Author: Lote Larmane
The vast majority of us are or will be in some kind of a relationship at one point or another. Relationships come in all shapes and sizes, but I will primarily talk about the romantic ones in this blog post. One often-overlooked aspect of relationships is finances. Most of our grandparents may scoff at the fact that managing finances can be a challenge to young couples. However, they grew up and started families at a time when single breadwinner households were the norm and combining finances was a no-brainer – back then there was just one paycheck to go around.
These days, as data from OECD show, the traditional male-breadwinner model is a thing of the past, with dual-income households now being the norm. This is wonderful news for gender equality and global economic prosperity. But it brings with it a little headache – how exactly should you and your significant other deal with the financial side of your relationship. Trivial though this may seem in the grand scheme of things, money in relationships is no laughing matter. As we already elaborated in one of our previous blog posts, money is the number one issue married couples fight about and the second leading reason of divorce.
As someone who has been in a relationship for the better half of six years, I have first hand experience of how the money question is handled by couples. In this blog post, I’ll share some of my observations on the matter. Hopefully this blog post will help you along the way to a more financially and emotionally sustainable relationship.
The long and short of it is that there really is no universal recipe for how modern couples should best go about managing their finances. While it may often seem that in relationships the choice is between two extremes – financial autonomy and full consolidation of finances -, most couples usually find a place on that spectrum that suits their particular needs. What matters for any healthy relationship is talking things over, getting to, and accepting a certain arrangement. Rent and grocery shopping is not sexy, I know, but better sort this question out sooner than later. It will save you a lot of heartache.
Let’s start off by looking at both sides of that spectrum.
While older generations may be puzzled by keeping finances separate, surveys show that both Gen Xers and millennials are increasingly more likely to favor financial autonomy than their predecessors. As I already outlined, social and economic structures of societies are changing rapidly and it has an impact on culture and individual choices. Seen in this light, separate finances start to make more sense. Indeed, millennials are more independent and non-conformist than previous generations and for some keeping their finances separate from those of others is a perfectly reasonable choice. Indeed, while combining finances may work wonders towards saving large amounts of money, millennials and Gen Xers are on average not as into big investments and purchases as the previous generations were. For these two age groups sharing economy is king.
In addition, seeing that younger generations both in the US and in lots of other places are increasingly burdened by student loan debts and other financial strains, people may choose not to burden others with their problems or, conversely, be reluctant to take on the financial pressure of someone else.
Finally, we are all cut from different cloth and have different past experiences – some may have grown up seeing or have themselves experienced financially abusive relationships. Keeping separate accounts may also provide solid financial and emotional reassurance for those who have seen their close ones suffering from addiction and substance abuse.
However, bear in mind that complete financial autonomy is a viable strategy only if you are just dating or living together. The more legally complex a relationship is (for example cohabiting arrangements or marriage), the more information should be shared. Even if you keep separate accounts, your partner should be aware of the loans and other commitments you have as it may affect them too.
I may be somewhat biased towards finance consolidation. I got into a serious relationship early in life and for a student household combining finances was pretty much the only way to stay afloat. Plus, I was pretty lucky that my partner and I had a similar stance on money management and saving – combining finances seemed like the most prudent thing to do for both of us. So why should you consider this option?
Despite the individualism of the 21st century, this is not the easiest time to go it alone. In these precarious times with a pandemic still on the loose and economic prospects for younger generations being constantly underwhelming, combining finances is about the safest way to make ends meet. Remember – no man is an island. Having someone backing you up makes not just financial sense, but it will give you much needed emotional reassurance in case you are incapacitated for a while or decide to return to school.
The second big advantage of combining finances is that it helps to save efficiently for big goals. Yes, I know – millennials share more and buy less – I myself said it just a couple of paragraphs back! However, while it is true in some instances, there are still plenty of things that we all want to save for – debt reduction, property, retirement etc. Having two streams of income or two credit histories available will greatly facilitate reaching any goal.
Finally and most importantly, combining finances will lead to a healthier and more robust relationship. Research shows that “long-term committed couples who pool all their money into joint bank accounts are happier in their relationship and less likely to break up, compared to couples that keep some or all of their money separate.” Meanwhile a survey done by the online insurance marketplace Policygenius finds that 20% of people who don’t share money with their significant other plan to leave the relationship due to financial issues, compared to only 4% of couples that combine their finances. I personally had no idea that financial issues were such a bone of contention in many relationships, but I am sure glad that I took the least risky path.
While the case for pooling financial resources seems compelling, it does not change the fact that it is not universally appealing. For instance, a 2019 survey found that about 20% of Americans regret combining finances with their partner. Frame a question differently and you’ll see that household finance can cause disagreements to an even greater share of the population. As I said – the right way money should be handled will differ from household to household with the right recipe being somewhere in between the two aforementioned options.
That being said, I think there is a way to get the most out of both worlds and maximize harmony in your financial and relationship dimensions. If you are still figuring out how money should be managed in your household, I suggest taking the following steps and see how you feel about them and where they take you.
First, create a joint bank account to which both of you will transfer a share of your income each month. A share of income (not a particular sum) is the best way to ensure unity and solidarity regardless of the size of each paycheck. This account is basically a joint savings account – a place where money is set aside for big joint projects. 20-30% a month sounds reasonable, right?
Second, divide bills between each other (for instance – utilities and groceries for one, rent and debt repayments for the other). This way both of you will have a stake in running your household. To ensure oversight, accountability, and fairness, use an app like Splitwise to see if one of you is not spending too much and how burdens should be shuffled around to avoid any resentment.
Third, keep the remained of your income. This is your discretionary fund that you can use for whatever purpose without having to answer about its use or feel guilty about indulging yourself. This doesn’t mean that you should spend that money aimlessly, but whether you redirect some of the leftover money to that joint savings account or buy a sick dirt bike – it is all up to you.
In this blog post I tried to outline the best way to go about managing household finances. As I argued it is impossible to provide a universal best path due to different circumstances and individual convictions. Nevertheless, finding the best and most harmonious way to handle household finances will at one point be a very pressing issue that you should not let linger for too long. If unresolved it may bring inefficiencies and cause simmering resentment.
Conversely, if you sort this question out and find the right way, the financial benefits will be immense. More importantly, the added layer of emotional security and peace will be something you and your significant other will be grateful for in decades to come. So don’t wait and figure it out!