Managing the Finances of a Two-Income Household

Before I got married, I had been warned that money was the root cause of many marital disagreements. My wife and I hoped that we would be exempt from this trend, noting our comfortable individual salaries and modest tastes. Each of us is good with money and we had no problem agreeing to share it 100% from day one. But we didn't realize that merely sharing money with your spouse, even without financial difficulties, can sometimes prove to be a challenge.

So what's so hard about sharing money with another person? If you can each afford the things you want on your own, how does bringing in another person with his or her own income affect this? I can tell you from experience that joint checking accounts will sometimes test you. In a couple that carefully manages their finances, one may feel controlled by the other, like he or she can't spend a dollar without first asking the other. Or a person risks being sneaky by making a large purchase without a spousal consultation.

Sentiments of control or sneakiness can also be amplified by factors outside of spending, like differences in salary, the number of hours worked each week, or even the amount of chores that one does around the house. If a wife makes more money than her husband, she might feel entitled to spend more than him. Or if she feels like she does more around the house than her husband, she should be able to splurge without first consulting him because, hey -- she earned it. On the other side, the husband, though he makes less money than his wife, might work more hours than she does in a given week. Therefore, he justifies spending money on an expensive leisure item -- maybe a boat or a case of expensive beer.

When we are single, we choose to reward ourselves for varying reasons. We might reward ourselves for something big, like getting a high-paying job, or for something smaller, like finishing a long 60-hour week at the office. These are habits that we probably developed as bachelors and bachelorettes and it's easy for them to be part of the package when we promise to have and to hold and till death-do-us-part. But once you're married and have checks with both of your names on them, it's easy to disagree with the other's spending habits. The good news is that there are a couple of simple things you can do to help ease the transition.

#1 - Talk about money regularly, but only at established intervals
If your wife comes home from the mall with an armload of shopping bags or your husband walks in the door with leftovers from Outback, it's easy to call him or her out on it. "Hey, didn't you just buy new clothes?" or "Hey, isn't steak a little out of our budget?" The opportunities to micro-manage your partner's spending are limitless, but they should be avoided because they can give the impression that you're being controlling.

What I suggest is this: Only review your budget and spending at established periods -- be they weekly, bi-weekly, or monthly -- and not in-between. As you know, I am a huge proponent of using free online personal finance tools, such as Mint.com. Mint has a feature that will email you every Friday with your account balances and month-to-date adherence to your budget. And it gives you the option to send the message to two email addresses. So each period, you and your spouse should look at those items together and note any flags. "Hey, we're way over budget on restaurants this month -- we should start eating in more," or "I've already spent $300 on clothing this month. Maybe I should hold off on another shopping spree for a while." These regular reviews will help prevent micro-management of each others' spending while allowing the two of you to stay on top of your finances as a whole.

#2 - Establish a $100 rule
Call it whatever you want to call it -- the $50 rule, the $100 rule, or the $500 rule. Establish a spending threshold that will constitute a required consultation with your partner. If you have a $100 rule, any time one person is going to spend more than $100 on anything, the other needs to be consulted. You can bypass this by setting up spending limits for trips. For example: "When you're in Pittsburgh, don't spend more than $200." Again, this is a rule to help alleviate sentiments of one controlling the other's spending while ensuring that the couple's financial goals are on track.

It's easy to have be critical of your partner's spending -- especially if you do more around the house, work longer hours, make more money, etc. But if you two have decided to pool your green, forgive the expression, but you'll have to put your money with your mouth is. Check your grievances at the door and manage your finances as an individual with two jobs. Play nice, don't micro-manage, and consult one another on large purchases. Active or passive aggressiveness won't cut it.

How do you and your significant other share finances?

How to Spot Your Family and Friends' Financial Troubles

I'm proud of my audience. I really am. Since becoming a regular reader of my posts, I'm sure you've long-since retired and are enjoying the fruits of your pre-retirement frugality on a secluded beach in the Caribbean or on your 40-ft yacht (for which you paid cash, of course). I'm thrilled that you've achieved financial independence, so today I'm going to reward you with a day off and a break from lending advice on your finances.

Now don't get me wrong -- I'm not going to stop talking about finances. But today, instead of talking about yours, I am going to talk about those of your friends and family and how to spot a problem. I'm going to talk about clues: those that indicate current trouble and those that indicate a future fiasco. The way I see it, family and friends are supposed to help each other through hard times and support each other during painful periods. For many, personal finance is a private subject that offers very little transparency for outsiders. Many times you can't detect problems with your eyes, your ears, and your nose, as you can easily do when it comes to identifying substance abuse. Instead, you will rely on your gut -- playing detective and piecing together the clues to support your argument that a problem -- or even crisis -- really exists.

Before you consider whether or not a friend of yours is having financial problems, you'll need to have an original suspicion; we can't investigate and confront everyone (like the nosy neighbor Martha Huber on Desperate Housewives). Many reasonable suspicions will come from a passing statement about credit card debt, the infrequency of pay days, the inability to pay a bill, the inability to save, or something else. Let's look at a few potential flag statements:

• "I have no idea how much credit card debt we have."
  Your friend's lack of knowledge of the amount of his credit card debt indicates a detachment from his own finances. Though his personal finances are private and he is unlikely to share his net worth with others, his own accurate view into them is absolutely critical to his financial wellbeing.
  
  
• "I'm just paying the minimums."
  This statement indicates an inability to sacrifice when repaying debt and/or a fundamental misunderstanding of the nature of revolving debt. As I proved in a previous post (the Cost of Credit Card Debt), paying the minimum on a credit card is about the worst financial decision one can make, second only to taking out a payday loan or using cash as kindling. If your friends are paying only the minimums on their credit cards -- especially if they continue to eat out and spend on non-essentials -- it shows that they are in denial of their situation and are likely in need of a friendly nudge to get the ball of debt reduction rolling.
  
  
• "Thank god that my spouse and I are paid on alternating weeks."
  Living paycheck to paycheck is part of being young. When I first graduated from college, it was important for me to analyze my paydays and sync them with my bills' due dates. But as I got older and was able to save a little more, I eventually got to the point where I had an amount equal to one paycheck sitting in my checking account. Once I hit this milestone, life became easier because I didn't need to strategize the days on which I paid my bills. But when you see friends and family in their 40s or 50s worrying about which day of the month they're getting paid, it can indicate a paycheck-to-paycheck lifestyle and therefore, a lack of savings (or at least liquid savings). Assuming he has a moderate salary, that lack of savings might come from excessive minimum payments on loans and credit cards or from current overspending. Additionally, this indicates that your friend struggles with budgeting and planning for expenses that fall far away from payday.
  
  

If your family and friends are quiet and don't give these kinds of clues, you can infer financial troubles in different ways. If you're good at doing math in your head, you may be suspicious of their spending habits if they just don't seem to add up. If you know that your friend has a salary of $30,000 per year, yet you see him going out for lunch every day, driving a new car, living without roommates, wearing expensive clothes, and watching a high-def TV, you can assume that he is living outside of his means. It's not easy to look at someone's lavish lifestyle and automatically assume that they're spending more than they make. But it can certainly be grounds for suspicion and, combined with other clues (like some of the statements above) be a strong indicator of financial trouble. If a friend or family member tries to keep up with the Joneses without having the means of the Jonses, they're setting themselves up for trouble.

So why do people get into financial trouble? Clearly, some are presented with circumstances which are out of their control, like a sudden illness or a layoff in a poor economy. But some get into trouble for other reasons. Here's my theory:

Have you ever heard the principle that a liar will begin to believe his own lies if he tells them enough? Eventually, his lies can be spouted off without guilt or remorse. I think the same concept can be applied to those with preventable financial troubles. The snowball will start to roll when the person initially buys something which he cannot afford. He'll lie to himself about the item's affordability, being well aware that he should walk away and abandon the need for instant gratification. "Oh, it's just a lousy TV. I can afford it," knowing deep down that it's not a good idea. Later, when presented with another opportunity to spend unwisely, the same person will more easily convince himself of the affordability of said unwise purchase, despite contrasting evidence. Eventually, when it's told enough, the lie of affordability becomes second nature and is no longer is perceived as a lie; and that's when it becomes dangerous.

Do you remember the first cigarette you ever smoked and how horrifying that first puff was? It was awful and bitter and burning and easily sworn off. But the second one was a bit more tolerable. And the third became somewhat enjoyable. Over time, you developed a habit and never looked back at how terrible that first drag was. On day one, your body was trying to tell you something. You knew it was bad for your health, but you found a reason to do it anyway, probably related to high school popularity (keeping up with the Jonses) or the relief of stress (instant gratification). Whatever cookie-cutter excuse you came up with on that first day, you used it again and again until you didn't need to excuse yourself any longer. Non-smokers, please forgive this example, but I hope you get my point.

I certainly don't condone sniffing into the business of others. Personal finance is often a taboo subject among friends and family and a confrontation can affect a person's sense of independence and pride. However, depending on the situation, financial troubles on their part may result in a bailout on your part. Depending on the size and nature of the debt, what was once their problem may eventually become your problem. The way I see it, family money is family money. The benefits and the detriments to one member most certainly have the ability to benefit or detriment another. In other words, though it may not be your business today, it may become your business tomorrow.

I welcome anonymous comments about the financial stuggles of your friends and family.