Yours, mine, and ours – family finance
Have you seen the 1968 movie “Yours, Mine and Ours” starring Henry Fonda and Lucille Ball? I love it. It’s so hilarious.
The 2005 movie “Yours, Mine & Ours” is a remake. It was played by Dennis Quaid and Rene Russo. It’s good, too, with kind of modern flavor.
It talked about a blended family. The guy had 10 children, and the gal had 8 children. They fell in love, got married, and added their own baby – the 19th kid into the family. It was fun to watch how the couple ran that large family with chaos and order.
The title of that movie reminds me of the family finance. When two people decide to live together, and become a family, financially that’s a similar case. Each person brings his/her own assets/debts into the relationship. And they are going to have some joint assets/debts as well.
How do people handle the finance as a couple or partners? It’s not that easy, right? Here are the 3 approaches I saw often:
Approach #1: One Big Pot:
For some families, they may decide to mingle everything together: yours is mine, and mine is yours. I call it One Big Pot. Everything is owned jointly. All the income goes to the join accounts, and every penny of expense comes from the joint account, too.
The up side is the transparency (supposedly). For better or worse, the two are tied and stuck together. What’s the point of having separate accounts? They know exactly where the money comes, and where the money goes to (if they keep track of them).
The down side is obvious: personal freedom is restricted. You are free to make money, but not free to spend money. Sorry, approval is required, sort of. If the two persons are not on the same page financially, this could lead to a lot of fights about money. Peace would become a fantasy.
Approach #2: One big joint pot, and two small separate pots:
Some families may choose to combine most of the assets and debts. But each keeps his/her separate accounts for discretionary spending.
In this way, the big and joint expenses are taken care of by the couple together, like mortgages, taxes, health care, child expenses, house maintenance, cars, grocery, utility, travel, retirement saving/investing, etc.
Each person gets the freedom about using the small separate accounts and separate credit cards. You can buy anything you want to, no questions asked.
This arrangement is not too bad, if the two people are on the same page. The high priority items are worked out together, while each gets the room to breathe, without driving the other nuts.
Approach #3: One small joint pot, and two big separate pots:
This may sound weird. The joint accounts will handle the joint expenses. Separate accounts are for each person’s saving, investing, etc.
Actually it’s not a horrible solution. It might work well in several scenarios:
- If the two people are totally out of sync financially. One could be a religious saver, while the other is a big spender. There is no way for one to change the other. Good luck! The only way to come to peace is to manage majority of the money separately.
- In terms of investment risks, one is very conservative, while the other is very aggressive. In that case, it’s not a bad idea for each to invest on their own.
- If the family is blended one: he had kids, and she had kids. This money arrangement might work better for them, in order to reduce the potential conflicts related to kids’ expenses. If she wants to send her kids to the private college, go ahead, as long as she uses her own money. The same case for kids’ cars. If he wants to buy a BMW for his swaggering prince, why not? That’s his money.
No matter which approach you take, there is no right or wrong, as long as it works.
My last point is: make sure you get involved in your family finance:
It’s okay if one person takes the primary role of handling the finance, but make sure the other is involved as well. Here are some examples of the conversations:
- Which bank do we have the mortgage with? What is the rate? Fixed or variable? 15-year or 30-year? When can we pay off the mortgage? Any Home Equity Line of Credit account?
- Which banks do we have credit cards with? Any balance we are carrying each month? If yes, what interest rate? When to pay off?
- Which banks do we have car loans with, if any? What is the interest rate? When can we pay off?
- The biggest and most important question is: where and how is our money being invested? How much are we investing each year, before-tax accounts, and after-tax accounts? How have they been performing so far? For each fund, what is the Management Expense Ratio (MER)? Is it too high?
I know some folks don’t like to get involved in the money management. But, my friends, you have to. Life happens sometimes in a way we don’t like to see, like divorce, loss of our loved ones, etc. You got to make sure you and your spouse or partner are being protected.
Dear readers, which approach do you like? Did I miss anything? Is there the 4th approach to handle the family finance?