His, hers, ours, yours, mine, ours:  Whose money is it anyway?

Never mind questions about estate planning, more couples end up in my office arguing over spending money than anything else. Usually, it’s because there wasn’t a plan—a mutual understanding or verbal agreement about how to manage finances that makes you both comfortable. If you don’t have one, you need one.

Here are two approaches I find ease anxiety and misunderstanding: 

The “we” approach
Money earned, no matter who earns it—one person or both—goes into one, shared bank account. A budget is drafted together and followed. Anything left over at the end of the month above a set amount gets moved to a savings account called the “Slush Fund.” When emergencies or unexpected needs arise, the Slush Fund pays the expense. (We’ll tackle how to set up a cash flow and address differences between partners in WHAT to spend money on next month.)

This method works well when one partner is not working outside of the house. It’s very “we” oriented—the money earned by one or both partners is viewed as THEIRS, not his or hers.  

The “ours” approach
In cases where both spouses work or one partner earns significantly more than the other, many opt for the “ours approach.”

Once again a budget is drafted together, labeled OURS, to include everything conceivable that is spent—fixed expenses such as the mortgage payment, real estate taxes, household and auto insurance, and variable expenses such as food, utilities, and entertainment. It also includes a monthly deposit to the Slush Fund. 

Next, the budget is split in two, with each partner responsible for specific expenses, divided logically: One partner typically pays for things like food, clothing, children’s supplies and recreation, while the other pays the household expenses like gas and water.

What if someone makes a lot more than the other? The bigger earner should deposit a set amount of money each month into the other person's checking account. That partner is then responsible for managing that account, and can keep the leftovers. Shortfalls must be discussed long before bills are due to decide where the money will come from to pay the expense—from the Slush Fund or a larger deposit from the bigger earner. 

This approach works well for awhile, especially at the beginning of a partnership, though many eventually move to the "we" approach with time.

Financial fitness
Mutual buy-in to the process is crucial or neither approach will work. Also the Slush Fund is key, as it will prevent arguments, help you sleep through the night, and provide a way to build up cash that can eventually be invested. 

Setting up the Slush Fund: Try to deposit about three months of after-tax living expenses into an interest-bearing money market. If you can’t deposit that much, put in as much as you can. Knowing you have this extra cash for emergencies and fun will give you peace of mind and less emotional strain tied to money.

Questions? Post one!

*--Sherry B. Delo, Certified Financial Planner in St. Louis, Mo., has practiced for 21 years. Sherry specializes in financial planning for families, often working with three generations within a family. She designed and developed New Life Planning© for divorced women to help them learn about, fully understand and manage their own personal finances. She also has written and designed planning programs for the 20-something age-group, helping young families learn how to budget, save and plan for their children’s college educations and for their personal retirements. Across this spectrum of clients, she is continuously asked by women what they can read or study to understand how to control and manage money. She is a frequent speaker on how to plan for and handle the receipt of large sums of money, and on what young people can do very early to build a strong financial foundation for themselves. She's also our mom :)