Being the type of person that I am, personal finance often comes up in conversations with my friends. One of my favorite discussions involves how couples manage their finances. It amazes me how many different methods my friends engage. Some keep separate bank accounts and split everything 50/50. Some put their money into one account and use that account to pay all expenses (even those seemingly individual expenses). And some do a combination of the two.
Put the Personal in Personal Finance
I believe that personal finance is just that – personal. You have to do what works for you. So if splitting 50/50 or combining everything works, then you should stick with it. Unfortunately, current money habits don’t seem work for most couples. A recent Merrill Lynch survey stated that 57% of married couples admit to arguing over money within the past year. That same survey also cites that disagreement over finances was at least a factor, if not the main, in almost 1 in 3 divorces.
These disputes never really involve the dollars actually spent. They arise because one person feels slighted or exploited. To avoid feelings of inequity, I have found, at least for me and Ben, that the combination method works best.
The Combination Method – Joint and Separate Accounts
Under the combination method, we each have our own individual accounts, and we also have a joint account for our joint household expenses. Therefore, we still have our own money to spend however we want (music and books for Ben, cooking classes and clothes for me), but we pay the same percentage of our income into the joint account in order to cover the necessary expenses we share (housing, utilities, groceries, etc.).
Notice that I didn’t say each person pays the same amount. Because we earn different amounts of money, contributing equally towards joint expenses would put more stress on the lower earner and lets the higher earner off the hook a bit. As I said before, this stress and disparity will just lead to fights. And, in my eyes, the fewer topics we have to fight about, the better.
An example may make this easier to follow. Suppose Ben brings home $2,000 per month, and I take home $3,000. With a total take home of $5,000 per month, Ben is responsible for 40% of the household income, and I am responsible for 60% of it. Consequently, we would use those percentages as what we should contribute to the household expenses.
Now let’s say our total joint expenses come to $3000 per month. Ben would deposit $1200 per month into the joint account (40% of $3000), and I would deposit $1800 (60% of $3000). And while we contribute different amounts, we still each give the same percentage of our take home pay (60%). We then use the money in that account to pay all of our joint bills.
Being fair to everyone involved
At first it may seem a little unfair that after we pay the joint expenses, I have $1200 to spend on my individual expenses and Ben only has $800. I have more left over because I make more money. But because I make more money, I actually pay $30 towards a joint $50 meal out, while Ben only pays $20. That money spent in the moment reminds Ben that because he makes less, he pays less on a dollar-for-dollar basis. The situation also feels fair to me because we both pay the same percentage of our income.
If, on the other hand, we split the joint expenses 50/50 ($1500 from Ben and $1500 from me), Ben would pay 75% of his net income, and I would pay only 50% of mine. That would leave him just $500 to spend on himself and me three times that. And no doubt Ben would think about that discrepancy every time I brought home a new cooking gadget, pair of jeans, or whatever I chose to spend my $1500 on. Those of you who have had this situation occur before know what tension that resentment creates, even if an argument doesn’t happen at the moment.
To me, the combination method offers the best opportunity for both spouses to experience a level playing field and still give each person the autonomy to use some of his or her money for whatever he or she likes. It also encourages you to talk about joint expenses, money, and goals, since you still share responsibility for joint bills. Keep in mind, the percentages still apply to goals like saving for a down payment for a house, buying a car, or going on vacation. In the end, each person can rest assured they are being treated fairly in the money relationship.