A Better Approach to Managing Finances for Couples

By:  Paul Horn, CFP®, CPWA® Senior Financial Planner

For most couples, the leading cause of fights is over finances. To best handle finances it is best to have open and honest communication and to work with a Certified Financial Planner™ professional who can be a neutral third party. In my experience, many fights over finances are over minor things that can be easily avoided. Below is a solution I have utilized for many clients that works because it eliminates the likelihood of fights over these smaller items. Take a look at the steps below to see if it may be a good solution to help you and your spouse better manage finances and reduce fights.

The first step is to establish the budget.

For this exercise, we will look at Hector and Helena Dominguez. Hector thinks that Helena spends too much on dining out and shopping while Helena feels Hector spends too much on golfing and cigars. They would like to save more but blame the other spouse for them not saving enough. We took a look at the budget, to begin with, and listed all their monthly expenses like mortgage, utilities, insurance, and car payments. After adding up the expenses their monthly total was $6,800. We then looked at their take-home pay from their jobs and this totaled $9,200 a month. They also have to save and invest each month, and this is another $1,000 a month. This meant after bills are paid and money is saved, they have $1,400 a month left over ($9,200 Income – $6,800 for bills – $1,000 Savings = $1,400). From here Hector and Helena discussed how much they want to have for discretionary expenses and they both agreed they each get a $500 a month “allowance”. The key to making the allowance work is that they get to spend that money on anything they want (within reason) and the other spouse cannot hassle them on how the money is spent. The key though is once the money is gone, they cannot spend any more until the next payday.

The second step is to set up proper accounts.

To make sure that all the bills are paid, their paychecks are direct deposited into a joint checking account. All the monthly bills are set up to be automatically paid from this account. Both Hector and Helena have to agree that they will not take any money out of this account. From the bills account, 3 additional transfers are set up:

  1. $1,000 transfer to the savings account
  2. $500 transfer into a checking account in Hector’s name only
  3. $500 transfer into a checking account in Helena’s name only

Why this system works.

The whole point of this system is to automate budgeting and reduce the potential for arguments. Putting the money into the bills account and not allowing anyone to spend from that account ensures that everyone sticks to the budget and ensures bills are paid on time each month. Having the monthly transfers into savings helps them achieve future financial goals. Each spouse has a separate “allowance” account that is their money to spend until it is gone. This can help avoid spouses fighting over money since everything is automated and it works beautifully as long as each spouse does not overspend from their spending account.

While this system may not be for everyone, it is important to have some system in place to reduce the chance of overspending and make sure there is proper savings. If you are struggling with budgeting or if finances are a challenge in your relationship, please reach out so we can help. Please contact us at finanicalplanning@bfsg.com.

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5 Tips to Help Couples Talk About Money

There are emotions and stigma often attached to money-making conversations. Finances are the most often cited reason for divorce. It is important to have healthy, productive conversations with your significant other, and below are some tips to help have a healthy conversation.

Important Consideration:

Everyone has red flags and it is important to learn how to identify and tread carefully when discussing potential triggers with your partner. This does not mean avoiding the topic as often these triggers are the most critical items to discuss like debt and spending habits. Remember, these habits impact you, so have an open conversation and don’t wait or bottle up the emotions.

5 ways to have effective communication about money:

1. Avoid scary words – No one likes to hear the dreaded “We need to talk” or specific trigger words right out the gate. This will only make the other person defensive and put their guard up.

2. Start with the positive – Discuss what is working and bring up goals you want to achieve together and then how to reach those goals.

3. Do not be overly critical – We all have our faults and attacking another does not improve the situation. Be honest and address the concerns but ask for help in finding a solution. This approach encourages working together and not against each other

4. Understand your partner’s goals and values – It is important to make this a conversation and not a monologue. Ask open-ended questions to better understand your partners, goals, habits, and hang-ups.

5. Listen with intent – We all want to be heard. Not just heard but understood. Asking questions and showing empathy goes a long way to build bridges. Encourage your partner to ask questions as well.