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| © baranq / Shutterstock How Smart Couples Share Their Money |
By Richard Glunt, MoneyWise
Next to annoying habits, money issues -- involving spending, saving, and just getting by -- are a major source of arguments between couples.
Money is to blame for 22% of all divorces and is one of the top three causes of breakups, says the Institute for Divorce Financial Analysts.
It's a common expectation for couples to share finances in some way, but how do you do it with as little stress and headache as possible?
There's no single answer. In fact, here are nine ways couples commonly share their money. You may want to test the waters before diving in, which means try sharing the responsibility for one or two major bills first, to see how it goes.
1. Split expenses equally
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| © Provided by Cheapism Ryazantsev Dmitriy / Shutterstock Some couples opt to share half their income with each other. |
Some couples opt to share their earnings and expenses evenly. Each partner splits his or her income down the middle and puts half into a joint bank account, or toward joint expenditures or purchases.
This is an easy and convenient arrangement, though it’s not necessarily the fairest. When one person earns considerably less than the other, it might be difficult to split an already low individual income in two, with half going into a joint account.
Or, the balance of power may become skewed, because it may seem that whoever earns a higher income and contributes more has a greater claim over the shared account — or expenses.
This type of deal usually works best for couples whose individual income brackets fall within a similar range or whose monthly incomes aren't highly variable.
2. Split expenses by income
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| © Provided by Cheapism Dmitry Melnikov / Shutterstock Some couples divide their expenses by income. |
A fairer arrangement for couples with a huge difference in incomes may be to split shared expenses in proportion to monthly earnings.
For example, if Partner A makes $100,000 a year and Partner B makes $50,000, the couple may agree that Partner A's income should cover two-thirds of the monthly bills, and Partner B's should take care of the remaining third.
To balance things out, the couple might agree that Partner B should contribute more in other ways: maybe do the daily cooking so the household can cut down on take-out, or mow the lawn occasionally so there’s no need to pay for someone else to do it.
The important thing is to talk things out and come to a mutually satisfying agreement to avoid conflict or hard feelings.
3. Pool most of your money
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| © Provided by Cheapism LightField Studios / Shutterstock Some couples opt to share most of their money. |
This is essentially a mine-yours-ours arrangement. The couple agrees to keep their own individual bank accounts, but they also open a joint "ours" account where the bulk of their monthly income is deposited.
There are benefits to opening a joint account as a couple, especially if you're married.
It puts larger sums of money in each partner's credit history, which could snag you higher interest rates on your savings, lower fees and even free checking. Using the joint account, you can save enough for major life purchases.
A joint account requires trust and fairness, and it's important to agree on: your individual contributions; your savings goals, including saving for emergencies; and a spending limit for the funds in the account.
4. Set up individual retirement accounts
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| © Provided by Cheapism emilie zhang / Shutterstock You'll want to have individual retirement accounts. |
Though couples are encouraged to share when it comes to other aspects of their finances, it doesn't quite work for retirement. Individual retirement accounts (IRAs) are just that: individual.
The same goes for 401(k) retirement accounts offered by employers. The 401(k) you enrolled in at work belongs to you, though you can name your partner as your beneficiary.
But the two of you will share the advantages offered by your separate retirement accounts, including a reduction of your taxable income if you're using a traditional IRA or a 401(k).
There's also the matter of how the plans grow your retirement savings — so the two of you can enjoy a fabulous time together later, when you're ready to leave the work world behind.
5. Put things in writing
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| © Provided by Cheapism Tirachard Kumtanom / Shutterstock Be sure to document your financial decisions as a couple. |
Financial arrangements are too important for a mere verbal agreement between two adults, even if you trust each other. Putting things in writing makes everything explicit and protects both partners' interests.
It ensures that the two of you have clear expectations and understandings of the agreement, and it signifies your willingness to accept the terms.
By this stage, you've probably had plenty of time to learn about each other's spending habits. If one of you is frugal but the other is a big spender, these differences can become a source of conflict.
Making a plan that addresses spending habits and clarifies how money will be spent in the future is an important step before committing to shared finances.
6. Work individual debts into the arrangement
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| © Provided by Cheapism ImagineerInc / Shutterstock |
One partner's student loans or credit card debt from before the relationship should not be a deal-breaker, but it's crucial for both parties to be open and upfront about these things.
Couples may decide that pre-existing financial burdens should be dealt with individually, not as a couple, meaning payments should be made by the person who owes them.
However, since this may impact the debtor’s ability to contribute to joint finances, the two of you will have to make some allowances.
For example, the couple may agree that the person paying off the loan can contribute a smaller amount to the joint fund but can find other, nonfinancial ways to pitch in until the loan is paid off.
7. Get down to the tiny details
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| © Provided by Cheapism Andrey_Popov / Shutterstock Have a talk and consider every type of spending issue that might come up. |
It's easy to imagine setting up a joint account for major purchases like a house, car, travel, your child's schooling or an emergency fund. But how about the day-to-day expenses, such as utilities, gas, or groceries?
These are shared expenses, and it’s important to clarify how they'll be paid.
You also may encounter times when an extended family member might need help: A sister can't make her rent, your spouse's father needs help paying a medical bill, or a brother-in-law who's still in school needs some financial help.
Both partners should agree whether these incidental expenses should be covered by funds in individual accounts, your joint bank account, or a separate account that you both can dip into for such things.
8. Consider if you need to earn extra
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| © Provided by Cheapism haeryung stock images / Shutterstock A lower-earning partner might hold a garage sale to bring in extra income. |
In a relationship where one partner is the sole breadwinner or where one earns considerably less than the other, the partner earning more may feel resentful, or the lower earner may feel guilty.
In these situations it can help if the person who's making less can explore other income streams to bring in additional money, says Ann-Margaret Carrozza, a New York attorney specializing in personal finance issues.
"It doesn’t matter the amount of money, once that spouse starts to (earn more), they will feel more powerful," Carrozza tells Forbes.
The side income doesn't have to be huge and might involve something as simple as holding a garage sale. Making the effort can help alleviate bad feelings and shift the balance of power.
9. Give each other some leeway
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| © Provided by Cheapism Bobex-73 / Shutterstock You need to let each other have some financial freedom. |
While openness and communication are crucial, always having to explain or defend purchases — especially discretionary ones — can be tiring and restrictive.
So, financial planner Michelle Perry Higgins of California Financial Advisors says each partner should have a "mad money" fund that can be used for anything, no questions asked.
"We all need to let loose once in a while, and this way you can do it with a clean conscience," she tells The Wall Street Journal.
In the end, what matters most in the decisions to share or split finances or savings is that it's a mutual and agreeable decision for both parties. A mutual understanding and open communication is key to ensuring financial harmony — and staying together, happily.
