Spending and Saving as a Team
Determining the right strategy for spending and saving money is often a challenge for married couples, especially when it comes to managing checking and savings accounts. But open communication and the right division of bank accounts are keys to a successful marriage of finances.
While many couples in the past pooled their finances into joint bank accounts, a growing number of spouses today choose to maintain separate accounts. Complicated variables, such as previous marriages, credit card debt, student loans and a desire for financial independence have made separate accounts a practical spending solution for many families.
On the other hand, more traditional, joint accounts often simplify saving and spending because there are fewer accounts to maintain. Also, it’s often easier to achieve financial goals when a couple pools its assets together.
But before you make a snap decision on whether joint or separate accounts are right for you, it’s important to weigh the pros and cons of the various financial strategies you can employ to determine the best way to manage your family’s finances.
Determining Mine, Yours and Ours
Previous marriages are one of the most common reasons couples opt for separate checking accounts. If one spouse has been married before, he or she may have other financial obligations such as child support or alimony payments. In addition, sometimes a separate checking account and even a separate savings account give an individual who’s experienced a divorce an added sense of security.
“They may still be a little gun shy and need to have a little financial nest egg themselves,” says Dale Teel, Senior Vice President, Retail Division for First Midwest Bank.
If you think you’re at risk of divorce, you may want to maintain separate checking and savings accounts to pre- vent conflicts like splitting the shared funds or having one spouse drain the couple’s joint checking account.
Separate checking accounts also help resolve complications for couples that marry at an older age, says Dr. Douglas Rice, Certified Financial Planner and Professor of Economics and Finances at Golden Gate University in San Francisco.
“The love may be young but the couple is not,” he says. “You have more complications because they have different goals and responsibilities.”
He says all engaged couples should have a discussion about managing their finances before the wedding to establish a budget and divide responsibilities. They should project expenses six months to a year ahead, and determine how their spending and income will affect their future. Creating a strategy ahead of time will bring less stress to the beginning of your marriage, Rice says.
Both Teel and Rice agree that regardless of age or previous marriages, creating at least one joint checking account for monthly expenses is a vital step for all couples.
“There still needs to be a meeting of the minds about who’s paying for what expenses and how they’re going to take care of that,” Teel says.
And though Rice says older couples may need to maintain separate accounts, he believes all young newlyweds should share both checking and savings accounts.
“The money will not be yours or mine, it’s ours – we’ll work with common goals,” he says.
Keeping Tabs on Expenses
Separate checking accounts come with the freedom of being able to control your spending without having someone else monitoring your expenses constantly. There’s also the advantage of knowing you’re in control of what goes in and out of your account.
“Whether it’s going out to eat, whether it’s clothing or material goods, there might be a reason why someone wants separate checking accounts because of differences in their financial goals and how they’re going to use that money,” Teel says.
One way to accomplish this is to have a joint account to pay household bills, and two separate checking accounts for personal expenses, Rice says. You can either give each person a monthly allowance by moving a portion of the money from the joint account to the separate accounts, or you can allocate money from your separate accounts to the joint account. To do the latter, each spouse can contribute to monthly expenses in proportion to his or her income.
If you and your spouse both have substantial incomes, separate checking accounts could simplify direct deposits from employers, Teel says. Because the individual is most aware of what his or her company is putting into the account every month, it may be simpler to put it into a personal account.
But keep in mind the risk that comes with maintaining separate checking accounts. Although you may enjoy the freedom of financial independence, it could affect your long-term spending and savings strategy, especially for planning major expenses like children’s education and retirement, Teel says. This also depends on whether you have joint or separate savings accounts.
“If they were doing it jointly and putting their resources together, it’s one common goal versus two separate goals,” Teel says. “Separate accounts might extend the timeframe in reaching some of those goals,” Teel says.
Rice says even if working couples have separate checking accounts, they should still maintain a joint savings account to help prepare for the future.
Creating a plan to save can be as simple as setting a goal and ensuring a specific amount is deposited from each spouse’s account into a joint savings account to meet that goal.
Avoiding Spending Problems
Separate checking accounts may be a great solution for independent couples, but risks are also involved when one spouse has problems controlling his or her spending.
“If the goals are disparate, you’ll have all kinds of financial problems,” Rice says. “Moving toward the same goals significantly reduces financial problems.”
If one spouse has a history of bad credit, it’s a good idea to maintain separate credit cards to allow the individual with bad credit to pay off debt and improve his or her score, Rice says. Someone with good credit will harm his or her score by taking on the other person’s debt. A couple could still maintain joint checking and savings accounts, but separate credit cards may be necessary.
Communication is Key
Regardless of how you decide to manage your money, the key to a financially healthy household is constant communication with your spouse.
Rice says all couples should set aside time to discuss and reevaluate their budget every month and their financial situation overall at least once a year to make sure they’re managing their money efficiently. You should also reevaluate when a major life event occurs, such as the birth of a child or caring for an aging parent. And if you still have questions, guidance from a First Midwest Banker can help you create a strategy for managing your money.