Welcome to Part 2 of Managing Money as a Couple.
(If you missed Part 1, you can check it out here: Managing Money as a Couple Part 1: Getting Rid of Credit Card Debt)
Most people shy away from talking about money. It’s no wonder that money is one of the things couples fight about most. How are we supposed to learn about money management if no one talks about it?
Whether you’re just starting to think about merging your finances with your partner, or you’ve been doing it for years, you’ll find some helpful ideas in this post.
Today I’m sharing the core principles that guide how my husband (Steve) and I manage our finances as a couple. The idea behind this article is to give you a peak at how we manage our finances so that you can adopt what you like and ignore what you don’t. While there’s no one-size-fits-all approach, there are some universal best practices worth understanding.
ARE WE EXPERTS?
No, but we are VERY good at managing money.
We’re not penny pinchers, but we’re not frivolous spenders either. We’ve struck a nice balance between enjoying now while saving for later. We have money set aside for retirement, a healthy savings, and a lifestyle that is both enjoyable and affordable.
Also, no one helped us. We don’t have wealthy parents or trust funds or inheritances. We’ve paid for everything ourselves (education, wedding, house, etc.).
With all that said, let’s dive in!
OUR 7 CORE MONEY PRINCIPLES
1. Full Transparency
We believe in full transparency when it comes to finances. This means Steve and I have knowledge of, and access to, all of each other’s financial information, e.g. account balances, credit card transactions, debt load (student loans, car loads, lines of credit), and any other assets and investments.
Trust is a prerequisite for full financial transparency. If you don’t trust your partner with money, then you shouldn’t share your finances with them. For example, if Steve had a gambling problem, I wouldn’t have given him access to my bank accounts.
In the early days of our relationship, transparency meant having access to each others’ online banking by sharing usernames and passwords (shhh, don’t tell our banks!). Today, all of our bank accounts are joint, so we no longer need to share passwords.
Exception To Full Transparency Rule
There is one exception to our full transparency rule: we’re allowed to hide and lie about money spent on GIFTS for each other. We can be as secretive and as deceptive as necessary to preserve the element of surprise for a gift.
2. How We Make Purchase Decisions
We Don’t Ask for Permission. We Consult.
Steve and I don’t ask each other for permission before making a purchase. We do, however, consult each other. But not always. When we consult each other, it’s often (i) for practical reasons, (ii) out of respect, or (iii) because there’s a big financial impact.
For example, knowing that Steve has strong opinions about home decor, I would never go out and buy lamps for the living room without first consulting him (respect). Whereas, Steve doesn’t care about what my wallet looks like, so I don’t need to consult him before buying a new one unless it’s incredibly expensive (financial impact). Another reason we consult each other is storage considerations (practical). Our space is tight, so if Steve wants to stock up on power tools, or I want to buy a bunch of holiday decorations, we need to discuss how (and if) those items can be stored so that we’re not constantly tripping over them.
We Don’t Buy Things We Can’t Afford To Buy In Cash (Exception: Our House)
We pay off our credit cards as we go. This means I pay off the grocery charges through my banking app on my phone as we’re walking through the checkout. This requires us to have the money in our chequing accounts.
Why do we do this? We use our credit cards for all our purchases (for the reward points). It’s too easy to overspend when using credit cards, so our pay-as-you-go approach helps us stay on budget. Plus, it takes only 20 seconds and prevents forgetting about big expenses. $300 vet bill? $1,200 car repair? It takes me 20 seconds so I’d rather just pay it off.
If we want it and we can afford it, then we ask ourselves:
- “Will a new 10ft x 10ft articulating patio umbrella bring us $800 worth of joy?”
- “Will building a deck bring us $3,000 worth of joy?”
- “Will a new house bring us $1.2 million dollars worth of joy?” (We live in Toronto where $1.2M doesn’t get you much house.)
If the answer is NO, then we don’t buy it.
Another way of phrasing this question is this: “Would you rather have the cash, or the object?” If you’d rather have the cash, then you may not want to buy the object.
The answers to these questions are personal and subjective. For us, the price-to-joy ratio of the deck was good, but the umbrella and house weren’t worth it. Another couple might feel differently, which is perfectly fine.
Is it returnable?
For purchases that feel like bigger commitments (like a mattress or a car jack) we make sure they’re returnable if we’re unhappy with them. Shout-out to Costco for having such a fantastic return policy.
Have I earned it?
I’m the type of person who will buy something with the delusion that spending money on a thing = progress towards a goal.
For example, I’ve paid for a gym membership for YEARS without using it, thinking it counted as progress towards achieving my fitness goals (this might sound crazy, but how many people do you know with a dusty treadmill in their basement?). I’ve also purchased mountains of storage and organizational gadgets thinking it was progress towards achieving my clutter-clearing goals. It just created more clutter.
So now, before spending money on things like this, I make sure I’ve “earned” it. That means, if I don’t already run, I can’t spend $120 on a new pair of running shoes. I need to demonstrate that I’d use them by going for regular runs with my old shoes. If I don’t meditate regularly, I can’t spend $150 on an annual subscription for a meditation app. I first need to mediate regularly with the trial version or pay for a 1 month subscription as a “test run”. Yes, it might be cheaper to pay for the whole year up front, but I’d rather pay the higher monthly fee for just one month to see whether or not I’d use the thing at all.
3. How We Share Expenses and Assets: Fair vs Equal
We contribute to all savings and expenses proportionate to our incomes. This means whoever earns more contributes more. For many years, my salary was 1.5x greater than Steve’s, so I contributed 1.5x more to our expenses and savings than he did.
Despite our proportionate-to-income contributions, we’ve agreed to share all assets equally in the event we break up (we use this worst case scenario as a thought exercise). This means our house, RRSPs, savings, etc., would be split 50-50 if we split up, irrespective of who contributed how much.
This arrangement feels fair to us so it works well. You need to decide what feels fair to you. Some couples split expenses down the middle, 50-50, irrespective of income, and they contribute separately to their own retirement funds. Other couples dump everything into one joint bank account and spend out of it together.
It doesn’t matter how you split things, as long as it feels fair to both of you. Just remember that what feels fair may not necessarily be 50-50, but it can be.
4. Automating Savings
Steve and I are endlessly fascinated by money management, so we talk about it openly with anyone who’s similarly interested. This is why we weren’t surprised when our friend Sam called to ask for help creating a savings plan. Despite having been in the workforce for several years, he’d never developed a savings habit. Sam decided he wanted to get his finances in order and start saving for a downpayment on a house. After a short phone call, Sam was all set up. We helped him set up automatic transfers from his main chequing account into his new savings account. He picked the amount – something small and manageable to start, which he later increased on his own.
A year later, Sam had $20,000 in his savings account! With minimal effort!
Automate! Automate! Automate! I cannot encourage this enough!
Sam had one specific savings objective (a downpayment), but you can have multiple savings goals.
Steve and I have several savings goals with a separate bank account for each:
- retirement savings (which we won’t touch until we retire),
- emergency fund (to cover unexpected expenses like home/car repairs, unemployment), and
- specific savings (for anticipated expenses, like replacing our winter tires, going on vacation, and Christmas shopping ← we never save enough for this one, but more on that later).
We started with just one savings account and added new ones as our needs evolved.
5. Automate Bill Payment
While you’re automating things, I highly recommend automating your bill payments. Most companies have a pre-authorized debit option. I automated all of our bill payments a couple of years ago and it’s been amazing. You don’t need to do it all at once. Just do one bill at a time as they come in. Then, make sure you keep enough money in your account to cover all your bills.
Exception to Bill Payment Automation Rule: The Case of Rogers Wireless
If you don’t trust the company, do NOT allow them to automatically pull money from your account. For example, Rogers Wireless was notorious for screwing up our billing. They over-billed us every month. We had to call them to get the bill corrected every time. I never automated the Rogers bill, and in fact, we got rid of all Rogers services so we’d never have to deal with them again. You know who’s never screwed up our billing? Bell, Fido, and Tech Savvy.
6. Don’t Pay For Banking
Steve and I refuse to pay for banking. Even when we were shopping around for a mortgage with some of the big banks, the mortgage reps tried to convince us to move our accounts from our NO FEE bank (we use Simplii Financial) to their institutions. Our answer was always “NO! NELLY AND STEVE DON’T PAY FOR BANKING.”
If you’re paying banking fees, I implore you to switch banks. If however, paying for banking has a price-to-joy ratio that works for you, then go nuts! But you should know exactly how much joy you’re paying for.
Assuming you pay $16.95 per month for your chequing account, then you’ve spent more than $1,000 over a 5-year period. Yes, TD charges 16.95/month for a chequing account with unlimited debit transactions; BMO charges $15.95/month, RBC charges $30/month (barf!), and Scotiabank charges $30.95/month (double barf!).
$16.95/month x 12 months x 5 years = $1,017. That’s without accounting for inflation, interest, increases in banking fees, e-transfer fees, or other ridiculous ways big banks take your hard-earned money. That’s just for one account.
I’ll ask you again: Is your bank providing you with more than $1,000 worth of joy over a 5-year period?
7. Lastly, We All Make Mistakes – Forgive Yourselves When It Happens
Financial habits are like eating habits. Sometimes you’re doing well sticking to your good habits, other times you find yourself stuffing your face with golden Oreos. It happens.
If you’ve gone through a phase of overspending (like Steve and I have from time to time), forgive yourselves and then tighten your metaphorical belts for a few months until you can clean up your credit cards and get your savings back on track.
Steve and I often over-spend around the holidays and while on vacation. We don’t beat ourselves up over it – we just go into “fix it” mode. Our solution is usually to borrow from our general savings account to pay off our credit cards in full (never borrowing from retirement savings), then we go on a Costco detox (i.e. we stop going to Costco every week – please don’t judge us), and we start to cook at home more often rather than eating out. After a month or two of this, we’re usually able to replenish our savings and go back to eating out and shopping at the Costco.
Do something small.
If you want to make some changes to your financial management, you don’t need to make a meal of it. Just do something small. Set up a small bi-weekly automatic transfer into your savings account. Think more critically about your purchases. Sign up for pre-authorized payment for your hydro bill. Check to see how much you pay each month for banking.
See how it goes. Adjust as necessary.
YOU KNOW THE DRILL
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Do you have any money management tips or topics you’d like to hear more about? The original draft of this post was 19 pages long (single-spaced), so I’d love to hear from you! Please email me (email@example.com) or share in the comments below!
Until next time, happy spending!