I was recently talking with a couple about my course MPowered Couple. They had never talked about the approach to couples finance that would work best for them. There is no one right way to approach managing money in a relationship. This article will walk you through five approaches to managing money so that your approach to managing money works for your relationship.
There are two categories to couples finance: 1. managing money completely together and 2. managing money separately. Within these two approaches there are some slight variations on how couples can manage their finances.
At MPower Co, we don’t push one approach over another. There is research supporting one of the two categories, which I’ll talk about later in the article, because it’s important to me you are aware of it. What we do encourage is having conversations and being willing to change your couples finance approach if something isn’t working. It’s getting these big decisions right that can make a real difference to whether money is supporting your goals as individuals and couples within your relationship.
2 Approaches to Managing Money Together
Both of these approaches to couples finance are about managing everything jointly. One person may pay the bills, and move money in accordance with what you both agree upon; however, all income is combined into one shared resource.
1. The “What’s Yours is Mine: Approach:
Combine everything. You will have one main account where everything gets deposited and from which things are paid that you both have access to. You may have additional accounts for savings, but again you both have access to these accounts. You may each have employer sponsored retirement accounts, but the money you are saving and your investment strategies are specific to your household’s goals.
2. The “Act as If” Approach:
This is a variation of the “What’s Yours is Mine Approach.” In this approach you still combine everything as a resource for the couple as a whole. The main difference is that you “act as if” there is only one income to the couple. So, you set up your life to live on one person’s income. So, one person’s income is put into an account and all bills of the couple are paid from that account. The other person’s income is put into a separate account and can be used for big goals of the couple (i.e. pay down debt faster, increase emergency savings, investing, or fun, big goals such as trips, purchasing a second home, etc.).
This approach to managing money together can be very meaningful for couples that have one partner with inconsistent income. It is beneficial for couples who plan to only have one wage earner in the future (i.e. couples who have a goal of one person leaving their current profession).
4 Approaches to Managing Money Separately
Some couples choose to manage money separately. Reasons I’ve heard for managing money separately include, not being able to effectively manage money with a previous partner, reluctance to share realities of finance, not wanting to be financially entangled, and more. If you want to manage your couples finance separately, here are four approaches or frameworks that can be effective:
3. The “We are Equals” Approach:
You keep most income and expenses separate; however, you have one joint account and pay for all joint expenses 50/50. You both have your own savings accounts and retirement accounts and you manage those as individuals, not for the household.
4. The “According to Earnings” Approach:
You most income and expenses separate; however, you have one joint account and pay for all joint expenses according to the percentage of your earnings. If one of you earns 60% of your combined total income, that person would pay 60% of the joint expenses. So, that person deposits enough into the joint account to pay for 60% of the joint expenses and the other person contributes an amount equal to 40% of the total expenses.
5. The “Pick your Bill” Approach:
You maintain everything separately. There is no joint account, and on a bill-by-bill level you select who will pay each bill you have. You ensure everything gets paid and each person has selective responsibility for certain things. You may try to set this up so that it comes out to close to 50/50 or according to earnings; however, from month-to-month it may vary as bills vary in amount.
6. The “I’ve got it” Approach:
One person pays for everything. This is really for couples where one person makes significantly more than the other and it’s appropriate as a couple that the second person gets to maintain the income that they make separately and aren’t responsible for any of the day-to-day bills. The way this is different from managing money together, is that the second person may not have as much insight or transparency into the finances of the person saying “I’ve got it.”
The Argument for Combining Finances: To Increase Happiness within Your Relationship
While how to manage money as a couple is a personal choice for every couple, I want you to know what the research says. There have been a number of research studies that I have reviewed regarding combining finances. While there are not many common take-aways from the different studies, interestingly there is one commonality: happiness.
Research shows that couples that combine finances at a level of 95% to 100% are typically happier than other couples. The couples in these studies that kept separate finances the lower the happiness level within the relationship. So, a couple who only combined 70% of their money wasn’t typically as happy within their relationship as a couple that combined 80%, and those couples aren’t as happy as those that combined 95% of their money or more.
If you take a step back and think about this, it makes logical sense. Financial infidelity is the number one reason relationships don’t work out. Managing money separately creates more room for wondering what the other could be using money on and opportunity to spend money not in support of the couple as a whole. The more transparent you can be about money and how it is being used, the more trust and overall happiness you can build within your relationship.
Ready to Implement a Couples Finance Framework that Supports Your Goals? Learn more about MPowered Couple!
MPowered Couple is an online course for couples that want to come together around finance, so that it is a strength within their relationship. The couples finance course provides the research-based information you need to communicate better about your habits and attitudes towards money, and set up a financial framework that will support your individual and collective goals. If you’re ready to live richer with your partner, head to the course page to learn more and to register today to make money a strength within your relationship!