By Lacey Filipich, BEng(Hons), MAICD
My parents fought about money. It’s the main reason they divorced. I can’t conceive of them sharing a household budget so in retrospect it’s not surprising. To put it bluntly: Dad spends, Mum saves. You’d think they’d balance each other out but it doesn’t work that way apparently. The issue was not the actions of saving or spending themselves but what they saved for and what they spent on.
My father has expensive taste: be it a pair of jeans, a bottle of champagne or a car, he only wants the best. He arrived on my doorstep one Christmas, effectively homeless, in his (reasonably new) Mercedes ML350. My mother, on the other hand, is an accountant. She budgets, she plans, she minimises tax. She would prefer to have a $2,000 car and a healthy investment portfolio than a $100,000 car and no investments. Of course, she’d have the expensive car AND the investments, but if forced to choose she’ll pick the ‘smart’ option every time (that’s the investments, in case you hadn’t worked that out…)
Now that you know all that, you probably can understand why it’s no surprise that they fought over money. But I have to wonder: why? They’re both intelligent human beings. They loved each other. Surely they put in place some agreements and compromises about money so they could live with each other’s foibles and vastly differing financial habits? Apparently not. And, it turns out, neither have a lot of my friends. I’ve asked a bunch of them and money seems to be a source of underlying tension in relationships that people try to ignore with varying levels of success.
This is not healthy. We’ve got enough to worry about as couples – who did the dishes last, whose turn it is to drive home from the party, whether it would be reasonable to elope rather than face each other’s families for a full-blown wedding – without throwing in differing financial attitudes. It is also avoidable through a little compromise. So what can you do to reduce or eliminate conflict about money with the one you love?
1. Talk about it
There comes a time in every relationship when you start to share things. You might rent an apartment together. Perhaps you’ll start a joint bank account for mutual holiday savings. You could even loan your beloved some cash when they’re in a tight spot. Around the first time you start linking your lives financially, it’s time to have a chat about money.
This does not necessarily mean talking about your net worth, your credit rating and any outstanding debts. Far more important than your individual financial standing is your attitude to money and your financial aims in life. For example:
- Do you like to take risks with your money (for example, gambling or in high risk investments) or do you prefer to play it safe?
- Do you prefer to be financially independent, or are you OK with getting financial help from the government and/or your family?
- Are you happiest earning a reliable wage, or do you enjoy the idea of a variable wage dependent on your performance?
- How do you prioritise your spending – do you buy the things you need first, or do you splurge on something you really want but could live without?
- What are your aims regarding money? Do you not care? Or perhaps you just want enough to be comfortable? Or is it your aim to be filthy rich?
There is no judgement here. Every individual is entitled to their own beliefs, and they can spend their money however they want. However, understanding how your partner thinks and feels about money is important; much more so than their current bank balance. You may not like how they think and feel about money, but at least if you know their opinion you can do something about how it affects you.
2. Be honest
There is almost a caveat to the first point: a discussion about money is completely pointless if you can’t be honest. If you tell your partner you never spend money on ‘wants’ first when you just forewent food for the week to buy a lush pair of shoes, you’re wasting your time. Sure, you can justify it any way you like: ‘No, I really NEED those shoes. They’re more important than food.’ But you’d be full of crap, and you know it. If you can’t be honest with yourself about your attitude to money, you’re not ready for a discussion with anyone else about the subject.
3. Agree your strategy
When you’ve talked about it honestly, you will have a better idea of areas of potential conflict when it comes to money. Now you’re ready to work out how to manage money between you so you can avoid them! Here are three common options:
If you haven’t heard the phrase, to ‘go Dutch’ implies that everyone pays for himself or herself. Going Dutch means you don’t have to care what the other person does with their money. You pay your bit; your partner pays for their bit.
Just make sure you agree what you’re paying up front: are you splitting the bill 50/50, or are you paying for your actual share? We’ve all experienced that awkward moment when the dinner bill arrives and one person suggests splitting it evenly, only to meet the protests of another person who insists he only ate one spring roll and a bowl of noodles so he shouldn’t have to cover the cost of the wine. Be specific about your Dutch arrangement to avoid a shock later.
When you live together, it’s hard to keep the Dutch act up one bill at a time. It can be easier if you start a joint account into which you both contribute cash for agreed expenses. With free online accounts, you can easily have several accounts if you choose – one for the bills, one for your next holiday, one for savings etc. Simply agree how much you’re contributing and how often, then automate the transfers from your individual accounts and you’re done!
Be sure to consider how you want any joint accounts to operate. You can set up joint accounts so both signatories have to consent to any transfers, or to have just one person able to complete transactions. It’s not a sign of mistrust to insist on a ‘both to operate’ account, merely good sense if that’s what makes you comfortable (though perhaps a little inconvenient at times).
Sometimes couples choose to pool their collective resources completely. It’s common when kids come along and one parent stops earning an income to stay at home with the kids. There are advantages to this method: both partners know what cash is available, you can pool your cash to get the biggest bang-for-your-buck if you want, and there are no secrets. This would only be a good idea if you have clearly agreed common financial goals and you are confident you will both stick to the plan to achieve those goals.
Of course, the lack of secrecy can be a problem. A friend had to ask his girlfriend not to look at the accounts for a couple of months while he purchased her engagement ring. Takes a bit of the excitement out of the event really…
4. Be accountable
Whatever strategy you pick to manage money with your partner, remember that it is YOUR money. Whether you go 100% Dutch or 100% combined, you are accountable for what happens with it. You should not abdicate responsibility for managing your money to your partner unless you are sure they can and will manage it as you have agreed. Likewise, never take on responsibility for your partner’s cash if you cannot reliably manage it.In both cases, you are still accountable for your money – whether you take an interest or not is up to you.
Finally, no matter who’s asking you to, under no circumstances should you sign anything to do with finances unless you understand it and are comfortable with it. It can be hard to resist the pressure of a partner asking you to sign something but not answering your questions. They might play the guilt card: ‘Don’t you trust me? Don’t you think I have your best interests at heart?’ Resistance may be difficult, but it’s well and truly worth it. A friend learned this the hard way when her husband refinanced their home loans and ended up with $900,000+ debt and assets less than half of that. Trading off some awkwardness and a potential conflict is not worth the risk of bankruptcy later on.
It might not be immediately obvious which way will work best for you and your partner, and that’s fine. You don’t have to sign on the dotted line with these strategies – renegotiation is always an option. My history is a case in point:
I’ve been with my partner for nine years, living together for eight of them. Our approach to money has evolved over time. Originally we went Dutch most of the time. This made sense to me. We both earned good money and apart from the holidays and meals we shared, we spent it on different things (he spent it on motorbikes and cars, I spent it on massages and clothes). Then we moved in together and started a joint account for household bills and rent. Three years in, we bought an investment property and started another joint account for that property. We did the same again three years after that when we bought again. Now, we’re married with one young child and I’m at home looking after her. Though I still contribute to the mortgages, he covers most of our living costs right now. No doubt we’ll switch at some point and it will be my turn to be the breadwinner.
We have pooled a lot – we have a joint credit card as well as multiple joint accounts and joint loans. We also have several separate facilities. We each have another credit card that the other can’t access. We each have our own investment accounts because we have very different risk profiles outside of property. We each have our own savings accounts for our own discretion. Granted most of our cash is in an offset account against our home, but given our different investing profiles and my fierce need for some independence, I don’t think it’s likely that we’ll ever go ‘all in’. And that’s fine with us!
If you’re single: no further action required! Enjoy the experience of 100% control over all your expenditure with no judgement from a well-meaning spouse (perhaps that’s just me…)
If you’re one half of a couple, now would be a great time to take stock of your joint approach to money:
- Do you feel like you understand your partner’s financial aims and habits? If not, have a chat with them over dinner:
- What do you both want – to be rich, to be comfortable, to not have to think about money?
- How do you spend – are you both ‘needs first, wants later’? Or is there a difference? Do you both have the same needs high on your priority list?
- How do you like to invest – do you both prefer to hold lots of cash? Are you comfortable with debt? Are you willing to take risks with money?
- Once you have an idea of where your financial aims and habits coincide and differ, can you agree how you might manage your joint and separate resources:
- Do you want to split everything so you can each remain in control of your own cash?
- Does it make sense to share some resources? How can you structure those to work best for you?
- Are you comfortable enough to pool everything? Can you agree who will manage what, and how?
- Make a mental note to check in with your partner. It might be once a year when you do a rough plan. It might be every month when the credit card payment is due. Whatever works for you two! Just make sure you consciously discuss how things are going money-wise and make sure you’re both happy.
Do you have a money-sharing experience you’d like to share? We’d love to hear your story below.
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Lacey Filipich is the co-founder and director of Money School. She helps parents raise financially savvy kids and helps adults get on top of their finances. Connect with her on LinkedIn and follow Money School Facebook to learn more.