I’m going to come clean a bit here. When I started this blog I had a fairly rigid view on how to manage finances as a married couple. Over the last year though that view has changed considerably as I’ve read bout other customers and referred back to behavioral economics. That change has inspired me to write about my changing views on marriage and money.
Co-Manage Your Finances in Marriage
Frankly the single most important thing to get right for your financial well being as a married couple, is how you co-manage your finances. Financial issues are the leading cause of stress in relationships and the second leading cause of divorce. Furthermore, marriage can act as an accelerant to your finances thanks to the added benefit of potentially 2 incomes. Typically costs don’t double in marriage, so it’s a recipe to skyrocket your financial well being, one of which I definitely took advantage.
How to Manage Finances to Reduce Marital Financial Stress
So we can establish that managing your finances is necessary not only to stay married, but to take advantage of the marriage financial accelerant. So how do you manage finances as a couple to avoid stressful situations and take advantage of the accelerant? Well frankly it depends on the types of people in the marriage.
Imagine for a moment we establish a scale of financial actions for individuals. On the one hand we have the ultra frugal, on the other extreme are the jones. Somewhere in the middle lies Joe average.
Your Situation Depends on Each Person’s Spending Habits
The easiest financial couple is probably the combinations of the 2 frugals. This is my world. I might be slightly more frugal than my wife, but neither of us are buying Porsches and Boats here even if we were alone.
In this situation there is no reason to ever split up your money. It’s one giant pot. Why? Frankly because mathematically it always is one gigantic pot. Even if your spouse can’t get to the money, your on the hook for their debts. So with a credit card they can still spend all the money. So any type of differing accounts for The Frugal couple is just a waste of effort any way.
My Marriage is of 2 Frugal Individuals
This is where my view has historically been as a frugal couple, why the heck would you ever need more than one pot. After all if my wife suddenly went on a spending binge its my responsibility anyway, but the truth is more nuanced than that with other types of couples.
Marriage Money Buckets are an Illusion
If you go back and read my post on behavioral biases, you might recall that mathematically there is no reason to ever bucket money. Quite frankly money is fungible and that 2K you set aside is identical to the 2K in your spending account, which is identical to the 2K you spent on your credit card last week. But, a bucket serves a different purpose. It allows you, in some cases, to trick your brain into different behavior.
But Some Couples Need These Buckets
That trick of behavior is why some couples need separate financial accounts. I know a few like this. They are usually a Frugal or Normal married to the Jones. If left to their own device Jane or John Jones will spend every dollar the couple has. So the frugal or normal person limits that persons accounts in some way.
The Degree of Bucket is Variable
Some way is variable. There is the basic, your income is yours and mine is mine. There is also the extreme, all the money goes to my account and I give you $200 to spend in yours. I’ve heard of the ultra extreme, I only give you gift cards for particular vendors when you need them. Each case relates both to the relationship and the level of financial concern with the more spendy side of the household.
Marriage Income Buckets can Overcome Biases
Frankly there is nothing wrong with the multiple account approach to marriage and money as long as we admit to ourselves what we’re really doing. They are attempting to use behavior economics to allow their other halves to control their expenses. Theres nothing inherently wrong, or particularly mathematical about that. It can be a beneficial stance so long as you go into it eyes wide open.
Extremely Separate Financial Buckets can Be Destructive
But, there is an extreme version of this that is destructive and there is a risk.
For this we’ll start with an analogy. My oldest son does swim team. One of his events is the freestyle relay. Each leg of the journey is independently run by him or his teammates. There is nothing he can do about their leg to help or hinder them. But, when they arrive at his end of the pool it’s important for him to go when they touch. It’s also important when he arrives to his next teammate that he doesn’t block their ingress into the pool. The kids are six though and inevitably this happens a few times each meet, though not necessarily to my son.
Marriage Money is still a Team Sport
The problem in this case of the kids is what they do impacts each other, but they are not fully paying attention to how it impacts the other/what the other person is doing. The analogy ties in well with the couple that doesn’t talk about finances, or worse hides it from each other. The thing to understand is by creating multiple accounts you are limiting the other person’s exposure to your finances. If something were to happen to you they could potentially not be able to manage their own finances, which would be disastrous.
Keeping a person fully in the dark about how your finances are run as a couple is a very bad idea for this reason. A better approach would be to utilize multiple accounts for their psychological impact while also working to educate and address the other persons’ spending. I would never recommend keeping either partner totally in the dark.
Which leads us to the extremely destructive version?
You can pool income in different accounts, drive spending separately, and any other number of things in a marriage. But your success depends on being open, honest, and pulling the financial boat in the same direction. You can’t do that if you hide finances or make them taboo in your household. Do not hide financial positives or mistakes from your spouse, it’s a road to disaster. It’s also a hop skip and a jump from separate accounts to there. So be careful however you manage your money to keep your financial communication open.
Emergency Funds Should Always be Joint
There is one final recommendation I might have for those who keep finances separate. Always keep your emergency account as joint, even if your spouse doesn’t have easy access to the funds. If something does happen to you, you don’t want the emergency funds in your name locked out from your spouse while they administratively handle the processes of dealing with your death. They may need access to that money immediately to pay for things like your burial.
Without a beneficiary the account could be locked out for months for probate. Even with a beneficiary your spouse may need to jump through hoops to release the money. On top of the pain of losing a loved one, you wouldn’t want your spouse to go through that. Of course you should still put in place any controls to help them to not spend that money on a day to day basis as per their situation. Due to legacy accounts I recently realized we have this issue where our emergency account was the last account primarily in one partners name. We have since made a change to push it to a joint account. It doesn’t hurt that we picked up a bank account sign up bonus in the process.
How do you manage your money as a married couple.