Not all couples should combine their finances in a joint bank account. Figure out what financial arrangement best suits your needs.
Your partner wants to open a joint account. You are not keen on the idea and cannot understand why she insists on it. Your own parents did fine without a joint account!
You are not alone. Couples often prefer to manage their money like how their parents did. However, your unique situation may require a style different from your parents'.
Here are three basic ways of managing couple finances:
1) To Each His Own
Each of you handles personal finances in separate accounts.
Barry is a widower whose ex-wife had cancer. To pay for her medical expenses, Barry depleted his savings, borrowed heavily on his credit cards, and took personal loans. While paying off his debts, he enters into a new relationship with Iris. They want to buy a property together.
However, Barry might be unable to take any loan, having maxed out his borrowing facilities. Barry and Iris keep their finances separate until his finances become healthier.
This also works when:
- One of you has finances that are much more complex than the other, eg with multiple sources of income;
- One of you has secrets to hide;
- Mutual trust is lacking;
- Both of you spend money very differently or are unsure of your long-term commitment to each other
What you need:
- Simple financial planning;
- Sophisticated estate planning, due to individually owned assets
2) What's Mine Is Yours
Combine all finances in joint accounts.
Young adults Harry and Gwen have been dating for years. They have similar personalities, hobbies, and life goals. They do almost everything together. Each cares deeply for the other's family. As they make similar financial decisions, they decide to combine their resources in a single account.
This works when you and your partner:
- Want to seal your long-term commitment to each other;
- Have shared hobbies, combined financial goals, and straightforward finances;
- Are close to your families;
- Have mutual trust
What it requires:
- Sophisticated financial planning;
- Simple estate planning with joint ownership of assets;
- Open communication about each other's spending
3) You're My Equal
Each person owns an account and contributes equally to a joint account.
In Diana's family, the women are strong-willed. In Steve's family, men make the decisions. Unable to agree on their money management, Diana and Steve hold separate accounts. However, they need to pay for their house and daily household needs. They pay for these expenses from a joint account to which they contribute equally.
This works when you and your partner have:
- Some combined financial goals, but want some independence;
- Roughly the same income;
- Moved in together and have shared household expenses or shared savings goals
What it requires:
- Complex financial planning and estate planning
It's up to you
You and your partner have to decide which method best suits your preferences and situation. You do not have to stick with one way all the way, because situations change.
In addition, seek the advice of a holistic financial planner to optimise your assets as a couple.