YOURS, MINE AND OURS

MANAGING YOUR

TWO-INCOME HOUSEHOLD

By Neil Henley

In a 1962 episode of the classic TV comedy The Dick Van Dyke Show, writer Rob Petrie (played by Dick Van Dyke), discovers a bank book hidden by his stayat-home wife, the adorable Laura (Mary Tyler Moore).

“What’s wrong with the money in our joint account?” he asks her.

“I want some money of my own. That’s important to me,” Laura replies.

The money she has saved came from Rob, of course, as she has no income of her own. The way Laura figures it, if she hangs onto it long enough it magically morphs into her money. Ah, money. If there had been banks (and credit cards) in the Garden of Eden, Adam and Eve would probably have squabbled over it, just as couples do today. And since so many households today, unlike Rob and Laura’s, have two incomes, the complications just pile up.

To get the inside story, CRACKYL spoke to seasoned financial advisors who told us that financial planning helps you take into consideration your assets, incomes and expenses to help you reach your goals, whether that means sending your kids to college, buying a recreational home, or retiring.

A lot of financial management has to do with your age and stage, and there’s a huge difference between couples in first versus second marriages. First-marriage couples tend very much to consider the money “ours” and put all revenue – even inheritances – into a joint account. These tend to be expensive years, with home-buying and childrearing, and many of those expenses are shared.

THIS DOESN’T MEAN, HOWEVER, THAT ONE PERSON SHOULD BE IN CHARGE OF THE FINANCES. IT’S IMPORTANT FOR BOTH PARTNERS TO KEEP AN EYE ON THAT ONE ACCOUNT AND TRACK YOUR EXPENSES.

Sometimes when one individual is the major breadwinner, he or she will keep their partner in the dark. But spending decisions should be discussed, even if you’re uncomfortable with that. Be open with the reality of your bills and your income. And watch out for credit card debt. Talk about what you buy before you buy it and sit down at least once a year with a financial advisor – even if you feel you have “no” money. It may help bring openness and honesty to your situation.

One advisor we spoke with noted that older couples as well as those in a second marriage have a very different attitude to money. It’s more common in these situations for each partner to have a separate account, and to contribute to a joint account for household expenses. Both partners may be earning, they may have children from previous marriages, and their priorities may be very different. Often, for example, each parent will take sole responsibility for paying for his or her children’s education. And with annual college fees ranging from $30,000 at a state college to $70,000 at a private college this can be a massive outlay.

Suze Orman, personal finance expert, author, TV personality and self-titled “The Money Lady,” adds another outlook.

“SO MANY TIMES, THE PERSON (IN THE COUPLE) WHO MAKES THE MOST MONEY IS THE ONE THAT THEY BOTH FEEL HAS THE MOST POWER. MONEY DOESN’T DETERMINE IF YOU ARE THE MOST POWERFUL OR NOT. YOU HAVE TO HAVE MONEY OF YOUR OWN. THE LAST THING YOU WANT TO DO IS ASK PERMISSION.”

SHE GOES ON TO GIVE AN EXAMPLE OF A COUPLE WHO MOVE IN TOGETHER.

Person A brings home $7,000 per month and Person B $3,000 for a total of $10,000; and the monthly household expenses are $3,000.

Splitting the joint expenses 50-50 (i.e. $1,500 per person), would mean A chips in just 25 percent of their take home pay, while B has to cough up 50 percent. Orman strongly advises that you should use a percentage of your respective take home incomes to decide who pays what.

Under that scenario, $3,000 in household expenses is 30 percent of the A and B’s combined household income of $10,000. Therefore, each person should contribute 30 percent of their take home pay: A would pay $2,100 and B $900 for a total of $3,000 per month.

Should you get your kids involved in financial decisions? There’s no need to overwhelm them with details but starting in their early teens, it’s wise to include them in some discussions. You could talk about the cost of a one-week vacation vs a two-week getaway, and what you might do with the money saved (or the sacrifices you’ll be making in order to afford it). There’s nothing wrong with having them be a part of the discussion on the financial aspects of applying for college, since kids may have some pretty ambitious – or even unrealistic – dreams. We all need to learn that there are consequences to choices.

Whether you are on your first, second (or third!) marriage, you two need an emergency fund. Unemployment, illness, a dying car or a leaky roof can happen at any time. According to the money advice site Investopedia.com, most financial advisors recommend three to six months of household expenses in uninvested cash. To figure out your magic number, keep careful track of all expenses for three months (which will also provide an interesting snapshot of where your money is going). Then start contributing, perhaps to a designated account. The sum you need may seem daunting, but keep chipping away at it. If each of you put only $5 aside every day, by the end of the year you’ll have $3,650, itself a nice start.

And how did TV couple Rob and Laura on The Dick Van Dyke Show sort out their money confusion? Turned out Laura was secretly squirreling money away to buy Rob a sports car. He finds that even more adorable, she forgives him for being nosy, and they both live happily (married) ever after.

For more financial tips and wisdom, visit nerdwallet.com and sofi.com