Personal Finance 101
Asked on 01 Jul 2020
My girlfriend and I have never discussed finances and i wonder how couples plan their finances once they get married. I am thinking of proposing to open a joint account and contribute an amount proportionate to our respective income each month. What are the experts' view on this?
I can share how I manage mine with my wife.
We have a joint account (opened up after we got engaged) where we both contribute an equal amount each month. Since her income is fixed, and mine is variable, we both agree on a minimum fixed amount that we both won't have an issue to put in every month, and a maximum amount that she is comfortable to put in. Then, depending on my income, we both contribute the minimum fixed amount every month, and topup if my income is better on some months.
I guess it does help that both of us have a common and very clear idea about what we intend to do for our finances; we're both income investors and are willing to spend more money investing than on things like holidays or food (although we do take the occasional break). Thus a common understanding is very important so that we end up at the same destination of being financially independent with our passive income, even if we don't agree on the method used to get there.
The main difference is that our investments are currently separate, on top of the fact that we both have restrictions on investing due to the nature of her work (compliance issues). She doesn't question what I stocks or UTs that I buy, although she does give inputs. The same in reverse, I cannot force her not to buy or to buy a certain stock, but I will give her my analysis.
The money in the joint account is only to be spent when both parties agree upon it. So this will be for major joint expenses such as buying new furniture or such. If a kid comes along, we'll both have to agree on the spending as well, and I'd expect it will even boil down to the type of milk powder, or brand of diapers. But we'll manage.
Our personal expenses are kept separate, and we don't need to seek consent for that as long as it's not significant. I generally spend more money on my investments anyway, and that has to clear her compliance, so she knows what I'm spending a large part of my money on!
It's possible to do a contribution proportionate to your income each month, but if your incomes are within 10% to 20% of each other, then it's probably okay to just decide on a fixed amount.
Have a good conversation with your girlfriend and understand the differences in your viewpoints; find a common ground upon which you both can agree on as both of you will likely have different views. Prepare to compromise and allow each other a certain level of space when it comes to personal discretionary spending.
Budget allocation is a great thing but what determines this is the direction both of you guys undertake in light of the reality of your living expenses, costs etc. It's hard to get a partner to save when there isnt a consensus on the importance of saving. You guys might want to sit down and decide what is important for you guys, both short and long term.
Joint accounts can be a sensitive thing. Some people are averse towards it; some people do a joint account and put only some of their monies in. This will be up to how the conversation with you and your partner go. Personally I feel its good to have a joint account since marriage is the mutual trust of joining of finance. However, depending on how your conversations with your partner go, you may want to opt for a second bank account either for expense sake or for savings. The opening of the joint account should best be set up after you guys are married though.
You guys might want to list down some of the projected expenses eg. housing, renos, weddings etc and plan a budget around that. Do up an excel sheet if you need to for all these.
All the best!
Financial planning is an integral part of life. You can reach me here to find out more.
03 Jul 2020
I appeared in the Straits Times answering such a question, but in case you can't read it as it is a Premium content, I'll summarize how I manage my finances with my wife.
We have a joint account, and we contribute equal amounts to it for daily expenses (groceries, utilities bills, etc)
Our insurances are on our own expenses.
For big ticket items, e.g. electrical appliances, we will use from the joint account as well.
We keep each other updated of our expenses and income (we have a shared google sheets for this), and any purchase beyond 2K requires both of us to agree upon it. anything below, doesn't require.
There's no right way, as long as there's accountability and openness, that will establish trust in the relationship.
Hope this helps! :)
Reach out to me if you have any queries.
The broad stroke is to sit down and make sure that your financial goals are aligned.
This will allow you both to be on the same page. It would be easier to set aside sums for a merged account once that is done.
I do not see it as a sensitive issue at all. Being honest is liberating and will only increase the trust in the relationship when done correctly. It is an issue which you both need to address so that you both know where you stand. Having a plan is better than no plan.