A Better Approach to Managing Finances for Couples

by | May 15, 2023 | Wealth Management

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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
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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.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

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