Combining family finances
Dealing with finances can be a touchy topic for couples. Bank of America employee Brian Dwyer shows some best practices for combining family finances.
Did you know the main reason for most separations or divorces is because of financial issues? Let’s take a look at why that is. Traditionally, there have been two ways of managing family funds.
First is what I like to call the OURS approach. In this model there is one checking account in both the spouse’s names. For this example, let’s call them Jane and John. All income goes into this account and all expenses come out of it.
The second way is what I like to call the MINE model. Here, both Jane and John have all their income going into an individual account that they alone use. Household bills and expenses are generally split down the middle in this case.
Interestingly enough, each of these models can put different types of financial stress on any relationship.
For example, stress with the OURS account: John buys something Jane doesn’t think it is a good use of household money. Maybe Jane spends money unexpectedly leading to a budget shortfall. Each person may resent having to ask for permission to buy something from the other.
The stress with the MINE accounts: One partner makes more money than the other, causing hard feelings over who or who not is contributing more to the household. Now you may have wondered which way is best.
When my then fiancé and I were merging our finances over 15 years ago, we thought about how we were going to manage our money. We looked at both these models and thought we could do better than this. We took the best parts of both and created our own.
Here’s how it worked. You could set up three checking accounts in total and name each one of them. The OURS account would be used for any household expenses like: paying your mortgage or rent, automobile expenses, groceries, travel, and of course contributing to your savings.
While the MINE and YOURS accounts would be used for anything either spouse may want personally.
The really cool part about this process is you can also surprise your spouse for birthdays, anniversaries or just because by using your separate account.
So how and why does this work? First- budget to determine your household expenses and the discretionary income left over. Creating a proper budget is another video but you really need to do that.
Then set up 3 checking accounts and 1 savings account. The OURS checking account will have both names on it, where the mine checking account may have John’s name on it with Jane listed as the beneficiary.
While Jane’s account would have her name on it with John listed as the beneficiary. The OURS savings account would have both names on it.
Next, set up all direct deposits to go into the OURS checking account and set up three automatic transfers coming from the OURS checking account to each of the other accounts.
Now the transfer amounts and timing may vary depending on your budget.
For instance, you could transfer money to these other accounts on the 1st and the 15th of each month if that is when you get paid. By following this model, you can limit the amount of financial stress placed on your relationship.
The partner that wants to spend money that the other one doesn’t agree is a true need, that’ll come out of their MINE or YOUR account.
Unexpected spending by one or both won’t impact the household budget because that too will be taken out of the MINE or YOUR account. Neither spouse will ever have to ask permission to spend money because…you guessed it, they would make the purchase from their own personal checking account.
Both partner’s feel equal because they are each getting the same amount at the same time of the month, and they both will be contributing to the household expenses.
This plan has worked for my wife and I for 15 years, and we rarely, if ever, fight about money. This could be a good approach for you. In fact, one of my closest friends confided in me some time ago that he and his wife were considering separation because they were always arguing about money.
After being on this plan for 6 months, they not only don’t argue about money any longer but they have also managed to start building significant savings to be used in the near future for putting a down payment on a home.