CFO of Life #78: Keep or Combine - How should couples approach their finances + 3 methods to make it work

Finances have always been a hot topic for couples. They bring a lot of sour memories of arguments and unhappiness. But that is not what it should be, it should be a joyful dance between two happy adults who look forward to talking about money, as it is the time they get to plan some nice holidays, time off or a happy stage of life. To do so, you need to be on the same page with expectations, lifestyle choices and more. While that process takes some time, my series of articles about couples and their finances is aimed to help you with those conversations. That is why, this week we start by finding an answer to the question - Should we keep or should we combine our finances?

For a long time, most families had one breadwinner and one parent who stayed at home. This allowed the person who stayed at home to take charge of the family finances. And that made sense at the time, as one salary was enough to feed a family, pay for the mortgage and save for retirement.

Nowadays, most families have two working adults who do their best to get their finances right. But there is always the question of "what should we do with OUR finances?"

And there are 3 clear choices - keep your money to yourself, completely combine your finances or do something in between. Interestingly, all three choices are valid and can work for you.

And I know, this is an extremely complicated and personal topic but this week, I will do my best to show you how the 3 approaches work, how you can implement them and when they are most applicable. While this might seem a bit descriptive and slightly prescriptive, it is a framework for how to approach the topic of money and how to avoid all those annoying arguments about it.

To start, let's examine the 3 frameworks, what makes them unique and what their weaknesses are. Then we can build a decision matrix that would guide you towards the best possible outcome for you and your partner.

First, we can start with the approach that I call "Keep it to yourself!"

The whole idea is that you and your partner strictly keep your finances to yourselves and share nothing. But when it comes to bills, mortgages and any joint expenses, this makes it a nightmare. It requires a high level of commitment towards tracking and nagging each other to "send the money for that bill".

While it is extremely independent and allows both people to have a huge degree of freedom, it also limits the collaboration you can have. This is a great approach in the early stages of a relationship as there are no dependencies and no obligations.

But independence could be the curse of this approach. It doesn't involve building something together and it optimises for "freedom", which for many people (me including) is a big red flag ??. And that lack of transparency can and will cause a lot of arguments for most couples!

You can always swing to the other extreme and "Combine everything into one".

This used to be the traditional way for couples to deal with their finances. It is the simple idea that when two people become a family they should not only share life but should also share ALL their finances. This is most appropriate once a couple gets engaged or is in the early stages of a marriage.

That is the best time for both of you to combine your earnings. This would entail finding out how much both of you make, what debts you have and how much you have saved and invested. This would potentially air out a lot of dirty laundry, but it would also make all things visible and protect you from any future surprises.

Now, to combine all your finances, you would need to consider how to:

1. Move all your income to one account

2. Combine your savings into the best possible high-yielding bank account

3. Make a plan on how to maximize your investments and tax advantage accounts (Roth IRA, ISA, 401k)

4. Develop a plan on how to repay the family's debt and prepare for any future ones (mortgage, car loans)

5. Create a savings account for your kids (when time comes)

Once you get those sorted and you start contributing to them, you will be all set as long as you two make a budget and stick to it. (But more on that next week.)

Now, let's take those two extreme methods and pull the best of them into "A hybrid approach to rule them all" (finance arguments)

As you might have noticed, this mixes the two approaches by keeping your freedom of having your account and ensuring that all bills are paid.

In the simplest form, this means that the two of you share one account that pays for all your joint expenses such as rent/mortgage, subscriptions, travel, food, going out or even taxes. At the same time, you can keep the rest of your money in a guilt-free spending account.

That way, if one of you is an extremely impulsive buyer, the other would not be bothered. This would also minimise the arguments about any personal purchases, as they come from your guilt-free spending.

The downside of this approach is that while it brings the two people together, they are still extremely independent. This has the potential to push people further apart, rather than bring them together.

But on the contrary, it can allow for a lot of breathing space between the two to have your own money that no one scrutinises so you can buy as many computer games, shoes, skincare, clothes or whatever you value.

Plus, this is a great first step towards combining your finances as if you can make this work, you can make anything work. It will give you a trial period, which will unravel how both of you think about money, how you behave with it and how you make purchasing decisions. And all of that, while you still have your own "freedom".

Still, no one method acts as a silver bullet, it all depends on your situation. That is why you should use those questions as a decision-making matrix to find out which method is appropriate for you.

Here is the list of most questions you need to ask yourself when deciding which way to go:

Where are you in your relationship?

Do you live together?

Are you married?

Do you have kids?

Is one of you significantly wealthier than the other?

Do any of you have your own business?

Do you value freedom or transparency?

Do you have different mindsets when it comes to money?

Do you have the same investing/savings goals?

And the more you say yes to making individual choices, the more you should be leaning towards either keeping your money to yourself or starting the journey of combining your finances and learning how to work as a team. And on the contrary, the more you value teamwork, the more you should be looking towards combining your finances, as that is your powerhouse.

Last but not least, it all depends on where you are in your relationship. The earlier you are in it, the more independent you should be, as that is the stage when you get together and you don't want to rush things. The further you move, the more beneficial it will be to join everything up.

But it is all up to you and your partner to find the best approach. The one way to find what works for you is to talk with your partner and see how you both think and what you want and then give it a try.?

Next week we will look at the best ways to budget as a couple, what are the differences, what are the challenges and how you can benefit from doing it together.

Thank you for reading! All comments and topic suggestions are highly appreciated. Post #78 in the series CFO of Life #si #personalfinance #CFOofLife