Should we have a joint bank account?
When a couple gets married or has been in a relationship for several years, it is common to operate out of a joint bank account. So, is this beneficial? Is this the right way to go about things? Is it offensive to tell your partner that you would prefer to keep your accounts separate?
I am about to reveal the answers to each of those questions and tell you the best way to share an account while keeping the peace.
A significant portion of relationship breakdowns can be directly related to disagreements about money and spending habits. In fact, day-to-day arguments about finances between couples are more common than it needs to be.
Is A Joint Bank Account A Good Idea?
This purely depends on your situation. If you have a boyfriend or girlfriend, having a joint bank account is not always a good idea; particularly if you don’t have too many shared expenses. However, if you live together and/or have children together, then a joint bank account may be a good idea.
If you are married, there is a high likelihood that you will share many expenses. Generally, a high level of shared expenses will often give more cause to having a joint account – purely from a simplified financial perspective. Also, once you are married, all assets, regardless of who ‘owns’ them or whose name they are in, are generally considered ‘marital assets’ and by law will be effectively owned by both of you anyway.
In saying this, the most important thing to consider when determining if it’s better to have a joint bank account is that you and your partner are on the same page financially.
- Do you share similar spending habits on a daily basis?
- Do you have the same respect for money as each other?
- Have you spoken about the things that you would like to save towards?
- Is it possible one of you will spend more than the other and create tension in the relationship?
Do Married Couples Have Joint Bank Accounts?
The majority of married couples have joint bank accounts. The reason for this is because they tend to share many expenses, such as everyday household bills, groceries, mortgage/rent, school fees for the children, holiday expenses, etc. A joint bank account just makes life easier.
Having A Joint Bank Account With Your Fiancé
This is a grey area and, again, depends on the situation. If you already live together and/or have children together, then a joint bank account will often make logical sense for your shared expenditure and household budget.
If you are living apart and only want a joint bank account because of the romantic notion or to save towards a wedding, then maybe hold up and wait it out. Having a joint account for no other reason than to signify your intense love for one another could easily end up in tears before the wedding.
If you want a joint bank account with your fiancé to save towards the wedding, then maybe consider setting up a joint savings account only and each transfer identical amounts into the savings account each week. All of your other accounts and expenditure can be kept separate.
Benefits of a Joint Bank Account
Having joint bank accounts can be beneficial in that it can reduce account keeping costs and will improve everyday efficiencies. For example, it would be a frustrating IOU system when it comes to joint expenses such as utilities, rent, mortgage repayments, groceries, insurances etc. if you each held separate accounts. You would need a constant running ledger to determine the credit/debit for each partner. A joint bank account eliminates this issue.
Should Married Couples Share A Bank Account?
So, should married couples share a bank account or have separate bank accounts?
It’s a very fair question.
I am very process driven when it comes to managing money, because I like to keep things simple and automated. So, when people ask me whether married couples should share a bank account, my answer is always “yes, but…….”.
A joint bank account will significantly reduce the day-to-day operations of your family finances and save you from manually transferring money here, there and everywhere. Also, if you share the same goals and are saving towards things like a holiday or new home, it is generally beneficial to have joint savings accounts too.
Married Couples With Separate Bank Accounts
While most married couples will have at least one joint bank account, there are many couples who keep separate accounts. Or, if you are like my wife and I, we have joint accounts as well as separate accounts – more on this later.
Married couples who keep separate accounts may find it more difficult to keep track of who owes what when it comes to shared expenses. However, it does allow a couple to maintain their independence and goes a long way to avoiding arguments about expenditure.
What’s the Problem with a Joint Account?
Despite the potential to reduce costs and increase efficiencies, having a joint bank account can cause more trouble than first intended. It is inevitable that one partner will contribute less to the account by having lower wages and one partner will spend more on personal items from the account. This may lead to bitterness and arguments about how the household income should be spent. Also, because each partner will often spend their ‘play money’ in completely different ways, there will never be an understanding.
…..But we love each other!
Merging your finances in a relationship is one of the first steps that signify trust and the beginning of a life together. It is often presumed that once you are married, or are in a long-term relationship, that you will have a joint bank account. This can make it very awkward to suggest otherwise.
So, what’s my solution?
You Should Have A Joint Account AND Separate Accounts
Here’s my opinion.
This solution is logical, simple to implement, and a sure way to avoid any uncomfortable discussions and arguments.
To do this, you will need to first do the following:
- Total Income – Add up all of the income that you each receive on an annual basis (combined), net of taxes, divided by 52.
- Total Joint Expenses – Calculate the total of all of your joint living expenses – this should be everything that you would ordinarily pay halves in (e.g. utilities, rent, mortgage repayments, cable, and groceries). This should be an annual figure, which you will then divide by 52.
- Total Savings – Calculate the amount of savings that you would like to put aside each year, divided by 52.
- Calculate each of your ‘personal allowances’ using the following formula:
(Total Income (after taxes) – Total Joint Living Expenses – Total Savings) divided by 2
If you come up with an answer that is less than zero it means that you intend on spending more than you are both earning. This means that you need to revise your living expenses and/or expected savings amounts to ensure that you each have a Personal Allowance.
Example of a Family Cashflow using the formula above
1.Let’s say my wife and I have an income of $65,000 each year after taxes.
$65,000/52 = $1,250 per week.
2. We’ll assume our total joint expenses are $52,000 p.a.
$52,000/52 = $1,000 per week
3. The amount of savings we would like to put aside is $5,200 per year
$5,200/52 = $100 per week
4. Therefore our personal allowances are $75 each per week
($1,250 – $1,000 – $100) / 2 = $75
Your Personal Allowance is intended to pay for your own discretionary spending such as maybe lunch with friends, shopping sprees, night out with the girls/boys, etc. Things like fuel, mobile phone bills and haircuts can be considered joint expenses or form part of your personal allowance – your choice. Either way, you and your partner can decide what a joint expense is and what is not. You may even decide one member of the couple gets a higher allowance than the other. Good luck with that one!
- Set up a joint bank account
- Set up a personal bank account each (preferably with the same institution as above)
- Have your Total Income paid into the joint bank account
- Have each of your Personal Allowances paid into your personal accounts by way of an automatic weekly transfer.
- Pay all Joint Expenses from the Joint account.
- Transfer all Savings from your joint account to a savings account, investment portfolio, shares etc. on a weekly basis.
Alternatively, you may wish to have your respective incomes paid into your own personal bank accounts and then both contribute an equal amount into the joint account to cover Joint Expenses. Either way will work.
It is usually a good idea to keep a cash buffer in the joint expense account for irregular bills and costs. This amount will differ depending on your expenses. A cash buffer of $1,000 for every $50,000 worth of annual expenses should be fine, but allow about 6 months for this system to start operating really well. You may need some adjustments in the short-term.
This strategy allows you to have a joint bank account for joint expenses (to keep the love) and each have personal accounts (to keep the peace).
Author: Chris Strano
After playing a vital role in the creation of his two sons, Chris Strano gave up his former-life as a financial adviser to dedicate his time to providing everyday families with basic money management advice. Drawing on his years of education and experience, he has also developed an affordable 100% digital course showing young families how to build their own custom household budget and savings plan to work towards their goals, using financial planning strategies (without the cost of a financial adviser). You too can get started by grabbing his free 6-Step Budget Cheat Sheet at Build A Family Budget and follow him on Facebook and Instagram @SmartFamilyBudget.