As an individual, what is affordable depends exclusively on your own income. First your needs have to be prioritised, and then the remaining income can be shared between spending on wants, maintaining a buffer for unexpected costs, and saving for old age.
Additional considerations come into play when two persons form a couple. In this case each individual cannot simply look at his or her own income. Two stylised situations can be identified. A couple may be earning similar incomes and have similar income prospects for the future. However, it is possible that one of the individuals has a completely different income profile from the other. One family member may earn significantly more than the other.
This may happen when one has a higher paid job than the other. Alternatively, a person may be able to work more hours than the other, such as through a part-time job. Another reason why the financial profile may differ is when a person assumes a greater role in unpaid activities within the household, such as for housework or child caring.
Irrespective of the reason for the different income streams, the couple needs to model its spending based on the combined income of the two members. It is important that both persons are fully aware of the combined monthly income of the family. Significant purchases should be discussed and agreed together, irrespective if a member is contributing little or nothing to the family’s income. It is useful for both to keep track of the total spending, even if only one member is contributing financially. One needs to foster a mentality of full engagement in the family’s financial planning. Lower or no income is not an excuse or justification to shy away from active involvement in financial management. Otherwise this may create a risk of financial vulnerability and dependence on the party with the lower financial resources, which may even undermine the relationship.
One way to monitor the total income and spending of the family is for the couple to use a joint bank account for most of their transactions. This account can be used to deposit an agreed portion of their salary as well as to carry out the daily purchases. Through the monthly bank statements, or by accessing internet banking, both members can easily monitor the family’s overall financial activity, in terms of income and spending. Both parties are invited to regularly monitor the financial transactions. In this manner, it would also be easier to detect if something wrong is happening, such as when one side is attempting to abuse financially of the other person, by carrying out irresponsible, or even fraudulent transactions, to the detriment of the other. Unfortunately not everyone is lucky to have a respectful and honest partner, so vigilance is always warranted.
Greater awareness about the value of monthly spending can help the couple realise whether their lifestyle is sustainable. If the family’s monthly spending matches exactly the monthly income, this would suggest that the couple is not allowing for unexpected outlays. Planning for a rainy day is important, to avoid future stress and problems. The couple should discuss how this can be done, such as by scaling back unnecessary expenditure, or seeking ways how to increase the family’s income.
A joint bank account makes it easier to monitor the overall financial activity, but it is still advisable for the family members to maintain a separate account in their own name. Such an account can be used to deposit monies or undertake expenditure which the couple agree to keep separate from the main family account. The family should discuss such financial demarcation as part of a healthy relationship. In addition, the individual account is useful as fall back in the event of adverse developments impacting the family. For example, the demise of the partner could result in a period when the partner would be unable to use a joint account. The break-up of a relationship is another instance where the use of a joint account could be less straight forward when compared to an individual account.
When two persons decide to change from being single to becoming a couple, they do so because they love each other. This relationship should not stop at the sentimental level but should be extended to budgeting considerations. Couples will definitely benefit from carrying out financial management together.