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Money Issues: Couples Combining Finances

Many couples encounter money issues at some point. After 15 years of working as an advisor, I’ve found that most of the time there are significant differences in how spouses or partners approach money. Fortunately, even when there are differences, a couple combining finances can use a financial framework to minimize financial stress.

The framework focuses on two issues: level of financial integration and degree of tracking spending. This framework helps to guide couples on handling their finances. (For related reading, see: Top 6 Marriage-Killing Money Issues.)

Financial Integration

Financial integration typically involves one of the three approaches below:

Fund Agreed Upon Expenses 

Each spouse or partner funds a specific amount or percentage of agreed upon expenses. Any income remaining after covering these expenses remains in an individual account.

Personal Budget and Shared Account 

All income is directed to a common account less a specific amount that is held back for personal spending. The amount held back can be identified in advance - say $500 per month - and be spent on whatever the person likes.

All Income to One Account 

All income is contributed to a common account with no personal mad money. Typically in this scenario the couple discusses all spending.

The primary difference in each of the approaches above is the extent to which each person can make unilateral choices on how to spend her money. The greater the differences between the partners or spouses, the greater the autonomy that is needed. One caveat here though with regards to autonomy - presumably the couple will have some shared financial goals and the greater the autonomy in ongoing spending, the more important it is for the couple to agree upon how much each individual funds towards medium and long term financial goals.

Tracking Spending

The second part of the framework is the degree to which spending is tracked. The levels of tracking are as follows:

No Tracking

For couples that don’t track their spending, the keys to long-term financial success are to have a reasonably accurate idea of their aggregate spending and to meet or exceed their plan savings. In building plans for couples that don’t track spending, we usually assume that with the exception of a few obvious adjustments, their spending in retirement will be roughly the same as their current spending.

After the Fact Tracking 

Couples who track spending after the fact do so either manually or using software like Mint or Quickbooks. While after the fact tracking won’t keep you from overspending in a particular month, having the details is useful in making adjustments.

Real Time Tracking 

Real time budget tracking provides the same level of detail as after the fact tracking but it allows couples to avoid overspending and to shift spending as needed between categories to remain within the aggregate budget. It does require a bit more commitment than after the fact tracking, since all spending should be logged as it occurs.

As is the case with a couple combining finances, the choice of which tracking system to use depends upon the unique circumstances of each couple. Thinking through the level of tracking they want to use as well as the degree to which they want to combine their incomes provides couples a framework to help minimize the impact of their differing approaches to money. 

Couples who are combining their finances often have different approaches to handling money. Putting a financial framework in place can help avoid conflicts. (For more from this author, see: What a Personal Financial Plan Should Include.)