Combining finances
blog.mitchjlee.com
blog.mitchjlee.com
The only thing we haven't quite figured out how to account for yet is that we are occupying pretty 'conventional' roles by choice and by practicality. I can make a lot more money for many reasons, most of them have nothing to do with me, and they certainly don't have /anything/ to do with me working harder or being more valuable than my wife. It is what it is, and we mostly are okay with it.
However, because a ton of my wife's work is still unseen and undervalued (by society, and sometimes by me) and even though we have both agreed that she shouldn't work a low paying job she hates just for the sake of working, and even though we both see that much of her labor is in the traditionally feminine realm of home-making, emotional support, maintaining social connections, etc (which are all very valuable! They make my life immeasurably better! I couldn't afford to pay for them at market rates!)
So our arrangement works well for us if we stay married of course, yet if we don't, I am arguably in a much stronger position of being able to make money, still have an intact work history, etc etc. Yes historically this is where alimony comes in, but it is still hard to grapple with. You never want to think about your relationship ending, yet you also want to work together to make sure that the choices that you have both made that work best for you while you are together don't become something far worse in retrospect if you choose to part.
For instance, I would tomorrow gladly outsource the entirety of our laundry work to a service. It would be much cheaper than other monthly expenses we have that I value much less highly. But my wife has shot that down. She has all manner of reasons why its not a good idea and none of them are related to the bare economics of the problem.
As academic economics has found, so does my family, the models need to be sensitive to lots of data that is not captured in price to make reasoning about these things workable.
My wife and I have similar spending patterns, but if we had different valuations on something, I would want to be able to talk about it (express my desire), show a willingness to compromise (in exchange of a birthday gift) but in a way that respected her valuation.
1 partner enters the marriage with a $500K paid off house, the other enters with nothing. They divorce 20 years later and the house is appraised at $2.5M, should:
A: partner 1 receive $2.5M, partner 2 receive $0?
B: partner 1 receive $1.25M, partner 2 receive $1.25M?
C: partner 1 receive $1.5M, partner 2 receive $1M? D: other?
How does this answer change if the house can be sold vs can’t be sold? How does this answer change if partner 1 comes into the marriage with a partially paid off mortgage and both contribute to mortgage payments afterwards? How does it change if the house is underwater instead?
The problem is all of the above models are legitimate models of how to split ownership, but they’re incompatible views. So you need to reach alignment at the start of the relationship over which model to use, otherwise what could have been an amicable parting ends in bitter recrimination.
The answers to your other questions will depend on whether the couple is in a marital property state or a community property state, because the default rules regarding marital income are different.
Well, that's one possible rule; it's not the only/universal one.
(As a traditional ceremony might say, "with all my worldly goods I thee endow". That doesn't sound much like maintaining separate property...)
When we were poor, we both only got a little pocket money each month. Now that we're richer, we both get more. I buy hotel breakfasts now sometimes (the buffet ones), on normal work days, in my home town. It's terribly decadent but hey, it's my money. Other people buy iPhones. I have nobody to answer to but me. It's lovely.
I warmly recommend pocket money.
Where do you find the time to clean all your monocles?
The only thing I’m strict about is big picture. IE, Do we have enough savings? Are we on track of retirement?
If I focused on keeping a fun money budget things would get stressful. IE is her hair, nails from fun money? When I take the kids to laser quest is that my fun money? Did we really need new placemats? Should that be fun money?
When there are no kids and both work full time it’s simple enough I guess. But when you are a parents it just gets too complicated.
Should be a recipe for disaster, right?
Except it isn't. We just accept that this is who we are, and we're comfortable with that.
The author correctly notes that things can change over time, but they seem to ignore the most important thing to this entire process working: we use our words and talk about things before they become an actual problem.
Since my spouse and I have accepted this scenario as being perfectly fine for us now, our normal doesn't frustrate either of us, even though we are wildly different in our spending approaches. And when things change, we're both comfortable making changes to accommodate those changes.
Some of you might be saying "but yes, averaged out over the year you probably spend the same", and the answer is no. Not even close. I may spend 600$ on a gaming monitor with a 6 month gap on either side, but my spouse ends up spending more like 4000$ on little bits and bobs throughout that same year period. Guess what? This inequality doesn't bother either of us. Why should it? We're in this together and both of us need to be happy with what we're doing. I don't need 6.6667 gaming monitors, and the point isn't to try to equalize our expenditures. Buy what you need to make your life better, and then buy no more.
Or, at least, that has worked for us for the last 15 years. Things could change! Things can always change. But I'm not even remotely worried about that; because that's when we make dinner and sit in front of a couple laptops with a bottle of wine and work out a much more strict budget and emphasize a more restrained approach toward both of our spending patterns. It's happened before, it may happen again, but we'll be fine because we come to a consensus on our financial goals and priorities and neither of us have ever acted in bad faith with regards to achieving those goals and priorities. And if that changes? Well, a more fundamental thing has changed, and maybe we SHOULD have marital strife. And that's okay too.
As long as all our long term financial goals are being met, I'm content with what we're doing. And since they are, I am very much so content.
Personally I find "she spends $4000 a year on stuff I don't see the value of but I'm fine with that" nearly unimaginable. I could only see myself have that attitude if we really had thousands of dollars (or euros, in our case) of net disposable income every month, after retirement savings and everything.
$4000/$600 is 6.67. Let's say you spend $50 a year on your own fun purchases. Would you be ok (both financially and emotionally) with your spouse spending $333 a year on their own fun purchases? I'm of course making up the $50 number, so set that to whatever's reality for you, do the math, and see how you feel.
Maybe it works out that you're only comfortable with your spouse spending 4x what you do, or 3x, or 2x. Or maybe it's the reverse, and you're the bigger spender, and you need to find out what your spouse is comfortable with That's fine. The point of this is to negotiate with your spouse to get to a point where you're not anxious or constantly arguing about spending levels.
But when her buying 2000 euros worth of shoes means I can't get a new pair of jeans anymore then we have a problem.
You're absolutely right that right now, we are wealthy enough to be able to spend 4600$ on various "things" without either of us really batting an eye. That isn't really the important bit; when we first got started, I was making 42k USD in total comp, and she was making 26k in total comp. Our first house was 54,000 USD and our mortgage was 456$ per month.
We were not wealthy, but we were _okay_. And at that point in our lives, we still had a joint account as our only account. We didn't buy fun stuff or convenience stuff without a discussion first, and we had to discuss these things pretty much every week. That worked for us, because we still communicated, and the important thing - the thing most vital to my previous comment even working - is that we put our family first and ourselves second.
Now that my new home cost me 12 times what my previous cost me, and now that I'm bringing in about a quarter million USD a year, you're absolutely right that we are wealthy and the 4600$ isn't a major problem to us. But if for some reason it ever did happen - say, I lost my job and we relied only on my spouse's income, neither of us would be spending any money at all that wasn't absolutely required.
What I was trying to drive home with #4 is that if you and your spouse are always on the same page about what comes first; your personal desires - or your family's needs, goals, and then desires (in that order), then it works really well.
I know plenty of couples where one or more of the spouses is an incredibly selfish person by nature. Perhaps one of the other bullets in this article would accommodate that well enough, and I doubt #4 would even remotely work for them.
But for my family unit, a single joint account with both incomes going into it still works for us, even if we have very different spending habits between us - and it works for both of us really well. From our early days straight out of college making relatively low income until now where we make entirely too much, this way has worked solely since both of us are able to modulate and restrain our spending when times require it, especially since we put our family before ourselves. #4, as in the article, didn't allow for any wiggle room like that. That's okay, though, since it was hardly purporting to be an exhaustive listing and description of income:spending strategies! I just wanted to share that #4 can absolutely work even for couples without the same spending patterns, as long as they're willing to put family over self.
If the answer isn't "whooo, a whole lot more than $4k" then you have massive problems with your relationship.
I come from a middle class family that spent their money and saved poorly. I took loans out to go to college. I’ve worked my way up in my career in tech and now make a comfortable salary.
This puts us in a situation I feel like this article doesn’t really cover. She doesn’t have a “salary”, but she “makes” more money than I do - however much she needs. I do not plan around her family’s wealth. That is her family’s money, and if/until we ever decide to start our own family, I do not involve myself in their affairs.
What we’ve found works for us, is simply a joint credit card. We put shared expenses on it and split it at the end of the month. We use our shared points on vacations we spend together. It is a way of treating each other as equals, and helps prevent either of us feeling taking advantage of. I maintain my own savings and retirement account. She maintains her own investments. I spend my money however I want and have my own personal card, and her the same.
If I was out a job, she would support me. If her investments tank or her money were cut off, I would support her. It’s rather simple.
The tension we face actually comes from her wealth rather than our lack of it. There are times where she would happily use her wealth as an expression of love. I would never be ok with her father buying us a home. She doesn't understand why not - I was raised to value my own financial independence. I would never feel comfortable living in a home that I did not earn.
How do couples in other similar situations handle this?
But, remember, familial power tapers with time, no matter what. And in time you might value the power and leverage that you have to deal with children who display a shocking lack of sense.
It became clear that when my wife went back to school we couldn't sit and do math or rearrange everything all the time. We just put it altogether.
Nothing is easier when married than just putting it into one pot and it is all "our" money. It's not about who does what (maybe one day someone does more dishes, makes more money) and it's all "ours".
But even than if you have a couple with very different spending and someone is more responsible, I don't think it is bad to establish an "allowance" for everyone for as the article describes "splurges".
The important thing is to always be communicating about it.
Sounds like you are a saver. I'd like to point out that resentment can go both ways.
They addressed this in the article. A conversation needs to be had to decide as a couple how much (non-zero amount of) money is to be spent. It can easily be a low number, if that's what the couple agrees on. As long as the couple comes together in that conversation, there should not be any resentment.
If there is resentment after that conversation (as long as the agreement is followed), the "resenter" is in the wrong.
Meanwhile, that central account and the rules of expenditure are rock solid and it will remain unmolested with wild gift giving, or extravagant lunches, or a risky investment, or the burning desire to save every penny under a mattress.It is resentment free.
This is impossible in any legal system where all money saved are seen as a joint asset. This means that if one person saves their allowance and the other spends it, then in the case of a divorce all of that money will be split.
Choose someone to commit to for life and stick to them.
All this ugly divorce talk while still married is ridiculous! Poison
There's no resentment because we already agreed that fun money isn't part of savings or long-term planning. And the fun money is a small enough part of our overall budget that it doesn't impact important goals.
From a "resentment" point of view, it's much better for me to have pre-agreed on $x a month that's going to be spent frivolously than it is to have a conversation about each frivolous purchase as it comes.
And I do still spend my fun money, I just spend it in larger chunks. She's more likely to spend regularly on things like lunch and events with friends, I'm more likely to save up for a while then buy a new power tool, or rent a cabin for a weekend ski trip.
I feel like this is a useful thing to do for people who feel like they might feel resentment (or guilt) at their partner for spending too much (or for spending more than their partner) on fun stuff. As long as neither partner goes over the fun-stuff spending limits, it just doesn't matter, and there's no reason to even know.
> And I do still spend my fun money, I just spend it in larger chunks. ... I'm more likely to save up for a while then ... rent a cabin for a weekend ski trip.
Out of curiosity, what happens if your wife wants to come with you on the ski trip, but because she spends her fun money regularly and doesn't save for larger purchases, she doesn't have enough to cover her share of the cost? Or is that just not an issue, because you'd plan it far enough in advance that she'd have time to save? Or would you just say screw it, and call it a gift to her?
If you divorce you will, since she will be taking half of yours if she didn't save anything.
This works as an individual as well, and is the mechanism I used to get myself out of debt. The vast majority of my remaining income after essentials went into paying down debt, or into my savings account. A small amount went into a discretionary spending ('fun money') account. Anything I didn't spend that month simply rolled over to the next month. It never went into my savings, and eventually got spent (usually after several months of 'saving' in the 'fun money' account, in order to buy a new phone / other gadget)
This is wrong since they specifically talked about saving their fun money.
> > It never went into my savings, and eventually got spent (usually after several months of 'saving' in the 'fun money' account, in order to buy a new phone / other gadget)
> This is wrong since they specifically talked about saving their fun money.
Saving multiple months of fun money to blow on something frivolous should probably not be the same as a savings account. That's not what the article (nor myself, nor I suspect the GGGGP) was talking about. Savings are for long term planning, for long term investments, for large scale purchases. If you need to save >12 months of 'fun money' for a purchase, then this might not be the correct approach for you, as you're right, and that's effectively a savings account at that point.
It was exactly what I was talking about actually. I'm not going to blow money period, so I'd end up saving the >12 months of 'fun money' not for a purchase at all.
Although I could be wrong. GGGGP would point to your comment, while the statement makes more sense applied to the other.
And you are going to be spending the money on a purchase, just not right now.
How do you figure?
If it goes into the shared retirement accounts, then that might cause problems.
Then again, it just depends on attitudes. If you're a saver, but recognize that your partner's happiness in part depends on spending more, then perhaps you just won't care.
At the end of the day, you've jointly agreed on what the monthly allowance of fun money is, so there shouldn't be resentment. If there is, then you agreed to something you shouldn't have. If your partner can't agree to a lower amount, then you just have to accept that your financial/spending compatibility is low, and decide that the rest of the relationship overcomes that incompatibility. Or not, and then you break up.
Currently my wife and I just contribute an equal amount to a joint account for the mortgage and car, and the rest is basically "I've got it" in a proportional sense. It basically works because we spend less than we make, so we have savings. I'm currently out a TON of money for an upcoming vacation, but I kind of have the sense that it all works out in the end, because I am not (yet) out of money, and if I have to dip into "my" savings to pay the bills from the trip, well, from a net perspective "we" still have the same amount of money as if I asked her to pony up some to pay my credit card this month.
But of course, this fails plenty of tests, and will have to be re-thought if one of us ends up out of work.
Of course, most couples in my social circle are extremely wealthy by non-Bay Area standards, so that gives people a lot less direct incentive to be especially thrifty.
My parents, and my marriage, have a different system: we ask ourselves about every purchase if it’s likely to bring us as much joy as we feel the money is worth, and just don’t buy that much stuff because most things don’t seem like they’d bring us enough joy to be worth the outlay.
Then, when we want something expensive, and say “yes, a new couch will bring me joy even if it doesn’t bring you much joy”, we don’t worry about the cost all that much.
But having a non-scarcity mentality about this sort of thing is obviously a super privileged position to be in. When my father remarried, he tried this system with my stepmother and she... spent all their money on frivolities they couldn’t afford, and now he’s retired and barely has any savings.
So I don’t really recommend this system unless you and your partner have reasonably similar utility functions.
I agree on budgeting and bookkeeping. Frankly, we do neither. I buy a bigass TV because I want it, my wife buys some awesome workout gear because she wants it. It just works. But yes, it's a position of luxury to not have to budget.
I go with double-approval. You could call it a veto system. Both must agree before spending.
There is pre-approval for unavoidable expenses like bills, groceries, fuel, emergencies, and tolls.
When money was tighter, we would coordinate more closely and more frequently about expenses and timing. Now I just maintain a certain balance in checking and we coordinate over large payments to make sure they don't hit checking all at once.
If you or your spouse is making seven figures, you shouldn't have actual money problems -- even if taxes take half, you can save half and still have 250k/year to spend; spend half of that on a $5M mortgage, and you've still got more spending money than US median income. Your money management priorities should be around limiting the time it takes to manage, unless you get enjoyment out of micro managing it.
Certainly when we made less money we had to coordinate much more.
Someone with a large income probably grew their income over several years (although, if you know of any career paths with seven figure starting salaries...), and have had a chance to learn that even though it's a huge amount of money, it's not infinite money. But if you do overspend one year, you're likely getting a bunch of money the next year, so you can probably work it out.
Or the outliers who blow all the money on silly things and make the news but aren’t actually at all representative?
- Pooling our money in a shared account makes it seem like we have money than we actually do, leading to overspending
- We each have different ideas of what is a necessary expense
To fix this, we had to start communicating a lot more about finances than we used to. We wound up creating a spreadsheet to track recurring expenses and calculate our monthly budget. We decide ahead of time what we're going to spend money on, and talk about it when unexpected expenses occur.
The benefits of this system seem to outweigh the downsides, so we'll probably keep doing this for the foreseeable future.
There are some surveys on why couples with joint accounts also maintain individual accounts, one of which seems to indicate independence is the biggest factor (38% of respondents). Only 16% said they did it for ease of budgeting, which to me seems to indicate that the system recommended by the article is relatively uncommon. [0]
For us, we keep it relatively simple. We have some savings from before the marriage in separate accounts that we use for stuff like surprise gifts or security when we need to pay something that requires a direct transfer online. Everything else comes from the joint account or goes through a joint credit card that we pay off every month.
Although our opinions still differ slightly on some long term goals that we won't have to decide on for a while, generally if there's a disagreement we just talk it out. We consult each other on expensive purchases, generally non-necessities over a certain amount. We've both supported each other through periods of temporary unemployment or income differences. Admittedly, having similar values and living in a low cost of living area helps a lot with this.
I'm not sure the system in the article would help too much for resolving expensive decisions unrelated to individual hobbies. For example, if one person wants to spend a larger portion of income on housing that requires more joint contribution, there's still a possible conflict. It does make those kind of decisions have a discussion built in by default though, which is definitely a good thing.
Overall it seems to me that the key thing is that people are having healthy discussions and making decisions together - including decisions around what to leave totally up to the other person, like the article's system does. Some conflict might be totally avoidable, but I think there's no way around just learning how to resolve disagreements respectfully.
[0] https://www.prnewswire.com/news-releases/td-bank-survey-find...
She makes less but still a decent amount and pay for the smaller bills.
Every once in a while, she'll pay for a big-ticket item (like a vacation or a large house repair) out of her savings, which accumulate faster than mine, to catch up.
It works because we started together with next to nothing, so we're both big savers: Our combined income our first year together after college a little over ten years ago was probably a quarter of what we'll make this year. We both max out (or come very close to maxing out) retirement now. She has more cash on hand because I'm paid proportionately more in various types of stock incentives, so when my incentives vest I tend to sell the company stock to diversify but keep the money in investments).
We live in a small house, no kids, reasonably cheap cars, vacations are often tacked on to work trips to save money, no expensive hobbies.
I doubt I'll "retire" early but our savings mean if I decide to leave tech in a decade and become a woodworker or park ranger, I can with no monetary consequences.
The biggest problem with the approach is large, optional purchases that effect quality of life. Things that are too big for “fun money”
Remodeling or Upgrading a house Private school for kids Vacations Vacation property Nice cars College savings Rainy day funds
One way to handle such is for both partners to agree on % saved out of the joint account and/or minimum balance
Ha. That reminds me of "If you want to learn to get up early, have kids." (altough more accurately the school district sets your wake times).
All kid-related expenses (including private school and college fund) should be considered joint expenses and come out of the shared pool of money. Parents should agree on how much to spend monthly/yearly on non-essential/fun stuff for the kids (similar to how the parents each get their own fun money allocation). If one parent wants to exceed that for a one-off thing (and the other parent disagrees), they can dip into their own fun-money allocation.
Couples without kids still have to decide what to do about home improvements, vacations, vacation property, cars, and rainy day funds. It's just that couples with kids may have less money to allocate toward those things, or have to make harsher compromises. But hey, if you decide to have kids, that's what you've signed up for.
A couple might agree that replacing the old, fraying carpets is obviously a joint expense, but the fancy car that only one spouse wants and cares about is a personal/fun-money expense. Having or not having kids doesn't change that.
Personally, I find that "fun money" is the easy part. We both splurge from time to time but it is reasonable for the most part. The hard part is the big shared expenses which you'll never be able to cover with "fun money" or it sucks to do alone (house renovations, cars, trips, entertainment etc.) for which 1 partner doesn't see the value of the shared expense.
With nowadays lifestyle and state of Law doesn't make sense to marry in the traditional sense. Ok you can do a pre-nup but that is a huge hassle for the couple.
People value stuff differently and on the long term ignoring that is a certain path to regrets. So the best, IMHO, each one should keep legally their stuff with some joint ventures on common projects (house, etc). However I'm not saying to strictly split every expense or be stingy. I'm happy to pay most of daily expenses, holydays or extras. I just don't want to wake up one day feeling used neither legally get stuff from my partner or her family.
Our system is that we have a shared account, and we keep track of how much money we have both put into that account. I've put in about half what he has put in, because he spent a lot of money when we bought all of the furniture etc. for our rented apartment, when we moved in. So then I just put in a bit more than him each month, until we reach the same level.
My take is that this approach just moves the discussion to what qualifies as “fun money” or should come out of the shared account.
Maybe it’s because we are too young yet, but me and my SO just have a shared account and contribute to it equally (she insisted, I wanted to do proportional). We make sure to put in there enough to cover the bills and some more to have some “emergency money”.
Aside from that we keep separate savings accounts and some investments.
> Both partners have equal access to it, and both partners will continue to receive the same monthly allocation for fun money no matter how much each person makes.
I find it makes it a lot easier to know that $X thousand/month is my "family expense" and then everything for that is easily accounted for in a way that is totally separate from my personal finances.
I actually have two separate mint accounts, one for family expenses and one for my personal stuff.
Budgeting is one thing. But developing a fairness system... are you sure you should be married to this person in the first place? Might want to go and tweak that algorithm a bit.
In all seriousness, systems like this are brittle and really only work if you're on the same page anyway. In which case, you don't need the system. If your SO likes to spend, he or she may not agree that the "fun money" allocation is enough. You may think it's too much. So you come up with some middle ground. Resentment builds over time because your SO can't always afford the things they want, and you resent having too much allocated to his/her pile of fun money.
tl;dr: if you're not on the same page financially, a fancy system won't save your marriage. Fancy systems and over-analysis can also bring problems, YMMV.