A Rich Life with a partner is not built on perfection. It is built on consistency, communication, and a system you both trust.
Ramit Sethi
KEY TAKEAWAYS
- There are many methods of couple finances, differing in levels of integration and communication
- Fully integrating finances, combined with frequent and open dialogue, is the most effective long-term method to strengthen the relationship and family wealth
- Other methods may seem to work in the short-term, and come with longer-term trade-offs
- As your relationship matures, so should your joint finances. In the beginning, not everything needs to be integrated, nor is it realistic
- If you want a long-term, successful relationship, couple finances is critical, requiring effort, vulnerability and “skin in the game”
INTRODUCTION
You know how going on holiday is a test of a couple’s relationship, and it reveals a lot about each partner’s true selves?
The same can be said about travelling with another couple. We get to see their idiosyncrasies, daily ticks, and their financial habits.
Recently, I went on holiday with other families. We had a great time together, and our kids enjoyed each other. One day, my wife observed an interesting interaction between a couple we knew, who had been married for a while now. The gist of it was something like:
Wife: Hey, this place sells some pharmacy goods. You have a bit of the sniffles, you should get some medicine
Husband: No, it’s ok, it’s not that bad
Wife: It’s only RM[x], you should get it
Husband: no, I’m really fine. I don’t need it
[After a bit of this back and forth…]
Wife: You really need it! It’s okay, I’ll pay for it.
[Proceeds to pay for the medicine]
Husband: (mumbles a bit) ok thank you
So when my wife mentioned this conversation to me, a few thoughts came to (our) mind:
- Wasn’t it nice that the wife bought the medicine for the husband with her own money? But also…
- They obviously don’t have joint finances, or if they do, they don’t see medicine as a joint expense
- If that is true, how did they decide what is and isn’t a joint expense? Did they have many discussions, ending up with a 282-page list just like the Malaysian list of SST exemptions?
- If they don’t have an agreed-upon list, does this type of conversation happen for every small purchase, when there is a disagreement?
And more importantly…
Wouldn’t this feel very exhausting, expending so much effort and “sweating the small stuff”?
If you observe other couples closely, you start to get an idea of their money mindset and couple finance behaviours. Some complain about their partner’s spending and lifestyle expectations, some complain about getting approval from a partner before spending, some vent about how they don’t want their partner to know how stressed they are with finances… and some don’t even talk to each other about finances.
Is there a better way to manage a couple’s finances? Well, yes, there is. Principally, it’s what my wife and I do now, and I wrote about how we do it in my post on a quick guide to managing finances with a partner.
Have a read of it. Don’t worry, you can always come back to this post once you’ve read it. I’ll wait.
MODERN COUPLE FINANCES ARE MOST EFFECTIVE WHEN BOTH JOINT OWNERSHIP AND FREQUENT, OPEN DIALOGUE EXIST
Now, after interacting with, observing, and discussing (with other couples) how they manage their finances, and the effect it has on their money and life decisions, how they view money and each other, I’m convinced that the method I wrote about in my previous couple finances post is the most effective, if you aim to have an effective marriage with the strongest bonds and foundations for future family wealth.
I’ve experienced and observed in other couples two key drivers that define the types of couple finance methods, that is, the level of
- Integration of finances, and
- Communication
When considering those two drivers of integration and communication, the best outcomes are a result of the two drivers:
1. Complete joint ownership: A complete merging of finances, bank account, income, assets, and investments. Total co-ownership of all finances.
Many would assume that joint finances are just about sharing expenses. But it’s a lot more than just that. At peak joint ownership, it is a holistic, consolidated and integrated financial position.
No more thinking about income as your own. It’s “this income is ours”. All salary goes into a joint pool/account. Note this is different from, “out of our salaries, both people will contribute RM[X] amount into a joint account for shared expenses”.
If you don’t see the difference, let me explain further.
By only transferring an agreed amount to share expenses and keeping the rest in your own bank account for your own use, you retain a mindset of “what’s mine is mine, but since we’re cohabiting, okay, it’s only fair I contribute some money for my part of the expenses”
This is what roommates or housemates do. To me, that’s NOT joint ownership of finances.
If you really want to spend a shared life together, create a shared vision together, build a family unit together, shouldn’t you have complete joint ownership?
I see many single-income household couples where the stay-at-home parent gets an “allowance”. In my household, it is different. My wife doesn’t work. The salary from my employment is OUR income and goes into our joint account. Only then do BOTH of us get an equal “allowance” for personal spending on anything we want, which then goes into our personal accounts. Massages. Skincare. Jewelry. Watches. Japanese strawberries. Gifts for each other.
The result? My wife doesn’t feel inadequate for not earning an income. She doesn’t feel like there’s an imbalance in power. I don’t see the income as only mine. No feelings of financial abuse or resentment.
2. Frequent Dialogue: Ongoing and open/transparent discussions about everything in a financial plan and more (money values, mindset, habits and splurges).
One of the keys to a successful relationship is having quality communication on an ongoing basis. It’s no surprise that this also extends to couple finances.
It’s not enough to just talk about a monthly budget. That’s just avoiding the more difficult conversations which need to be had if you want to be successful, which is long-term couple finances. What’s your financial plan together? What kind of retirement do you want to have together? How about lifestyle? What are you both willing to sacrifice to hit your financial goals as a couple? How do both of you improve your levels of financial literacy? What happens if a partner passes away (does the other partner know how to manage the family finances)? What kind of risk tolerance do both of you have when it comes to investing?
There’s so much to talk about, to align on, and to compromise on. It takes time, and a lot of deep conversations.
Also, there’s no point in having open communication when it’s infrequent. You’ll just end up procrastinating and putting off the discussions. How often do you talk about finances with your partner? Once a year? Twice a quarter? Every week?
Monthly is a good start, as that’s the typical cycle to settle bills, monthly budgets, and a decent frequency to check your net worth.
I like Ramit Sethi’s approach of having a monthly date night, focused on discussing finances, whether it’s talking about setting financial goals or how your investments are performing. Ramit explains the simplified 30-minute money date how-to in this video.
OTHER METHODS MAY “WORK FOR YOU” IN THE SHORT-TERM, AND COME WITH LONGER-TERM TRADE-OFFS
Now it’s common to believe that there is no “one size fits all” as a self-defence mechanism. For many decisions, that might be true. Everyone can choose what they want, founded upon their mindset, their upbringing, and what they prioritise versus the trade-offs.
The problem is, most operate blindly, opting for “what works for us/me” without truly accepting the trade-offs. You should be aware of them before you dismiss my point and carry on with what you believe works for you.
As long as you’re truly aware of the trade-offs, then whatever choice you make is always up to you. And you own those choices (and that’s truly scary for most people, actually being responsible for their choices and actions).
So let me help bring clarity to the different options and trade-offs in managing couple finances.
Now, if you agree that the two key variables of couple finances are (1) joint ownership and (2) frequent dialogue, we can roughly generalise four styles of couple finances using a 2 by 2 matrix, as below:
Let’s break down each category:
1. Separate finances, infrequent conversations
In this day and age, why are you even a couple? No wonder the divorce rate is 50% of married couples (and who knows how many others are in unhappy or resentful relationships)
2. Separate finances, frequent dialogue
These couples share a lot of information about their finances, and even discuss plans together, but severely limit the merging of finances (if at all). How might this work? For dual-income couples, usually one partner pays for the large purchases (housing, education, vehicles), and the other pays for the smaller, more frequent purchases (groceries, bills).
Public service announcement: For single-income households, in these situations, the partner that isn’t working is most of the time given an “allowance”, which I do want to raise awareness for those doing this, to just be careful of how it’s done, because there is a risk of economic abuse, even unintentionally. Frequent dialogue and open discussions are vital here, where the partner “giving the allowance” should create a psychologically safe environment for the receiving partner to raise any feelings of economic abuse.
In this scenario, some coordination effort helps to smooth the financial logistics, even though finances are kept separate. However, there are still some challenges:
- Keeping finances separate allows assets and income to be kept secret, enabling low trust, infidelity, and secret spending behaviours (gambling, splurging)
- If one partner is incapacitated, it can be difficult for the other partner to access funds. This can be extremely stressful for a partner who is less financially literate (for example, if the breadwinner passes away, the other partner may have no idea how to manage the finances, investments and future planning)
- Separate finances means an imbalance in income contribution to the joint expenses when necessary, potentially leading to resentment or feelings of inequity
3. Merged finances, infrequent conversations
These couples have a basic understanding that finances are important to be worked on as a couple; however have not done the mental work. The “physical” logistics and admin of finances are merged (i.e. joint accounts, joint spending), but the conversations are often surface level, likely constrained to just budgeting.
It’s definitely more efficient in the short-term. However, the deeper discussions about money mindsets, money values, financial plans, etc., are usually not covered and/or avoided. This may result in conflicts in money values and habits, which can manifest into resentment and misalignment. For example, if these couples don’t spend the time having deeper discussions, they might be in shock when observing each other’s attitudes and behaviours towards money, especially how money in the joint account is spent by the other partner. The problem worsens when both parties avoid ongoing, deep discussions to understand each other’s money psychology.
Also, coordinating longer-term finances and planning is likely minimal to non-existent. This leads to gaps in future planning, from financial goals, large expenses and retirement. Doesn’t seem to me that the full potential of merging finances is fully realised if there is a lack of ongoing, deeper discussions.
4. Merged finances, frequent dialogue
Your finances are in sync, your money mindsets are closer aligned, you have clarity and transparency in where you are now and headed towards in the future, together, as a couple. There’s a shared vision, and increased trust from the openness of revealing everything, having open, frequent dialogues that just strengthen the relationships.
Also, when you have children, you have a better system that you can start to include your kids in family meetings about finances, keeping them involved, teaching them financial literacy, and showing them good money values.
It’s not all rosy, though.
- It takes effort. A lot of effort. Both parties need to come clean, have skin in the game, and have a lot of difficult conversations in the beginning.
- Some traditional elements of romance, gestures and gifting can be diluted. Compared to couples with separate finances who shower each other with lavish gifts from “their own money”, spending on your partner using your “guilt-free spending” or “allowance” may not feel the same.
AS YOUR RELATIONSHIP MATURES, YOUR FINANCES SHOULD ALSO MATURE
Whilst joint ownership, with open and frequent communication, is the ideal goal, it doesn’t happen instantly. Nor is it practical at the start of a relationship. When you first start dating, you’re not going to combine and reveal everything. But as you transition to living together as a married couple, you should strive to shift closer to the ideal state.
When should you strive for fully integrated and open frequent communication? Somewhere around the time you get married. Perhaps post-engagement, shortly after marriage. Don’t forget, choosing the right partner is the most important decision of your life. If you guys can’t get on the same page on financial values and priorities, you’re going to have a bad time.
I definitely advocate that you guys need to adopt the ideal state before buying property and having kids. I’m not saying that it’s all going to be perfect. Your money psychology and values can and will change over time as you mature and gain wealth, but at least both of you are on the journey together and can iron out issues, reach clarity and build strong foundations.
FREQUENTLY ASKED QUESTIONS
There is no one-size-fits-all; what works for you may not work for me. Personal finance is personal
I mentioned in my simple and boring portfolio post that I don’t believe that’s true. Some fundamental principles of personal finance ALWAYS apply to everyone. Spend less than you earn, save and invest, etc.
You can choose one of the other methods, just be aware of what you’re giving up or sacrificing. If you want the method that helps build the strongest couple connections and alignment, you need full joint ownership and open communication. If you want more control over your personal income and expenses, you’re sacrificing some effectiveness in your couple finances and the strength of the relationship.
Women have been taught since young to protect themselves, and our moms have always told us to keep some money or a separate account for ourselves in case anything happens
This is something I’m well aware of, and I’ve had discussions with my wife about this concern.
I get it. In the spirit of equal partnership, both sides need to show skin in the game. Neither party should have secret accounts. Partners also need to be transparent and agree to a shared ownership of everything. Through actions and repeated behaviour, trust builds. Establishing safety nets together, such as insurance, wills and access/power of attorneys, also builds further trust.
As the husband/partner opens up and has skin in the game, he effectively should develop trust with you, so that you have the confidence to open up and also put skin in the game. That’s what a relationship is about: being vulnerable together.
Pre-nups/Post-nups are also helpful tools. They force conversations before marriage to ensure clarity and agreement up front. It’s a great mechanism to have open trust with protection, instead of hidden bank accounts, which breed secrecy and distrust.
Are you saying you divulge everything you spend to your wife? Even your personal allowance spending?
Yes. There are some small exceptions for personal allowance / guilt-free spending. There should be no judgment on what each individual spends in that bucket. It’s up to the individual to share (or not) what they used that money for. But there should be no judgment, criticism or upfront approval for any spending with that money.
I don’t ask my wife what she spends that money on.
But for everything else, I track all my expenses and our joint expenses (my wife’s expenses are just recorded monthly as a lump sum “personal spending”). The tracking expense information is freely available for my wife to look at, if and when she pleases.
This sounds like a lot of work. You’re likely overthinking it. Is it necessary? What if the relationship doesn’t work out? What if he/she runs away with all the money?
Well, you have to think about what kind of relationship you want to have with your partner. To me, my wife is my life partner. I’m sharing a life with her. That means we share the ups and downs, for richer or poorer. And I don’t need to hide anything, to control anything, or be worried about the “risks”.
- My wife has grown to be more financially literate than the average person and is very involved in our finances. This is a result of us having frequent discussions on our finances
- We have matured our finances to run on autopilot. Daily spending is automatic. We don’t debate why someone has bought premium strawberries. We don’t debate/argue about the price of hotels or flights when planning holidays. We just execute (as we know the annual travel budget and what we like/don’t like). This doesn’t happen without a lot of talking and planning together
- If we (unfortunately) divorce, each person has legal entitlements to a fair portion of the finances. It actually doesn’t matter who held what income and money to themselves during marriage. So trying to hold on to it is a moot point
- If my wife disappears with all my assets (which is not as easy as it sounds), I have confidence that I have the skills and resources to rebuild my wealth (wealth is abundant in this world)
- If I suddenly die, I have the confidence that my wife knows how to manage the family finances, due to her level of financial literacy and involvement in our family finances
I handle all the finances, and my partner is fine with that because they don’t want to deal with it. Both of us are happy with the arrangement, as I get to take a load off my partner, and that’s our division of duties
That sounds noble, and you guys might have a good split of value contribution to the family unit. But ask yourself, “If you died tomorrow, would your partner know how to manage the budget, savings, investments and financial planning?”. This question becomes even more important when kids are in the picture.
If one partner is (1) not involved in the finances, and/or is not (2) financially literate, that is a big risk if anything happens to the other partner. In that situation, it is already extremely distressing. Wouldn’t you want the comfort of one less stressor in your partner in dire situations?
Also, what message does this send to your kids? Have you thought about how you want to educate them on financial literacy? No amount of books, pocket money from chores or allowances makes up for the benefits of them listening to dinner conversations about finances and investing. How you and your partner talk (or don’t) talk about money becomes their money psychology for life (this deserves another post on its own)
What do you and your wife talk about in every discussion?
It has changed over time as our situation has also evolved over time. At first, we covered monthly reports on our finances. Just about understanding what we have together. Then over time, we moved on to discussions on how we want to spend, save and invest our money, which also imparted information and knowledge.
Then, it started to evolve. What financial goals do we have? What do our finances look like if we sent our kids to the most expensive schools, once we buy a place, and once we increase our travel frequency and luxuries? How much do we want to live our lives?
We’ve solved all that and aligned on all those decisions, so spending, even how we spend money for holidays, requires very little discussion. Financial reports and discussions occur quarterly.
Nowadays, we talk about how we instil financial literacy and money values in our kids, inheritance vs charity vs treating ourselves.
How do I get started to have joint ownership with frequent open communication?
Read my “quick guide” to couple finances.
Also, Ramit Sethi is a master in couple finances. Watch his podcast here and read his book on money for couples. His work formed the basis for my own couple finance journey.
Also, I’m going to say this a million times: develop a financial plan. Together.
What are more advanced ways to improve and evolve our couple finances?
The best way is to read many personal finance books, in particular those about couple finances, family wealth, and raising kids with financial literacy. The key is to discuss the books with your partner and be explicit about how you will apply the learnings to your lives. Similar to a book club, with the added step of applying the knowledge to execution. Reading without reflection and action is just a useless dopamine hit to avoid doing the real work.
CLOSING THOUGHTS
Couple finances are not easy. They require a lot of planning, strategising, compromising and alignment of values. All of that is hard work and doesn’t happen overnight.
However, once you’ve reached a state of couple finances that has matured and deeply aligned, many other things fall into place. Instilling financial literacy into your kids, developing family finances (the next evolution of couple finances, which involves the whole family unit), and generational wealth. Those things come together into a cohesive financial system much more easily, once you’ve adopted joint ownership and frequent, open dialogue.
For those of you still hesitant and defensive. What are you afraid of? For many, the underlying subconscious reason is control. It’s very common. Deep down inside, there is a fear of giving up control. Not being in control is inherently scary, and to give up control is to be vulnerable.
But the only way to build real bonds is to be open and vulnerable.
Do you want your fears to control you, or do you want to control your fears?
Control is just an illusion.
