The new couples dilemma – joint everything, or keep your finances separate?

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The new couples dilemma – joint everything, or keep your finances separate?

If you’re in a relationship that’s been going for a little while, how do you manage your finances as a couple? Do you and your partner’s wages all go into a single joint account that you both then spend out of? Or do you keep your money separate, each paying for your own expenses and combining only when necessary?

There’s no single right way for couples to manage finances but in this episode we’re going to explore some of the things you might like to consider, and I’ll share with you some of the ways I’ve seen it done amongst different couples over my 20 years of helping people with their money.

 

Having worked with hundreds of couples over the years I’ve seen various ways in which household finances are managed. Certainly the most common is to have all or at least the vast majority of a couples finances owned jointly. There are some good practical reasons for this, especially from back in an era where there was one income earner, typically the husband, with the wife at home looking after the kids. Without joint banking the wife would be left impoverished and potentially feeling the need to beg her husband for money.

Fortunately, these days it’s far more likely that both members of the couple earn an income, however income inequality is undeniable, and so it remains the case that males tend to earn higher incomes than females. There is still the potential for the female in a traditional heterosexual couple to be disadvantaged should the finances not be pooled.

Joint finances, particularly for a young couple starting out on their life’s journey, can imply trust and a sense of being in it together. That idea of what’s mine is yours and what’s yours is mine. It’s a step in forming a life together.

Where joint finances can becomes less appealing, is for couples coming together later in life. Perhaps one member of the couple has significant assets whilst another comes into the relationship with debts. It could be the case that one partner is divorced and has ongoing child maintenance obligations that their new partner clearly does not wish to share.

Of the couples I work with who keep their finances separate, a successful approach seems to be to have a joint household account that they each contribute to, say $2,000 a month each. From this account all the bills food etc are paid for. Beyond the contribution into the household account each member of the couple retains their own income and spends it as they see fit. Sometimes they might also have a joint holiday account that they each contribute into.

The good thing about this approach is that it tends to be quite sustainable long-term. In retirement if both members of the couple each have their own superannuation savings, they are still able to run with this strategy. I guess it doesn’t work in an instance of young children where one member of the couple stays at home. But the examples I’ve seen tend to be of couples who have come together after children were a factor.

Potential for relationship harm

I’ve certainly sat with couples where separate finances produce tension in the relationship. In every case that I’ve experienced it has been because the male in the relationship has wanted to keep the finances separate, and his partner is resentful, with, in my opinion, considerable justification. It typically works by the husband giving his wife an allowance that is to pay for food and anything else she and the kids might need. It’s quite demeaning and disempowering.

This type of separate finances approach can also cause problems into retirement. Often the husband will have a far larger superannuation balance than his wife. The disparity between their two positions results in further unhappiness and distrust.

There can be very good reasons though for keeping some finances separate. Pre kids my wife and I each had a separate personal account. I think we used to put $50 a pay into each of our accounts. It gave us a bit of guilt free spending money and it was nice to be able to buy things like birthday and Christmas presents and not have it pop up on the credit card before the gift had even been given. Once kids arrived, we kind of fell out of this habit as money got tighter. My personal account is still sitting there. It’s had about $8 in it for the last decade.

Different investment preferences can be another good reason to have at least some of your finances separate. One member of the couple might be quite comfortable being aggressive with their investment choices whilst the other member of the couple might prefer to be more conservative.

It could be that one member of the couple has an addiction problem, gambling or alcohol, something along those lines. In such a case it makes complete sense for the other partner to not want to drop their income into a bucket that can be wasted away.

Credit cards

An issue I’ve heard come up several times is where a couple shares a credit card. Unlike a bank account where it can be owned by two people equally, for some reason credit cards only have one person as the account holder, and the second person simply has a card issued in their name. Taking the traditional nuclear family as an example, this would mean the credit card is in the husbands name and the wife is an additional card holder. At some point the wife decides she wants to get her own credit card, often at a time when their relationship is breaking down. Because she’s done more of the child rearing her income is lower and as a result, she is denied a credit card, cementing her perception that she’s become and economic underclass. Dark times.

Given this potential, young couples may want to consider each maintaining their own personal credit cards. I guess ideally you want something with a low fee attached to it. But it does at least ensure that later in life you continue to have access to this service. With so much online shopping these days, being without a credit card is a significant disadvantage.

Superannuation

I mentioned earlier the issue of superannuation savings often being unequally split across a couple. If this is an issue for you, investigate superannuation contribution splitting. This is a mechanism by which a partner in a couple can have their employer super contributions shifted across to their spouse. In this way retirement savings can be equalised overtime. There can be some good financial planning reasons as to why equalising superannuation saving balances produces a positive outcome, but even setting these aside, from the perspective of a harmonious relationship, working towards equalising retirement savings can certainly be a positive.

 

To summarise, from the couples I’ve worked with over many years, and my own personal experience, joint accounts work well where the couple forms at a reasonably young age with the intention of starting a family. Separate finances work better where couples form later in life and perhaps where either no children are envisaged or they’re already past the point of starting a family. Maybe there are children from a past relationship.

In either case, often some combination of joint and separate bank accounts gives the best outcome.

As always, there is no single answer that’s right for everyone. But if joint bank accounts for all your finances doesn’t sit right with you, don’t feel that you’re doing something wrong, or that it’s a poor reflection on the trust within your relationship. There are perfectly reasonable and legitimate reasons why you might choose to keep some or all of your finances separate, and there are plenty of couples with happy long term relationships who don’t combine all of their finances.

 

If improving your budgeting approach and cash flow management is something you’re aiming for in 2021 check out our Cash Flow Mastery short course. It’s only $44, so super affordable. In there we have 6 different budget approaches and an easy self-assessment tool to help you identify which one is most likely to suit you.

I also cover cash flow management and maximising your savings in my book Financial Autonomy. You might like to check that out if you haven’t already.

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