Money, your life partner and common values

By Bob Peters || September 23, 2022

Going it Alone, Going it Together

I know many adults who are not married or are in a long-term committed relationship with a life partner.  For these folks, being financially literate, learning how to live within their means, investing wisely are largely within their control.  Their decisions on how much they want to consume today vs save for tomorrow are up to them.  Going it Alone (no life partner) has the benefit of simplicity when it comes to financial decision making, albeit covering Basic Needs is more difficult without a partner to share common expenses such as housing.

On the other hand, Going it Together introduces a whole host of obvious and less-than-obvious challenges.  You and your partner will benefit if you can find a common vision for your future including money.  Financial troubles, poor communication, differing views on “expectations”, lack of equality are often referred to the reason marriages end in divorce.

Arriving with your baggage…dig deeper into your “financial” bag

When you and your partner decide to tie the knot you both bring financial baggage.  Inside of that financial bag includes not only a snap shot of what you own and what you owe (your balance sheet) and what you earn and what you spend (your income statement) but also items that are much harder to see but are important to share.  Let’s dig deeper into the financial bag and see what we find.

Family, fears, expectations, dreams

Your upbringing is a very big influencer on how you think about money.  Here are just a few questions you might consider talking about with a prospective life partner…the earlier the better:

Did you ever see your parents argue about money?

Did you experience insecurity because of your family circumstances where Basic Needs were not covered?

Did you grow up in a family where there were no apparent concerns to cover Basic Needs and Wants?

Did your parents or other close relatives experience the trauma of bankruptcy or homelessness?

Did your parents talk about money, deferred gratification and the importance of saving and investing each month?

Would you like to pay for your kids’ private school or post-secondary education?

Do you dream of doing international travel?

Do you dream of having a vacation property or would you rather travel?

Would you like to volunteer or pursue a career that has modest earnings potential?

Do you want to have children?

If so, do you and your partner agree on whether both parents will work full time?

Do you desire to build up your net worth (aka wealth) to a point where you will have more time and less need to earn money from a job?  If so, at what age would you like to have more time?

Would you like to own a home?  If so, what lifestyle compromises would you consider cutting back on in order to fund the downpayment, furnish and maintain your home?

Is it likely that you will need or want to financially support an elderly parent?

How does your view of risk impact your decision-making process on job, education, career, employment, investing, recreational activities?

Do you have health issues that may lead to a shorter life or where you will likely experience high medical costs?

Do you come from a family where parents and grandparents lived long lives?

Combining Finances or keeping separate accounts

You and your life partner come from different places and it’s important to understand each of your fears, expectations, dreams.  The answers to these (and many more) questions have emotions tied to them.  I encourage you to ask each other these questions, hear the answers but really listen for the emotion behind the answers.

I don’t believe I can tell you what is right for you and your partner.  It’s really up to the two of you to decide but having a conversation about the questions above with the person you feel is likely to be your life partner is, in my opinion, very important and will help build confidence and trust.

Sharing my personal experience

When Jenny and I dated we were both sharing an apartment with other roommates.  After a period of time we moved in together thinking we would marry.  We soon got engaged and decided to buy a home together about seven months prior to our wedding.  The home was owned by each of us in “joint tenancy with the right of survivorship” rather than jointly as a married couple.  My memory is a bit foggy but I believe we each agreed to pay half of the mortgage payment.  We worked at the same company and our compensation was somewhat similar.

After we got married we consolidated both of our paychecks to be deposited into one account that was driven by a desire to simplify our lives by not needing to manage two accounts.  At the time I don’t recall having a philosophical conversation on the “big picture” of separate or joint accounts; it was just what we thought made life easier to manage.

Both of us had our base pay that was paid twice per month as well as variable pay (aka bonuses or commissions) that was paid annually.  We both decided that we would not live a lifestyle that depended on a variable compensation payout.  Variable compensation can be very volatile…some years we might have received very little and other years we might have received 50% of our base compensation.  In retrospect, we made a very good decision not to rely on our variable compensation when we thought about what we could budget each month.

Let’s look at some numbers to illustrate the point.  Say we earned $5,000 month in our base pay that equates to $60,000/year.  If assuming our variable compensation equaled 25% of our base pay we could have assumed that $1,250/month was available to include in our budget (25% of $60,000 divided by 12 equals $1,250/month).  Because we knew that variable comp was subject to “bad years” where we did not hit our goals OR the company had a hardship and cut back variable compensation, we always chose not to include any variable compensation into our lifestyle.

Many jobs, particularly hourly jobs, do not have variable compensation.  My blog post, It Is Important To Have A Conversation With Your Older Self, tells a story of two young bankers that illustrates this concept of variable compensation using real world people.  If your base pay is not sufficient to cover all of your Basic Needs and Invest Wisely you need to take a look at whether you can reduce your expenses.  If not, then increasing earnings either through increased education, changing careers or taking a side job may be a necessary path to achieve Financial Security.

Here is where family background comes into play

Five years after we walked the isle together Jenny became pregnant.  Here is where a bit of family background comes into play.  I had come from a family where my mother left the workforce to take on the responsibilities of raising me and doing the heavy lifting on the daily decisions of managing life for the family.  My observation was that my parents were happy with this arrangement and life, in my eyes, was pretty darn good.  Jenny, came from a different background where she saw her mother pursue a working career.  We both came from different backgrounds.  There is no right or wrong but every person comes from a different background and differences matter.

A decision to have a stay-at-home parent

We agreed that we wanted to have the “option” of having one of us stay home to raise our kids.  As the years before pregnancy moved on we continued to live off our base salary and, as our base pay increased, we tried to maintain our expenses within one salary.  After five years we thought we could pay for our living costs on one salary (not including variable compensation bonus) but were still not sure we wanted to have one parent stay home if we were fortunate enough to have a child. We wanted the option even though we were not sure what we wanted to do from a work-parenting perspective.

Baby on the way

Just shy of six years after marriage our daughter was born.  After taking maternity leave (and paternity leave which was a very new concept back in the mid 90’s) we both went back to work.  We decided to have day care near where Jenny worked and mom and daughter hit the commuter lane on the freeway each morning and night.  It was a crazy time, Jenny and I each commuted about 30 miles to our respective offices in different cities.  The careers were demanding and our daughter was having chronic ear infections in day care which, probably served her well to build a robust immune system but, was not easy to deal with on a day-to-day basis.

“Options” are great things

After a year of hectic lives and child health concerns we decided to take the “option” we had secured.  This option was our ability to live off one base paycheck and not rely on our variable compensation.  Our budget would allow us to live a modest life without much discretionary spending on “Wants.”  I think that worked well because we were so consumed with our new, expanded family, and babies don’t ask for material things so no pressure from that direction…although formula, diapers, clothes, etc. do add to the budget line items.  While babies may not ask for material things having children is expensive.  Note to self.  Children are priceless but expensive!  Check out the link to the USDA which has been tracking the cost of raising a child in America since 1960.  Actual costs will differ depending on your personal circumstances but note that these numbers increase over time.

A key part of how it worked is that my pay increased

While there are no guarantees in life we assumed that my base pay would continue to grow beyond the rate of inflation.  This assumption was based on the current and future job responsibilites and industry considerations.

When my variable compensation came each year we generally used about 25% to pay for a vacation, larger purchases like furniture or building a car fund and the 75% we would put towards kids college and retirement.  From year-to-year the variable compensation changed but it never really changed our lifestyle.  This made it much easier to build long term financial security without feeling like we were struggling with a monthly budget.

Let’s go back to Going it Together and some of the emotions

Because we had one account, we both saw the money going in and going out each month.  There was total transparency and neither of us had an allowance or independent account.  I’ve known very happy couples who have had separate accounts and they have worked out what amount that they feel that each of them can spend as they wish after covering their collective priorities (housing, food, transportation, retirement, etc.)

In our case, we both saw all spending.  Not to say that this was always easy because there were times where we initially disagreed on what the spending priority should be but we found a way to find common ground on what we wanted in the short and long term.

Stay-at-home emotions

When you leave the workforce to be a primary caregiver and raise a family you give away a lot more than the monthly paycheck.  You give away future paychecks that could have increased if you had stayed in a career path.  You give away, to varying degrees, your employability since many employers require current work experience.  You give away a sense of independence and feel increased vulnerability if you and your partner were to drift apart.

Intellectual rigor associated with working with adults can be reduced or eliminated.  Your social group, that is often associated with your co-workers, can shrink.  You may look at your paycheck partner who has social contacts, work related travel and entertainment and feel loss.  There may be a hesitancy or guilt associated with spending money because the partner is not “earning” money.  Kids are not wired to thank parents for what they do every day to keep them safe, fed, clothed and exposed to life in a way that will give them long term growth. Positive reinforcement and appreciation are often few and far between.  Paycheck spouses may not convey appreciation to their partners.  These emotions are real and you can’t ignore them.  Communicate, communicate, communicate.  Asking questions and listening are usually better than talking over your partner and being defensive.

Paycheck spouse emotions

The spouse or partner who continues to earn income also has emotions that are real.  They may feel added pressure of being the sole income producer.  As work stresses grow, the stress of being the sole income producer may grow.  They may long for what seems to be a less stressful stay-at-home role (it is a different stress, not a lesser stress.)  There may be a desire to prioritize spending on what is personally rewarding and there may be feelings that they are entitled to this spending because they “earned the money” (the flipside of hesitancy to spend if you are the partner not earning income.)  These are just a few of the emotions that both paycheck and non-paycheck spouses have to process together.

There may be situations where one spouse earns considerably more than the other spouse but you both decide dual careers is the right decision.  You and your life partner may both need to earn incomes and it will be imperative to split up the familial duties required to keep a household going day-to-day.

No matter

No matter whether you decide to have separate bank accounts or combine them, if you each have an independent slush fund or spend equally out of one account, you will need to get on the same page. Both of you will need to feel good about how you will handle not only the finances but the emotions that go along with Going it Together.

It’s imperative that you trust your partner, understand their fears, wants, goals and build a financial life that supports your collective view of your current and future lives together.  Money is a tool for couples to achieve their life goals. I’ve mentioned in a prior blog a podcaster by the name of Ramit Sethi.  He interviews real couples who have agreed to share their personal struggles with money and financial decision making.  As of this writing, he has over 60 shows.  If you have a life partner or are moving in that direction I would recommend you take a listen to a few of Ramit’s podcasts.  Be warned that Ramit can have an edge from time to time and occasionally uses salty language.

Money is a tool

My junior high woodshop teacher pounded into my brain an appreciation for how to use tools properly and he was quick to call us out if we mishandled tools (and took our privilege away if we dropped the ball on safe handling).  Money is a tool that can help create a pathway to your collective dreams.  If you mishandle it by focusing too much on things associated with Experiential Happiness vs. Reflective Happiness you may find yourself always seeking, unsuccessfully, to find joy, regardless of your earnings.  If you don’t share the use of the tool equally you may find an unhealthy relationship that lacks trust and mutual respect.  If used thoughtfully, money alongside of shared values, can help you and your life partner live a life filled with memories and joy.

Research

I hunted around a bit searching for some academic research that might give some insight into this topic and came across a couple of articles that were published in peer reviewed journals if you have an interest.  The abstracts summarize the papers but you would need to pay a nominal fee to access the full paper.  The first, Pooling finances and relationship satisfaction, Gladstone, Joe J., Gabinsky, Emily N., & Mogliner, Cassie concludes that couples pooling their money (compared to keeping some or all separate) experienced greater relationship satisfaction and were less likely to break up.  The second paper, Predictors of increases in marital distress in newlywed couples: A 3-year prospective longitudinal study, Kurdek, Lawerence A. looked at 310 newlywed couples and concluded that not pooling finances were factors for increased marital stress.

Importantly, it’s not clear that “not pooling” is a cause (causation) or just correlated (correlation) with less marital satisfaction.  In other words, pooling finances may be driven by a higher level of trust in relationships that drives less stress and not the act of pooling finances itself.