In March of this year I wrote an article titled Work Together which speaks about how married couples can optimize their financial lives through combining their personal finances. As I think about and prepare for my wedding this weekend, this is the topic that continues to come to the top of my mind to write about. Not only that, but one of my favorite podcasts published an episode around this topic as well. When I was gathering my ideas, I remembered that this is something I’ve written about before, but I didn’t realize how recently it had been. So, since this is top of mind for me this week, I thought I’d repost the article from March with some additional commentary.
As a financial planner, I often come across couples where one spouse knows pretty much everything about the household personal finances and one spouse knows pretty much nothing. To me, this is no way to treat personal finances in a marriage. What if the spouse who’s in the know becomes incapacitated or passes away? Both people need to be in the loop and it’s the responsibility of both to be involved. I think it’s especially important for the financial spouse to make sure that the non-financial spouse understands what’s going on and is encouraged to participate.
Working together as a couple and combining your personal finances can have many benefits. Not only will it ensure that both spouses are involved and aware of what’s going on, but it was help to make sure that both spouses understand and work towards the same goals without accidently sabotaging them. A shared vision creates efficiency and a stronger backbone to a financial situation.
Additionally, there are efficiencies and benefits of investing as a household, rather than individuals, budgeting or cash flow planning together, maximizing employee benefits, maximizing savings options based on the types of employer-provided retirement plans available and the underlying investment choices, and developing a mutual understanding of what you want to happen to your money, yourselves, and your children if you pass away. This isn’t an exhaustive list, but I see these as some pretty compelling reasons for married couples to combine their personal finances and commit to working together just as they’ve committed to each other for life.
Here’s what I wrote in March:
I think that financial planning should be seen as a team sport rather than an individual sport. It’s less like swimming or running or bicycling and more like basketball (the best sport – you can quit reading now if you disagree). Yes, you can have a superstar like Michael Jordan or LeBron James who can do a ton and maybe even carry the team to the championship, but ultimately you need a team that works together towards achieving a common goal to make all of the right plays and all of the right moves at the right times to be successful. A superstar can do amazing things on the court, but they can’t even shoot the ball without someone there to pass it to them from out-of-bounds.
“Talent wins games, but teamwork and intelligence wins championships.” – Michael Jordan
Optimize Your Financial Life
People differ in their opinions as to whether couples should combine their finances. If they’re not married, then I don’t think that a couple should combine their finances simply due the consequences of what could happen if they were to break up. Financial matters in a divorce can get pretty ugly the way it is with the laws there to protect each party. I’m not an attorney, but I assume there are even less legal protections if your finances are combined and you split up before you’re married.
On the other hand, there are couples who have been married for decades who still treat their finances separately. From my experience, I have realized that this often leads to not optimizing their financial lives. Obviously, this is a very personal preference and can be different from couple to couple. If you’re making smart decisions and being intentional with your finances, then combining them is usually more beneficial than keeping them separate. Not only does it force each person to be aware of the other’s financial situation and spending habits, but it makes things simpler.
Having all of your accounts in one place and investing your money as a household rather than two individuals can lead to quite a bit of efficiency, and likely better portfolio construction, which hopefully leads to better outcomes. If you have all of your assets in a 401(k) and your spouse has all of theirs in a Roth IRA, then it’s not optimal to invest in the same asset classes in each account. You can create a ton of tax-efficiency by grouping all of your investment accounts together and investing them as a household instead of looking at each account individually and investing them all the exact same way. You can’t guarantee the rate of return on your investments, so why not make them as tax-efficient as possible? Most people would rather have more money in their pocket than have to pay taxes.
Joint Cash Flow
Cash flow is one of the biggest factors that can make or break your financial plan. Do you live below your means? Do you spend more than you make? Do you know where your money goes?
Having a joint bank account can make it much easier to track spending and maintain a budget than having separate accounts, especially if those separate accounts are at different banks. Not only can a joint account help you to better track your cash flow, but it can also help you to hold each other accountable. Unless you have your partner’s login information to their bank account and login often, you may never know where their money goes and how much they spend. It’s a lot easier to login to one account and see the money coming in and going out for both you and your spouse than it is to have to have to login to multiple accounts.
Work As A Team
Treating your finances as joint isn’t enough; both partners need to be on board. There’s probably one financial partner and one non-financial partner in your relationship. If the non-financial partner isn’t on board with being serious about creating (or bettering) a good financial situation for the team and they aren’t interested in the goals that you have for your financial life together, then they could easily unintentionally wreck the situation.
Here are some things that you can work towards to have a successful combined financial life:
- Set goals for what you BOTH want your financial resources to accomplish for you (your goals may not be the same and you may have to compromise)
- Have frequent meetings to review your financial situation, identify opportunities to improve, and track your progress towards your goals
- Create a joint budget that includes all income and all expenses for both people
- Create a net worth statement that includes all assets and liabilities for both people
- Setup a joint bank account (some people like to have a joint savings and separate checking accounts for spending/fun money)
Couples who combine their personal finances can enjoy the benefits of creating efficiency in their financial lives and making sure that both people are successfully working towards common goals without sabotaging the greater good, hopefully resulting in a more successful outcome in a shorter amount of time than if each acted individually.
