind. But that plan will have to be totally reworked when kids come along, due to the lifestyle we wish to lead - my work load will have to be cut way back.
Caroline, of course you can be "bold"! Please, I absolutely appreciate others' perspectives.
Matt and I are hardly saving enough as it is in each of our four categories (home improvement, cars, retirement, and vacation), so I don't think we could add an emergency fund at this point. However, I figure if we do have an emergency, we'll just have to pull from each of those four accounts as necessary. It's definitely not ideal.
wow!
money has not been much of a problem for us in that we share it easily. i am still in school, he is not, there are ebbs and flows with who brings in more or less, but we have a similar system in that we pool then get equal allowances.
though we are different in the we are not savers. either one of us. and as you pointed out, because our monthly shared spending money is not separated out, it is really easy to go over. thanks for the diagram! it is giving me great ideas!
I’ve always felt that whoever makes the money between my wife and I it belongs to the both of us. I feel that marriage is when the aspect of what’s yours, and mine, becomes ours. It’s not what you do, or I do, it’s what we can do to solve a financial problem, no argument.
That's more or less what our plan will look like, except I don't divide savings up as much. Poor David would never get new electronics (his toys) if he didn't have his own allowance (I'm a SUPER saver, ie, deeply cheap).
I'm also going to bring up the importance of the emergency fund. I always suggest setting that up before you set up retirement, as important as retirement is. It's been shown to be the most important way to keep you out of debt. If it's in a money market fund you'll still be earning some money on it, which will be compounding, but you can pull it out at any point without penalty in case of emergency. We have a 6 month fund, because I'm paranoid, but 3 months is good too.
I'm SHOCKED the number of people who I find out haven't extensively discussed finances, goals, and money management before marriage... and I've seen it lead to HUGE problems.
We are planning on doing something similar, but probably not with as many invididual savings accounts, probably two, one for serious things (car, home repair, emergencies, etc.) and one for fun things like vacation and gadgets.
My bf & I have our own system as well. We have our own bank accounts at our own banks, but we also have a joint ING account. We have our own ING savings accounts & our own savings schedules (mine is transfered automatically after my paycheck is direct deposited). When we pay a bill, we split it down the middle & transfer the money to the person paying.
We just bought our own house last October & have started a home savings account for the things we're working on fixing up. When we want a big purchase, like a TV, we each save half ourselves & when we have the total, we buy it.
I also have my own 401k through work. We'll probably have to update this savings system down the road & I really like your idea, I may use it as inspiration!
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