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Tuesday, February 13, 2018

3 Ways to Co-mingle a Budget as a Couple

When you first get into a relationship you probably aren’t thinking about blending your money. Often you are just trying to impress the other person and money becomes secondary. When you have been together for a while it becomes necessary to find a method of accomplishing tasks together. This includes paying the bills, enjoying leisure time and saving for the future. This becomes even more complicated when one spouse makes more than the other, sometimes substantially more. How do you manage all the issues of everyday life but also keep things fair and smooth? Today I will give you 3 methods of combining your finances and show you the pros and cons of each. You will have to sit down as a couple and discuss which method is better for you.

 

Chop it all up method

This method takes everything into account and divides it right down the middle. For this method, you will have your own bank accounts but also a joint chequing account where all the common monthly bills are paid out of. This includes housing, utilities, cable, transportation, and food. You can keep your own accounts for your own expenses like memberships and clothing. You each deposit an equal amount into the account every month that is enough to cover all the expenses.

Tim and Sally:

Tim earns $6,000 monthly

Sally earns $4,500 monthly

Their combined monthly expenses equal $3,000

Tim and Sally both deposit $1,500 every month into the joint account and that is enough to cover all their common expenses. All the bills are covered and then they are both able to spend what is left over freely.

Pros:

This method is about as fair as it gets in my opinion. No one person is carrying more of the load and each person can do what they want once the obligations are covered. It is true capitalism as the higher earning partner is rewarded for their extra earnings and the lower earning partner does not feel like a child that needs to be taken care of.

Cons:

Sally can feel bad that she doesn’t get to spend as much as Tim does. If Tim is wasteful or lavish in his spending because he earns more, there could be resentment amongst the couple. It is also important that they have a plan in place if one of them is unable to work due to injury or illness. A simple solution to this would be to build a reserve in the joint account that can serve as an emergency fund should disaster strike. Insurance in place would also help them if disaster strikes.

10 Key Steps to Financial Independence – Budget Boss

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To each according to their ability and means

Karl Marx would be proud of this method. If there is a wage disparity, which there almost always is, each person can deposit into the joint account an equal amount proportional to their wage. You would still have the separate accounts and be able to spend freely what is left over, but now you would each have a more “fair” amount to spend as you wish.

Tim and Sally:

Sally earns $6,000 Monthly

Tim earns $4,500 Monthly

Their combined monthly expenses equal $3,000

This time Sally makes more than Tim, so she will contribute more to the monthly expenses than Tim. Sally deposits $1,700 every month into the joint account and Tim deposits $1,300. For each of them that equals roughly 28% of their income and then they are free to spend the rest as they wish.

Pros:

This method truly represents each others’ earnings fairly as they both contribute the same percentage. Often even though someone earns less it is just because of the industry they are in and the education they have. It doesn’t mean they work any less or not as hard. In this method, you both contribute according to your means and that seems fair.

Cons:

Sally might grow resentment of a spouse who contributes less than her every month. Also, Tim might feel inferior because he is adding less to their expenses. On the flip side, Tim might not see the need to better his situation because he has the same percentage of free money as Sally does. In the completely equal method, the one who earns less gets to spend less so that might make them strive to earn more money. Sally might also feel her efforts are futile because if she earns more it just means a higher percentage of the monthly expenses will fall on her.

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Total transparency

This method is the full out, no hiding, completely-open method of managing a couple’s finances. In this method, you both deposit your paycheques into the same account and then monthly expenses come out together. You have joint credit cards and debit cards and you both can see every dollar coming in and going out. Every purchase is seen, and money made is no secret. You also co-mingle investments and can track growth together.

Tim and Sally:

Tim earns $6,000 monthly

Sally earns $4,500 monthly

Their combined monthly expenses equal $3,000

Each pay is added to the pile and both partners have access to it in a joint account. There are no separate accounts, just one account where both spouses add their earnings and pay all their bills and expenses. They can hold each other accountable for their spending. Everything is done as a team and no one is kept out of the loop.

Pros:

You feel more united as a couple. There is no score keeping. It is “we” rather than “you” or “me.” It is much easier to track expenses and budget as a couple. It is also easier to accomplish goals as a couple as all money is accounted for.

Cons:

Communication becomes especially important if this is the system being used. Understanding each others’ “money philosophy” is also important. You must be able to speak to each other about important purchases. You also can’t have a shopaholic and a frugal person using this method. The frugal person will eventually develop resentment as they will feel like their money is being spent on junk. The higher-earning spouse may also grow to resent the lower-earning spouse so that must be addressed.

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Overall there is no correct or incorrect way to manage a couple’s finances. The most important thing is to choose a method where both people feel comfortable. The problem with money is that it can often breed jealousy and resentment so understanding how each of you operates is crucial. I personally like the 3rd method because I feel that if you are a strong unit you should be able to work together completely on goals. I exclude any sort of inheritances from that method because those were the wish of someone other than myself and should be handled accordingly. Overall, all three are viable and can be used with success.

 

“Unity is strength… when there is teamwork and collaboration, wonderful things can be achieved.” – Mattie Stepanek
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