How to Manage Finances in a Relationship

by Ace on July 12, 2010

Money and relationships, sometimes it works out well, and other times it’s like mixing oil and water. If your relationship is at the point where you’re wondering whether or not joint finances make sense, proceed with caution. Finances means different things to different people, and for some, talking opening about their finances can be overwhelming. Approach the topic the wrong way, and you may find your significant other getting defensive really quickly. Let’s take a look at a few different ways that you could manage your finances as a couple and see the pros and cons for each system.

Completely Separate

With this approach, you would keep all areas of finances separate. For joint expenses such as rent you split it appropriately. You both would be responsible for managing your personal expenses.

Separate finances have a number of benefits:

You won’t have to worry about your significant other scrutinizing your statements and questioning every purchase you make.
Separate finances is the de facto approach many couples use when they first start dating. The saying “If it ain’t broke, don’t fix it” carries weight in this situation. If things are working well, it may be wise to keep things the way they are.

There is one major disadvantage to having separate finances:

Having separate finances makes it more difficult to deal with joint expenses. For fixed expenses such as rent, it may be easy to split since it is fixed. But when you consider variable expenses, such as utilities and grocery bills, it gets more complicated.

Completely Joint

On the complete opposite end of the spectrum is joint finances. If you took this approach you would completely merge all of your finances. Once money comes in, everything is considered “shared money”. The same holds true for all the money that is spent.

There are a couple great advantages to joint finances:

You will have half as many accounts to manage between you and your significant other.
If your significant other is apathetic towards managing personal finances then having joint finances makes it easier to manage joint spending.

There are a couple disadvantages to joint finances

This approach doesn’t give you much breathing room. Imagine being having a 2 bedroom house where you had the freedom to do whatever you pleased, then suddenly being crammed into a small single bedroom house with your significant other. Sounds complicated doesn’t it?
If one of you spends more or earns more, it can spark resentment and lead to arguments.

Somewhere In Between

The last strategy is to do something in between the first two options. So both you and your partner would still have separate accounts, but you would also have a joint account for joint expenses.

There are a few advantages to this approach.

You still maintain independence with your accounts, and you get to manage your them as you please.
Managing joint expenses is much easier, since you have a joint account to pay from.
By putting the same amount into your joint account, your costs will be split evenly.

This system still has disadvantages.

Since you will have a joint account and your personal account the hybrid system is the most complicated to manage.
You will need to make sure that you both agree on what will be paid from the joint account to avoid any disagreements.

How Do You Pick?

The most important take away from all this is that there isn’t a one size fits all. Like many things in personal finances, it really depends on what works best for you and your partner. The best way to go about this is to talk with your partner and determine what would work best for the two of you. The key point is that you need to talk about it. Don’t assume things or shy away from talking about it, because that will only get you into more trouble down the road. Here’s what Ann Smith of Psychology Today has to say about communication.

Talk about money. When you have a connection and are ready to be honest with yourself and each other, act like grown ups and face the facts. Keep emotions separate and don’t worry about whose fault it is. Look at the numbers and accept your share of the responsibility whether that is spending, being under-employed or procrastinating. Get help or read about healthy financial habits and work together to make a change gradually over a long period of time.

Here are some tips to help you and your partner decide which system will work the best for your relationship

Wait for a good opportunity to talk about your finances. Don’t rush into the topic. Pick a time where you won’t be distracted by other things. Make sure that your partner has the time and isn’t in a rush. Be patient and pick the right time to talk about it.
Talk about your financial goals. It’s important to discuss with your partner where you want to be 5 years from now, 10 years from now, etc. Take time to listen to your partner’s desires as well. Try to see things from their point of view, even it you don’t initially agree with what they’re saying. Don’t just listen to what they’re saying, but try hard to understand the why behind what they say.
Talk about your fears and concerns. Talk about what worries you about managing finances in a relationship. If you’re worried that they’ll over-scrutinize your finances, say so! It’s important to get everything out in the air.
Be prepared to disagree. This can be difficult because in your mind you may know exactly what you want. But relationships are about working things out together and finding solutions that both of you will be happy with.
Clearly state your expectations. Whatever financial system you end up using, it’s important to clearly define both of your expectations. I’ve found that many disagreements that my girlfriend and I have about our finances stems from the fact that there were lopsided expectations. So whatever expectations you have, state them and state them clearly.
Set regular intervals to talk about your finances. Whatever you decide with your significant other, it’s important to remember that this is not the end of your discussions about money. In fact it should happen at least once a month. Use these talks to air out anything that’s not working, or anything that needs to be adjusted. Remember the goal is not to get into the blame game, but to make your finances run like a well tuned machine.

What My Girlfriend and I Use

My girlfriend and I use the hybrid system. It took a while to get to where we are today, but so far it’s worked out really well for us. My girlfriend doesn’t care for tightly managing her money, but she enjoys the guidance from our budget. It was also very important to her that we split our joint costs evenly. We accomplished this by using a joint account where we both contribute the same amount of money each month.

Finances is often considered a taboo subject. And sometimes it may seem easier to ignore the topic altogether with your significant other. But if you are serious about each other, it’s important to discuss your finances openly and truthfully. So what about you? How do you manage your finances with your partner?

(Photo credit: mar1lyn84)