The case for separate (but combined) finances
In the world of personal finance, the subject of how couples share (or don't share) their money comes up time and time again. It's no surprise. After all, money problems are a leading cause of divorce.
But for some reason, the concept that “personal finance is personal” doesn't always factor into people's opinions about combining finances — especially within a marriage.
Often, people argue that in order to be a team, couples must combine finances fully. Or that separate accounts mean there's some lack of trust within the relationship. Or that you aren't truly committed to each other. Or that you must not be on the same page about long-term hopes and dreams.
None of these things are true. Plenty of committed couples keep separate finances. These couples are teams. They trust each other. They share the same hopes and dreams. But for a variety of reasons, separate finances work well for them.
Today, I want to share an alternative to these two dominant modes of money management. I want to share how couples can both keep their finances separate — and combine them. Confused? Let me explain.
Separate But Combined Finances
My husband and I have been married nine years, and we've never fully shared our finances. Nor do we ever intend to. We've also never had a major disagreement about money.
This isn't to say that we haven't had our fair share of arguments, because any couple that has been together for nine years certainly has. But for us, money has never been a serious source of contention, which seems to put us in the minority. Perhaps that doesn't have anything to do with whether we've combined our finances, but I think it does.
This past fall, my husband went on a week-long hunting trip. In preparation, he purchased a new camp mat, a new jacket, and a $300 tree stand.
We do a lot of camping and hiking as a family, so we already had plenty of gear. Most of it gets used frequently. The $300 tree stand, on the other hand, has so far collected dust in our garage.
My husband's plans for hunting changed after wildfires spread through our state before his trip. The stand was no longer helpful for the location he intended to go. Did he return it? No. Will he use it in the future? I sure hope so! But if he doesn't, it ultimately doesn't matter to me.
This is because, for as long as we've been married, my husband and I have carried significant savings in our own individual accounts that the other doesn't see or have access to. This is a policy we plan to always maintain.
We were just 21 years old when we got married. I'd just graduated college and he was a corporal in the Marine Corps. Unsurprisingly, we didn't have any real money to our names. Plus, I was $24,000 in debt thanks to student loans. Fortunately, my husband did have a small nest egg and a slowly growing Thrift Savings Plan retirement fund.
We did, however, open joint checking and savings accounts while still on our honeymoon. (How romantic!) We deposited all of the cash we'd received from our wedding in order to start a nest egg that might serve as a down payment on a future home. Not long after, we opened a joint credit card — the first credit card that either of us ever had — in order to build a solid credit rating for when we'd eventually buy that house.
Coming into a marriage so young and so broke would have been the perfect time to fully combine our finances, had we been so inclined. We both owned our cars outright, and the only debt we had was my student loans. We were fully invested to the marriage, and my military-dependent ID card even showed his social security number, not mine. In the eyes of the military, we were certainly one. And in all ways other than finances, we have been ever since.
All the same, I still had significant student loans to my name.
Student Loan Repayment
To make ends meet, I was earning $750 a month at my first post college internship, plus $8.50 an hour at a second job. My $24,000 of student loans at 8.5% was daunting debt! But it was mine, not my husband's.
Even after we were married, I didn't feel like it was his responsibility — nor did I ever want it to be. I accepted the loans as part of my college education. I've never regretted the debt (in part because the payoff process is what introduced me to the financial independence community).
I put my head down and paid off my loans in three and a half years. At the point I sent the last payment, I was earning $40,000 per year. Because the payoff journey was mine alone, I felt a tremendous sense of accomplishment that's been hard to match since. I was so proud of myself and it was something I could claim as entirely as my own.
Could we have repaid the loans a bit faster if we'd treated them as “our” debt? Certainly. Would my husband have had to make extra sacrifices to get there? Absolutely. And that's something I'd never have ask of him. I feel like it would have been entirely unfair to do so.
And because I tackled the student debt myself, that meant that if I wanted to skip a meal out, a new outfit, a fancy new fill-in-the-blank, I could (and did). But my husband was able to make his own choices for his money beyond what was required to pay our base expenses, and he wasn't required to live quite as frugally as I did while I paid off those loans — my loans.
How Do Separate Finances Work?
Over the years, we've traded bread-winning roles based on our life and career situations.
Initially, when my husband was enlisted and I was working two very low-paying jobs, he covered a significant portion of our regular expenses. When we moved home after his military service was finished, he started college and I was the one with a career. It was my turn to pick up the bulk of the costs.
Neither of us has ever harbored any resentment regarding income or spending. Though our money is separate, we are a team. We've shifted percentages as our situations have changed. No matter what, though, the individual leftover money was ours to do with as each of us pleased.
Now that we have similar incomes, splitting costs is easy. At the end of each month, I tally our joint expenses, subtract our income for that month, and give my husband the amount left over from his income to do with as he pleases. That money is transferred to his personal account, and I never see it again. The leftover on my end goes to my personal account, and he never sees it again.
While he may choose to spend it on a $300 tree stand that never gets used, I've dropped $400 on yoga classes in the past. We each have things we value that the other may not understand. But as the money comes from our separate accounts, we have full autonomy over those savings. There are no “allowances” set at the beginning of each month, and we don't have to check in with each other before we spend $500 on something the other may deem frivolous.
Of course, neither of us would spend much more than that without checking with the other first. We may have separate spending money, but the big things are ours jointly.
We've always seen ourselves as a partnership — a team — in all aspects of life. That means big financial goals as well as big hopes and dreams for the future: saving for a house, having a child, investing in real estate, pursuing financial independence. None of these are individual things, and they're accomplishments we've tackled together as partners.
But the little one-off things? Those are completely ours to choose. As long as we come together and agree on the Big Stuff, we've seen no issue with having our autonomy with the edges. As a result, there's no argument, no discussion about who blew $20 last week, because that $20 ultimately doesn't matter.
The Importance of Separate Funds
Beyond the desire to have separate spending accounts for one-off purchases, having some money that's fully separate is an important individual emergency fund.
Earlier this year, Tanja at Our Next Life described her feelings about true financial independence in a partnership:
It was when I realized that we had enough saved that, if we had to split things up, my share would make me financial independent on my own, and Mark’s would make him FI on his own.
I hadn’t realized it before then, but up until that point, I wasn’t actually financially independent, I was financially dependent. So was Mark. We were both financially dependent on the marriage. We were FI together, but not separately, and that’s a very different thing.
Nobody goes into a marriage planning to get a divorce. Still, divorce happens even to committed couples. And when it happens, one partner is often left financially vulnerable, struggling to come up with even basic money to get by. Separate emergency funds (albeit small ones), in the guise of our individual checking and savings accounts, means that my husband and I each have some financial security outside of our marriage. We feel that's important.
While we're still a long way from financial independence (either separately or combined), the basic financial runway we each have is a real and comfortable thing. It brings us peace of mind. We know that each of us wold be fine if we had to part ways, and that means there's zero pressure to stay together because of money. When you know that there's no financial need to stay together, there's no financial cage as part of the relationship.
Marriage (or any long-term relationship) is difficult enough on its own. By removing money as a possible point of contention, we feel like we have a stronger baseline partnership.
Personal Finance Is Personal
Personal finance is personal. Just because our system works for us, that doesn't mean it will work the same for anyone else.
Our system has worked so well for us in large part because we're both generally on the same page with the larger financial picture. We come from frugal families and we've continued that lifestyle in our marriage. We live in an older, smaller home. We drive older cars. We generally don't buy new furniture. We don't have consumer debt.
If one of us was prone to spending, this system might not have worked so well. We feel that there's ultimately more trust in the way we spend our money, joint and separate, because each of us could rapidly spend a significant amount of money on a joint credit card, and we'd both be on the hook.
Fully joint finances, with specific budget bumpers in place, works really well with two people who adhere 100% to a strict budget plan for all of their money. For those of us who prefer flexibility, and have never done well with rigid budgets, joint-but-separate finances work extremely well.
My husband and I will almost save half of our incomes in 2018. Could we have pushed this to 55% if we were fully combined with a strict budget? Probably. Would we have been a lot less happy? Absolutely.
Not everything about your financial life has to be optimized to perfection. I'll take happiness over that last dollar every day of the week.