I spoke about business deductions and taxes last time. This weekend, I had the opportunity to discuss taxes with a married couple. As would be inevitable, it involved their finances. Now, I am not claiming to be an expert on marriage (unless multiple ones makes you better at the institution J), but I do know that we all have different points of view about money- and power. Therein lie the rubs.
Many of my friends and clients have one spouse who solely handles the family finances. If you are among them, then family spending may be less of a problem- but I think not. Why? We all want the ability to spend money on something that may not be necessary, but that we want. And, what I consider necessary- you may not. Moreover, if one spouse handles the finances and the other does food shopping- what is chosen (generic or brand names, steak or hamburger, green or cheaper) can become issues in and of themselves. And, when one wants to buy a gift for the other, things are more complicated should there be no separate funds. If there are children from previous marriages, the issues are even more complex.
Most first marriages don’t start out with separate finances, unless both spouses are older. (If you are in your first marriage and things are working fine, then stop reading my blog here.) I believe that three separate (maybe four) funds are useful for all families. A joint fund, one for the husband, and one for the wife are probably the minimum requirements. (The fourth would be a savings fund for vacation or home purchases.) I also know that about ½ of the families who just get married or cohabit don’t pool their finances; but by about year 7, that number reaches 85% (for at least some or most accounts). Save yourself the grief and start pooling your necessary funds now.
To do this right, a family budget is necessary. (To be honest, a family budget is probably necessary always.) Determine all the expenses to maintain your home. That includes occasional (or frequent movies), transportation for work, insurances, food and staples; discuss the issue of generics, fresh or store-bought (i.e., previously frozen) fish, meat cuts, “green” versus brand versus generic, etc. Make sure you have included an emergency budget item. (I recommend 10% of the rent/mortgage payment.)
Hopefully, when compared to the take-home pay for both spouses, this leaves a surplus. If it does not- redo the budget and cut the amounts of and maybe complete items. Save the original budget, as well as the final one. (Sorry, folks, you can’t print your own money- a balanced budget is absolutely necessary for families.)
Why did I ask you to save the original budget? To examine it once or twice a quarter, to remind yourselves that what you want- and what you can afford- are two different things. It is a way to insure that you keep to your budget.
So, how do you deal with private (separate husband and wife) accounts? Here’s where some concrete numbers will make things clearer. Let’s assume your standard budget some to $ 3000 a month. The emergency fund requirements are an additional $ 250. That means you both need to fund $ 3250 each month. It does NOT mean you each need to provide half ($ 1625). (Only 50% of cohabiting persons have the same general income.) Should one spouse clear $ 2500 and the other one clears $ 2000, the family net income is $ 4500. 72.2% (3250/4500) of those funds are committed for the family. Spouse one contributes $ 1805.56 (72.2% of $2500) and spouse two contributes $ 1444.44 (72.2% of $ 2000) each month. The remainder of each pay check is now available for each person’s “private” funds. They can spend that money how they wish. (I would suggest that each person save an additional 10% or so in case an emergency arises that exceeds the “normal” fund, so that it can be handled quickly and easily.)
This presupposes both spouses play fairly, as well. Don’t decide to list 9 deductions with your employer to maximize the take home pay (and the personal funds)- but require taxes to be paid at the end of the year. Use reasonable assumptions (1 to 3 deductions; 1 if you are renting, 3 if you own your home). And, bonuses COUNT towards the contribution requirement. Even though the bonus is not part of the normal budget, for “peace in the home”, you should provide your fair share (in this case the 72.2%) to the family budget. Tax refunds should go to the joint fund, as well.
May you stay together always.
