Your Money Questions Answered – Part 4

 

Thank you very much for all the ‘money questions’ that you send in. I love to hear from you and I appreciate your contributions because it lets me know exactly what you would like to learn about and ensures that the content on my website is relevant for you! I am at your service after all.

Secondly please read my disclaimer here before you go any further as I would like it to be very clear that I am not a financial advisor or planner. I am an educator and as such anything contained on my website is for information purposes only. Kindly read the disclaimer here.

1. MP from London, UK asked: Please advice how money should be handled in a marriage! I am frustrated with our situation (each man for himself, God for us all) and feel so alone. How do you and your husband handle it?

Lelemba: Firstly I would like to say that I don’t believe that there is just ONE correct way to handle money as a couple or family unit. Secondly how you and your husband ultimately get to manage your family money will be entirely your decision to make. Therefore, I cannot dictate what you “should” do but can only guide you from my own experience when it comes to what has worked for me and Sandras as well as for other couples we have worked with.

A successful family money management system will include (but is not limited to) the following 3 features:

1. Structure:

It is important to discuss and decide HOW money will be managed even before you get married. This is because money can become a very sensitive issue in a marriage. Money and problems related to it are one of the biggest causes of divorces. How you manage money is even more important in a “community of property” marriage because all the assets and liabilities that each person come with into the marriage and accumulates within the marriage also become the responsibility of their partner.

So what are the options for structuring who takes care of what?

–One Shared/Joint Account Only: Some couples we have worked with decided that after getting married they would close their individual accounts and open a single Shared or Joint Account and this is where both their incomes get paid into and from where all their bills (shared and individual) get paid from. Both partners have access to the account and can at any time review the activity that has taken place. The responsibility of managing the account is either given to one partner or is shared.

This structure works well for some people but not for those that still would like to maintain a bit of financial independence. It requires continuous communication between both partners especially when deciding to spend from the account to ensure that no single person’s spending inconveniences the others’ or the family’s financial position as a whole. Admin-wise it is quite easy as everything is handled from one account and both parties can see the activity at any point.

– One Shared/Joint Account whilst still maintaining Individual Accounts: How this works is that the couple decides to have one Shared or Joint Account where all the shared or family bills will be paid from whilst still maintaining their individual accounts for some financial independence. Each partner contributes money into the account on a monthly basis that will go towards joint expenses like rent, groceries, utilities etc.

So how do you decide who contributes how much into the joint account?

i. Add up your shared bills: for example say your shared bills are GBP4000/month

ii. Add up your joint income: for example you earn GBP 3000 and your husband earns GBP 2000. Your total joint income is GBP 5000.

iii. Calculate what percentage of your joint income goes towards shared bills:

In this case GBP 4000/5000 X 100 = 80%

iv. Each party then contributes this percentage of their income into the shared account on a monthly basis:

In this case you will contribute GBP 2400 (80% of your GBP 3000 income) and he will contribute GBP 1600 (80% of his GBP 2000 income).

It is better to calculate each individual’s contribution as a percentage rather than an absolute figure as this is fairer especially in the case where your income levels differ considerably. That way no one party is left at a disadvantage.

– Maintain Individual Accounts and simply decide who will pay which bill: This works in similar fashion to the previous one in that the couple will still calculate the percentage of their joint bills to their total income and each party will pick which expenses they will pay for equivalent to what they would contribute if they had a shared account.

So if we take the example above: you would still pay for shared bills worth GBP 2400 and your husband would still pay for shared bills worth GBP 1600 from your respective accounts. This simply minimises the admin of managing a third account.

2. Transparency and Communication: I cannot stress enough how important these are to a successful family money management system. It is even more important in a ‘community of property marriage’ because as I said the assets and liabilities accumulated by each individual automatically become the responsibility of the other party too. Many a times we have worked with couples who are in financial distress because one of them was not communicating what they were ‘investing’ money into and it led to financial trouble for the whole family. It is important to communicate your financial activities to your partner and to have complete financial transparency between you so that at any point in time each of you know what you own and what you owe. This way there are no ‘surprises’ in cases where an investment goes wrong or even worse, should death occur.

3. Disclosure and Mutual Agreement: Disclosing your financial position before getting married is very important. This way you can both make an educated decision whether to get married in community of property or get some prenuptial agreement signed if need be.

This disclosure should continue into the marriage and concerns anything financial be it an increase or decrease in salary, a decision to save or invest into a particular investment vehicle, charitable donations or even seemingly small things like ‘lending a few bucks to a friend’! This is because these activities will have an impact on your family’s resources be it negative or positive and you both need to be aware of the risks or rewards related to the decision.

Mutual agreement on money matters is also of equal importance. This is because when you are married money matters stop being ‘just about you’ as the individual and are now about the unit that you create. You take on a different kind of responsibility that extends just beyond yourself and once you add children to the equation it widens the responsibility further. It is therefore important to have mutual agreement on decisions surrounding money.

How do Sandras and I manage our money?

Before getting married – We got married fairly young (I was 25 and he was 27) and so didn’t have that many assets to our names apart from some paper assets (stocks and unit trusts) and budding businesses. We sold most of the paper assets to fund our wedding and decided to get married in community of property and build together. We also disclosed our financial positions very early into the relationship (maybe 3 months into it) and so we knew how much each of us earned, how much we owed in loans and what we had saved etc and could therefore decide from the outset what kind of wedding we would have or could afford, where we would live when we got married, which business we would concentrate on etc.

Our Structure – We decided to keep our individual accounts because maintaining some financial independence and identity is important to both of us. We have split our shared bills and decided who will pay which bill in advance (method 3) and so there is little discussion on bills ‘at the month end’. The percentage aspect also works well for us – whoever is earning more at the time pays more bills!

We chose not to maintain a separate account for bills just to avoid the admin. We also maintain some individual investment accounts because despite being married, we are individuals who do sometimes get interested in different investment vehicles (e.g. he is interested in Penny Shares and I am interested in Gold and Silver) and we respect those differences and allow room for that.

We do however have savings and investment accounts for the family trust (shared), are equal shareholders in SLi and own percentages in each others ‘other businesses.’ We also have a policy for how to handle extra/unexpected/windfall income which makes things predictable and leaves little room for unnecessary ‘squandering of money’ (refer to question 3 in Your Money Questions Answered – Part 3 here).

NOTE: I must mention that we didn’t come to this structure overnight and had tried several methods before settling into this. And this is working for us.

Transparency and Communication – We maintain the transparency by having access to each other’s accounts and even ‘bail each other out financially’ when necessary. We also discuss our financial position at least once a month.

Disclosure and Mutual Agreement – We disclose our financial decisions to each other as far as possible even those to do with our separate individual investments because if anything were to happen to either of us, that responsibility would fall on the other party. When it comes to decisions that affect the family or business then we both have to agree on it before taking any action.

So this is working for us. And I would suggest that you sit down with your partner and work out what you think would suit you best and take it from there. Goodluck!