Figuring out how to manage money in your marriage is a timely topic for all couples.
Are you newlyweds trying to figure out how to manage your money together for the first time? Or are you a married couple wanting to make adjustments to your money management style?
Finances in marriage are a hot topic for any couple, and can often lead to arguments if you don’t devise a strategy that you both feel works for you. Let’s look at the options on how to manage money in your marriage.
How to Manage Money as a Couple
Here are three money management styles for couples and tips for success.
Money Management Styles
There isn’t one right way to manage a couple’s money. It’s largely dependent on your personalities, how you were brought up, your values, and your expectations about money.
The best way to find out what works for both of you is to have an open discussion about your money, goals, and money management styles, preferably before you get married. Try out your plan, and if it doesn’t work, make adjustments. Three ways to manage money in marriage:
1. Joint Finances
This is how my husband and I manage our money. All of our earnings are combined in one account. All of our expenses are paid out of the joint account, and once money comes into our house, there is no division of who it belongs to.
The joint finance approach extends beyond just income and expenses. We also contribute to retirement plans, benefit packages, and savings by evaluating the best offer. For example, before we quit [1] our jobs [2], I took almost his entire paycheck and deposited it into his 457 and 403b plans, because they were better options than my 401k I had at work.
Tips for Success:
- Agree on a joint budget.
- Include spending money for each spouse in the budget.
- Determine a threshold, and discuss purchases over that threshold.
- Set joint savings goals.
- If one person manages the money, have regular discussions about the status of the family finances.
- Be open to change if it isn’t working.
2. Yours, Mine, and Ours
There are two different methods if you want to manage your money independently from your spouse, but share the joint household bills.
Even Steven. This is the college roommate style. Deposit your paychecks into separate checking accounts and share the cost of all your bills evenly. You’ll each contribute half to the mortgage, utilities, groceries, and other monthly bills. With the leftover amounts, you can save or spend as individuals on your own interests and hobbies.
Proportional Contribution. This strategy is similar to the even contribution for a couple, but works well for a couple who have vastly different salaries [3]. You each determine what percent of income you bring into the household, and contribute that amount to the household expenses. For example, if one spouse makes $80,000 and the other makes $20,000, you’ll contribute 80% and 20% of the cost of the bills.
Tips for Success:
- To ease bill paying, you may want to calculate a total contribution each month required by both of you for bills and transfer that amount to a joint account.
- You both will need to contribute to savings and an emergency fund [4] each month for the long term.
- Be aware that one of you may be saving all your leftover money, and the other spending it.
- You still need to discuss your long term goals together and plan for retirement.
- At tax time your money will be combined on your tax return; plan for this to avoid frustration and to account for joint tax filing status [5].
3. Independent Finances
You can also manage your finances separately without contributing to bills together. And it does work successfully for some couples. I watched my parents practice this method of money management all my life and it works for them. They split their bills into his and hers. For example, one spouse may pay for groceries, cable, and insurance and the other spouse pays for gas, clothes, and electricity.
Should married couples have separate bank accounts? As long as you find a way to divide the responsibilities in a way that makes you both happy, it can work.
Tips for Success:
- Make sure you both agree with the division of bills.
- Discuss how you plan to handle your finances if one spouse can no longer work or if one spouse leaves his or her job to stay home and care for children.
- Make a plan for your retirement goals.
- Just like above, at tax time your money will be combined on your tax return. Determine how you will allocate the taxes owed for each spouse. Be aware of the marriage tax penalty [6] and how it may impact your joint tax return.
Other Impacts
In some cases your manage money in a marriage is largely influenced by where you live or who you work for. For example, we live in a community property state, so all of our income is viewed as 50/50 by law. While it doesn’t matter for your day-to-day money management, it does impact your taxes and if you ever divorce. It’s something to be aware of if it applies to you.
Another example is working for the military, which is subject to different laws. If it applies to you, you will need to familiarize yourself with the military laws.
Tips for Managing Money with Your Spouse
No matter which strategy you choose to manage money as a couple, there’s bound to be bumps in the road. When that happens, keep some of these tips in mind.
Cool down. If you have a disagreement about money, try not to discuss it in the heat of the moment. Let some time pass and be prepared to discuss it when you both are calm.
Establish guidelines. Even if you decide to use one of the more independent money management strategies, you’ll still have to discuss money with your spouse. For example, if you have kids, you’ll need to agree on your plans for spending money on them. Setting up guidelines ahead of time will avoid conflict down the road.
Keep your perspective. When you have a disagreement about money, keep your perspective. If one spouse is interested in money management, but the other spouse isn’t, keep that in mind. Remind yourself of this when you have a money matter that you don’t agree on.
How do you manage money with your spouse?