As we continue our series on Money In Relationships, we move into what could be the most controversial topic in all of finance, how to arrange your money. Over the years I have discovered a few different methods:
- Joint Checking Account – Where all money is centralized and shared
- Separate Checking Accounts – Expenses are split and each significant other manages their own finances
- His, Hers, Us Checking Accounts – A monthly allowance is given to each significant other, but all finances are shared
Let’s talk about each one and find out which is right for you:
Joint Checking Account
In the Joint Checking Account scenario you are embracing the partnership aspect of your relationship 100%, not a single cent is independent and what one spends, is an expense of both. This is the way finances have been handled for generations by those who are married.
It is great because it requires both partners to think as one. It also provides the entire family with more money rather than having each spouse’s income “allocated” to themselves. However, on the flip side if one person slips up and spends more than they should, it can negatively impact the entire family.
If you do not have excess money at the end of each month then this is probably for you as you do not have money to “allocate” to a specific individual. This scenario is also great for people who are able to stay in constant communication, and those who are always aware of their own financial situation.
Separate Checking Accounts
This is the exact opposite of the Joint Checking Account. This is where each significant other is operating an independent checking account and together you do not have any checking accounts. Typically, this occurs if you never merged your finances with your husband or wife when you were married. In this scenario you split up expenses so that each one of you is in charge of paying certain bills.
This is perfect for those who are living together but aren’t married. I actual encourage this for you as I have seen several engagements be broken off in the last few months before marriage. It can make the break up much more painful if your finances are intertwined.
However, I do not recommend this if you are married. When you are married, you enter a partnership and it is time to leave the bachelor/bachelorette lifestyle behind, including separate finances. You will find that you have more money as partners and your financial life will be that much easier to manage.
Additionally, if you are married and you still have not merged your finances you need to think about why. Is trust an issue? Is one irresponsible with money? This can be a sign of bigger problems in your relationship. Time to work out those issues and become a stronger couple.
His, Hers, Us Checking Accounts
In this setup, you have three checking accounts, his, hers, and us. You issue a flat dollar amount toward an “allowance” for each person, which you put into a separate checking account. Then each person is able to spend the “allowance” money on what he/she wants without having to consult the other.
This setup is great for those who want to unite their financial situation, but want to maintain some freedom. For example, maybe you have your eye on that new COACH purse or XBOX. In many households, this would require permission to be granted by your husband or wife and possibly lead to arguing about if it is worth the expense. In this situation, you just have to be responsible enough to save the money from your “allowance” to purchase these big ticket items.
In this scenario though, I do encourage you to set up certain ground rules such as what expenses still require a discussion like a new car, planning a vacation, or other high priced or intimate items. Additionally, with this setup you are able to buy birthday and anniversary presents without spilling the beans ahead of time on your bank statement.
This will not work if you do not have trust in your relationship and can lead to real paranoia, such as what (or who) your significant other is spending their money on. Also, if you do not have any excess money in your budget you do not have any money to allocate towards an allowance and unfortunately, cannot have this setup.
Which is for you?
Nichole and I used the Separate Checking Accounts system while we were engaged and living together. However, once we got married we switched to the Joint Checking Account method to advance on paying down our debt and move further on our Financial Freedom Journey. We are currently beginning to discuss switching to the His, Hers, Us Checking method to be able to buy each other gifts without ruining the surprise.
All of the systems have their pros and cons, and each is perfect for different phases of your life. However, once you are married it is time to unite your finances and go about the Financial Freedom Journey together.
Your Financial Freedom Partner,