Simplify budgeting with personal money

by Philip Brewer on 1 June 2009 18 comments
Photo: Philip Brewer

Many couples keep their finances partially (or even completely) separate. One big reason is that spending joint money on individual expenses can lead to disputes, and keeping separate accounts can reduce that. There is, however, another reason to keep some amount of personal money: Simplifying budgeting.

Lots of couples merge their finances to some extent. From completely merged to completely separate, you'll find someone at every point along the way--for example, joint accounts for handing certain joint expenses, but not others. As far as I'm concerned, anything that works for you is fine, and I don't much want to advocate that any point along that spectrum is better than any other (especially with regard to dispute avoidance).

Having said that, I think keeping a certain amount of personal money in personal accounts can simplify budgeting.

Once you get past the big budget categories (taxes, housing, groceries, medical, transportation, utilities), what's left are a bunch of smallish categories that can end up being very fiddly to deal with properly. Does going to a pottery class count as education or entertainment? Does a toothbrush count as household, grocery, or medical? What category do sheets and towels go in?

If you've got a working budget, you've probably answered all those questions already--but you probably also have stumbled over some expense, somewhere along the line, that doesn't seem to have an obvious category. Especially problematic are unusual expenses that are rare enough that they don't have their own budget line item, but large enough that you really can't just shove them in "miscellaneous" and leave it at that.

For example, I just went to an Esperanto conference. What budget category does that belong in? Education? Travel? Vacation? Entertainment?

It was within driving distance so the travel expense was modest, and the conference fee itself was quite reasonable, but the hotel costs added up (even though I shared a room with my brother). It was enough money that it couldn't just be ignored, but it wasn't obvious what category to put it in--which worked out fine, because I paid for it out of my own personal money.

By creating personal accounts and allocating a certain amount of money to them, my wife and I greatly simplified our budget. For example, we don't budget any money for books or magazines--we buy what we want with our own personal money. We don't budget for meals out, except for entertaining guests. (Meals out with just the two of us, one or the other of us pays with personal money.) Personal money also covers things like hobby tools and supplies, premium booze, and electronic gadgets.

We could budget for all those things, but it'd be complicated. Lots of those categories would be small, and they'd also be very inconsistent. (Years go by when we don't buy any electronic gadgets.) By just allocating a lump sum to "personal money" we get the important part taken care of--we know the total amount of spending--but we don't have to fiddle around with details.

Take the idea of personal money all the way, of course, and it's kind of like having no budget at all. I wouldn't recommend that. There's a lot of benefit in having a budget, as a way of keeping your spending in line with your values. But you get a lot of the benefit early--in those first seven or nine categories that eat up eighty percent of your money.

It's a personal decision, of course, but I think the simplicity of leaving a bit of money unallocated--except to be spent on one person's whim--is an overall win.

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Guest's picture
Diana

In our household, I am 100% in charge of paying the bills. I have my credit union set up to do an automatic transfer from his bank account to pay household bills. I notify him when bills come in and how much so he's kept in the loop.

I wholeheartedly believe in separate accounts for the reasons stated above. One downside is neither of us know about each other's spending habits, which speaking for myself, I can get out of control sometimes. But since I pay the bills, I've become much more conscious of how much money I have.

Guest's picture
Chris

While I am un-married, I learned this from one of my married co-workers. They have a house account that pays for mortgage, electricty, food, etc. They also allocate a percentage to savings. What ever is left over in their personal account is there to play with.

The big advantage to this is actually safety. The house account does not have an ATM since they only do bill pay and checks, so having an ATm or visa card number stolen can't happen. They never have to worry about bouncing a rent check.

Guest's picture

Really interesting. Our money problems only started happening when we had a joint bank account, up until that point we managed relatively easily. You lose an element of control when you start sharing your account and I would advise everyone to not do it.

Guest's picture

I agree. I use MS Money to manage our finances and one can quickly became overly involved in the minutia in an attempt to track every penny. And then on the other side of the coin, by tossing most of the stuff into the misc category provides virtually no checks and balances.

There is a happy medium and finding it with a spouse on the subject of money and spending and finances is a very precious and stress relieving achievement.

Guest's picture

As you note, it's important to find what works. We don't even have a budget! My husband hates keeping track of things, so I am 100% in charge of bills etc. I did write out a list of our assets and account numbers for him in case I die. The only danger for him would be if I took off (and took the piece of paper). That did happen to a friend of mine when her marriage broke up.

One problem with separation is that each partner can get into debt separately--or, as happened to a colleague--one can get into debt when the other doesn't want to pay for things.

Finally, I don't think it matters what category you use; it matters that you have a general sense of where your money is going--and if it's going where you want it to go.

Philip Brewer's picture

@frugalscholar:

You're certainly right that what category you put an expense in doesn't matter in the greater scheme of things.  However, I think it does matter, in that what category you think it belongs in will affect how you make certain kinds of decisions.

My favorite examples are including car insurance in the "transportation" category and homeowner's insurance in the "housing" category.  Do that and you see the real costs of car and home ownership.  If instead you have an "insurance" category, you're likely to imagine that cars and houses are cheaper than they are but that insurance is expensive--ideas that could lead you astray if you tried to economize.

I actually wrote a whole post about budget categories called Refactor your budget categories.

Guest's picture
Kathryn

If you and your spouse are fairly level-headed about finances, you can certainly do as you describe. I'm not sure I see how, in the long run, it's any different/better than having "X's personal" and "Y's personal" as two sizable miscellaneous categories in a joint budget/joint accounts. Some things can certainly be hard to categorize, but if you can afford a "Philip personal" account large enough to accommodate your trip, for example, you can just as easily have a big ole "Philip personal" budget category within joint account/budget system.

On the other hand, if money and spending is a hot-button issue for one or both spouses, the personal account may just shift the problem around. In your example of eating-out expenses: a couple without fundamental money conflicts has no problem taking very approximate turns paying for restaurants if they have separate accounts, but the same couple probably wouldn't have problems with restaurant budgets if it were a joint budget. A couple that *does* have fundamental money problems and attempts to circumvent those problems by keeping separate accounts will wind up bickering about whose paid last time, whether the last time was equivalent because it was more or less expensive, and just whose choice was it was to eat out anyhow?

Guest's picture
David

I agree that it's important to have personal money. I think it helps avoid arguments over small things, and helps keep a sense of independence which is important in any relationship.

What I do with my wife - and this takes some trust - is we do not have shared accounts (we do list each other on our accounts in case of an emergency, but we do not share accounts other than that).

We split up the bills, expenses, saving, etc... in a way that is fair and proportionate to our income. After that? We use our money as we please, and don't have to explain/justify our spending, as we're taking care of all of our needs.

This works well in our relationship as I'm an obsessive numbers type, and my wife gets easily stressed and overwhelmed by money.

With seperate accounts, I can budget my money to my heart's content without stressing her out. And as long as she takes care of her part of the bills, she doesn't have to stress or feel guilty if she buys a few things here or there.

This situation won't work for everyone, especially if either person is prone to using credit cards to spend beyond their means. But if you maintain a high level of trust and communication, having completely seperate accounts can be a good way to avoid unnescessary arguments and stress.

Guest's picture

I agree in having separate accounts. In my case i managed several accounts at the same time evne though they were all separate. I found it best because i could see exactly where things were going instead all of it being mixed together confusing when and what was causing the withdraws.

Kelly
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Guest's picture
Rosa

@Kathryn - i think the couple with a restaurant problem might do really well with separate "spending money" accounts, especially if there is a third, joint account for paying important bills.

Psychologically, it's a different feeling to look at your checking account and see $4,000 there, even knowing $3000 is bills due this month and $500 is your partner's spending money, vs. seeing $500 in your spending money account. It is a lot harder for some people to spend from the $500 account. Also, if you don't carry an ATM card or checkbook for the bill paying account, you can't accidentally make it overdraft.

My partner and I have *way* different standards for what it is appropriate to spend money on. We would fight all the time if we didn't have separate accounts. Now we only fight over purchases $200 or more (our agreement for "discuss before buying")

Also, we each put half of what we earn into the joint account, so the bills are split according to what we make instead of 50/50. We have pretty big income disparity (especially since we had a child) so that seems a lot more fair.

Guest's picture
Guest

Once kids come into the mix it becomes more complicated, especially if one stops working to care for them. We hash out (now it involves more tweaking than anything else) our yearly budget in Novemeber. It probably has more categories than most, but still includes personal discretionary spending.

A common thread in all the posts is the couple communicates their expectations and solves the problem together.

Philip Brewer's picture

I'm interested to see how many people connect income sources with spending decisions.

I've always taken an alternate view:  My spending is based on my budget.  Where the money comes from has nothing to do with what gets spent or what it gets spent on.  In fact, it doesn't even have much to do with how much gets spent.  (Only to the extent that income changes make the budget unviable.)  I wrote a bit about that in a post called It's all your money.

In my household, all the income goes into our joint account, and most of our budgeted expenses get paid out of that account as well.  However, we transfer a modest amount of money into a pair of different accounts for personal expenses.

We don't really do it for conflict reduction--we're pretty much in accord on money issues--which is why I wasn't really talking about the conflict-reduction issues.  We do it for budget simplicity.  In the budget, spending out of my separate account is just tracked as "Philip's spending," and there's no need to decide in advance how much to allocate to books, how much to magazines, how much to lunches out with friends--or how much to Esperanto conferences.  (Although the Esperanto conference took a big chunk.  I'm going to be buying fewer books and magazines for a while.)

Guest's picture
Alli

When my husband and I got married, having the joint account helped a lot. Because he is a spender while I am a saver, I often found before we were married that I would have to spot him a bit more on rent and such because he began to rely on my paycheck and expect more than it could offer. Knowing that he would only use the joint account to pay for public transit and gas for the car put me at ease.

I did start to bristle, though, when he started charging more and more "business lunches" to the joint account. That, to me, didn't really qualify as a work expense, since there was plenty of food in the house for him to make a lunch, and we have been on a budget while I have been out of work for graduate school.

So, we have benefited from the joint account for household expenses, but it also means we have to keep talking about what really falls under the umbrella of "household expenses". But talking (not arguing or blaming) about money in a marriage is never a bad thing, I think.

Guest's picture
Mandie

We keep only a joint account, but after paying bills/misc we each get an "allowance" for weekly expenses. That way if I decide to save my cash for a couple of weeks to buy new shoes or whatever, it's not something my husband will resent. We both prefer to operate on the "cash system" after paying our bills. We also use Microsoft Money to track expenses. Seperate accounts wouldn't work for us b/c we have children & always have unplanned expenses (like dentist appts, sports registration fees, etc) and who would pay for those things?

Philip Brewer's picture

Yeah, the mechanism of having separate money (cash, additional separate accounts besides joint ones, etc.) is really secondary.  Whatever works for you is fine.

I think the notion of a slush fund is really the central idea, now that I think about it.  Even if you were a single individual with no joint accounts, you could get the same benefit of simplified budgeting with a small slush fund.

At that point the central question is, what's the right size for a slush fund?  Personally, I think it's important that it be rather small--I think budgets are an important tool for aligning your spending with your values, and that a large-enough slush fund eventually amounts to having no budget at all.

A slush fund of $0 is not an unreasonable notion, if you have the inclination to track things so closely.  In fact, I think it's a great idea to do so, at least for a while, if you've never done it before.  (I guarantee that you'll learn things about where your money goes that you'll never learn any other way.)

Once you've operated with a budget, though--once you know where spending gives you good value and where it doesn't--having some amount of slush in your budget offers enough extra simplicity as to generally outweigh any downside in precise allocation.  At least, I think it does for me.

Guest's picture

There is much wisdom in this post. A his, hers, and ours approach to banking leads to family harmony . . .

Guest's picture
mack

Thanks for sharing such great post, according to me budgeting doesn't mean that you have to compromise your needs but it is important for planning financial life. Household Budgeting means to create a planning for the money spending. Build emergency fund, minimize the use of credit card, planning, etc. are the tips for making personal household budgeting. For more details on household budgeting refer http://www.prime-targeting.com/tips-on-personal-household-budgeting/

Guest's picture
Monevator

Interesting post, and makes me realise just how live a subject of sharing my bank accounts with a lifelong partner would be. (I've co-habited with a lovely lady or two before, but we've never shared accounts).

I suppose if legally you've shared all your assets by getting married then it is a little arbitrary to fiddle over personal bank accounts.

On the other hand, I suspect I would set up a joint account to go with my own and my partners accounts, and then direct debit 'the big stuff' into that.

But again, that only works if both partners are working etc.

Perhaps I'm not quite ready for marriage, eh? :)