In an episode of The Sopranos, mob boss Tony Soprano’s wife becomes upset about her lack of visibility into the couples’ finances, and despite her demanding a role in the decision-making process, she discovers, much to her chagrin, that Tony is still keeping secrets and has been stashing large amounts of cash in their back yard garden bin.
Granted, mob wives may have a different set of expectations when it comes to managing household finances, but it can be a significant source of stress whether you’re an office manager or a mafia don.
According to a Kansas State University study, arguments about money are the top predictor of divorce, regardless of income, debt level or net worth. The study showed that more money isn’t necessarily going to alleviate stress or minimize arguments – rich people argue about money just as much as poor people. Arguments about money are more stressful than any other type of argument, and the research indicated that it takes longer to recover from a money argument than any other type of argument.
Money is always going to be an issue, whether you are newlyweds or getting ready to celebrate your 50th anniversary; whether you have no savings and entry-level jobs or have a million in the bank and are both high-powered executives. Money will be an issue in any circumstance, there will be stress, and at some point, there will be arguments. What’s important is setting up a system to minimize those arguments and keep the stress at bay.
Flexibility and guilt-free spending
Money is stressful in a relationship only if we allow it to be so. Financial plans are essential, but some of that stress and guilt comes directly from having the wrong kind of plan. Zero-tolerance, zero-based budgeting that focuses on accounting for every nickel are often promoted by financial gurus and Internet-based finance sites – but in reality, this type of approach is almost guaranteed to create an argument because of its rigid inflexibility. These one-size-fits-all approaches to joint finances won’t work for everybody, and there is a tendency to get lost in an inflexible dogma of rigorous accounting and trying to run your marriage like a business.
Rather than making one’s spouse feel guilty because they enjoy a latté with co-workers every now and then, balance that need for strict budgeting with a little trust and flexibility. That’s not to say that each party should feel free to spend whatever they want – the best approach is to set aside a fixed dollar amount for each person, which they can spend freely on whatever they want, without explanation or justification. Make sure that discretionary allocation is just for fun – resist the temptation to spend it on bills or household necessities. There is sound reasoning behind having an allocation of do-what-you-want money every month. If you have a zero-budget approach, with nothing set aside for fun, chances are a little bit of the money you have allocated for bills, household expenses, savings, or any other category, will get used for that night out with the girls. Starting with a “do whatever I want” allocation, even if it’s only ten or twenty dollars, will eliminate that temptation – and a lot of arguments, guilt and stress at the same time.
Yours, Mine and Ours
Every couple from newlyweds to retired baby boomers will face a lifetime of important decisions, from picking out a china pattern, to buying a home, and deciding what to do when you retire. The most stressful of those decisions will always involve money – how it is shared, how it is divided, and who is responsible for what. In the 1950s sitcom “The Honeymooners,” Alice Kramden didn’t work, but she maintained strict control over the couple’s checking account and finances. The long-suffering Ralph handed over his paycheck to Alice every week; Alice paid the bills and gave Ralph a weekly allowance – and when Ralph asked Alice for extra money for his Raccoon Lodge membership, she reminded him that his Lodge expenses were supposed to come out of his allowance. She put her hands on her hips and said to her irresponsible husband, “I’m not giving you a dime, Ralph.” Ralph pouts and said, “But I spent my allowance!” But Alice stood firmly in control.
How to divide up financial responsibilities is the biggest decision a couple will make, and there are three different ways to do it, each with benefits and drawbacks. Are you as a couple more like Ralph and Alice, with one person in charge? Or do you take a more collaborative approach? There’s no one-size-fits all that works best for everyone.
Option one: All Together. Managing everything jointly does offer some conveniences and benefits. Because there will be fewer accounts to manage, finances are somewhat simpler – and with both partners’ paychecks going into a single account, you will most likely have a better banking relationship and access to more benefits (such as higher interest rates or fee-free checking). Also, this option provides the greatest amount of transparency, since both partners have equal access to the accounts.
On the downside though, the “all together” option may sometimes weigh too heavily on the side of visibility, and the pressure on both parties to constantly participate may lead to finance fatigue. This option may also be less practical in a “Ralph and Alice” situation, where one party is more responsible than the other.
Option two: Keeping it separate. With each partner maintaining their own separate accounts, it may seem like you’re more roommates than a married couple, but when both parties are going into a marriage with assets of their own, it may make sense. This option provides a greater degree of autonomy in the relationship, with each partner contributing a pre-determined amount to household expenses. Alternately, each partner would be responsible for certain bills – one pays the cable bill while the other pays the gas bill, for example, and each partner taking responsibility for their own debts.
Drawbacks to the separate approach is the difficulty in seeing the total financial picture, and it may lead to an imbalance, especially if one partner does not pay their own bills on time. This could potentially create a knowledge gap, which would create a risk and potential blind spot for each spouse.
Option three: Hybrid approach. Taking the best of both worlds, the hybrid approach has each partner maintaining their own personal account, while also contributing to a joint account. This approach provides each partner with autonomy and a little self-determination so they don’t feel controlled by the other spouse, while also allowing each partner to take part in their joint finances. With this approach, each partner puts a pre-determined amount of money into the joint account, which is then used to pay household bills. This protects against a situation where one spouse falls behind, which can happen when household bills are simply allocated to “my bills” and “your bills.”
A potential downside of the hybrid approach is that there are more accounts and payments to keep track of, since money has to be divided between at least three accounts (each partner has their own account, plus a joint account).
In all three methods, each partner will usually contribute to joint expenses, but that won’t necessarily mean a 50-50 split. When one partner makes more than the other, it may make more sense for one partner to contribute a higher percentage towards joint expenses.
Top five ways to alleviate financial stress
There will be stress regardless of which approach you use to divide your responsibilities. But, that stress can be alleviated with a few simple actions.
- Make a joint decision on whether you will have separate, joint, or hybrid accounts.
- Assess how your management system will affect your banking relationships.
- Take action! Determine what your priorities are and create a plan to achieve them. Is an annual vacation important? Plan ahead for it. Is debt reduction a priority? You both need to be on the same page.
- If not using a joint approach, determine a monthly procedure to make sure bills get paid on time. In any case, a regular discussion is essential – but there is a balance. Daily money discussions will only lead to stress, but infrequent and irregular discussions will almost always leave one or both partners in the dark.
- Leverage account aggregation software such as Mint (which is free) to easily track spending. Review your accounts monthly. Both partners should discuss the previous month’s results, and then plan for the next few months as well.
Dividing up responsibilities also means finding some middle ground on how you invest your money. Fans of “The Honeymooners” know that Ralph always had a get-rich-quick scheme up his sleeve, and though he was well-meaning, it was always up to Alice to reign him in. If you want to put all your assets into bitcoin and your partner is more interested in a government-guaranteed certificate of deposit, you will have a lot of negotiating to do. Decide on a risk tolerance level together, with the help of a financial advisor.
Managing money as a couple doesn’t have to be stressful, but it does have to get done. Take time at the very beginning of your relationship to hammer out which way will work best for you, get help if you need it, and be flexible enough to switch gears every now and then if circumstances change.
Joe Catanzarite, CFP, is a financial planner in South Bend, Indiana. In 2006, Joe chose a new career path – financial planning – with determination to offer financial guidance and oversight to individuals, small and mid-sized business owners, professionals and organizations.
In addition to earning a Bachelor’s Degree in Finance from Saint Joseph’s College (2003), he attained the Certified Financial Planner (CFP®) designation in 2010. Joe and his wife Katie have three children ages 8, 5 and 1. Learn more at http://www.catanzaritefinancial.com/