Finances in a relationship don’t have to be complicated, just early on find a fair and optimal financial balance which can withstand any situation (similar to our money tree).
- At some date (“starting date”), you decide together to implement this plan.Both individuals privately keep whatever savings/assets they have before the starting date.
- Both individuals privately keep whatever savings/assets they have before the starting date.
- As of that moment, 100% of all (new) income is transferred to a mutual bank account. This includes any (holiday) bonuses etc.
- 10% (at least) of the total income is monthly invested for the family future (retirement).
- 20% (for example) of the total income is split and transferred from the mutual account to the private account of both individuals.
- The remaining 70% is for mutual expenses, including housing, groceries, family holidays, car(s), insurances, etcetera.
- The 10% “private income” can be spend however that person wishes, it is their money. Examples are dinner or drinks with friends, mobile phone, clothing, hobbies, sports, etcetera.
- If there are pre-existing debts, they become a mutual burden to be repaid from the mutual account. New debts (which are not mutual), stay private.
- In case someone has significantly more private money to start, it is important to handle that well and keep a balanced relation. Effectively this means you cannot touch those “starting funds” unless:
– You transfer them to the mutual bank account, and as such they become shared funds
– You provide them as a loan (e.g. for a house) on commercial terms similar to an external lender, and repay the loan together as if it was an actual commercial relationship (no need to pay the bank if you can fund yourself)
– You together agree to spend the funds on some shared benefit, to finance e.g. a car. The “hypothetical loan” (at 0% interest, max 10 years) is either repaid over time from the mutual account or gifted 10% of total sum yearly (so after 10 years it is always considered mutual property regardless of missed repayments).
– You disagree together on some expense, in such case you need to carefully consider if the expense if worth it 🙂 if so, you either transfer the same amount to the personal account of your partner (so he/she can spend the same) .. or you agree you can simply spend it (since it is your own funds) AND agree 10% of the original total sum moves to mutual ownership yearly. So after 10 years, your partner is owed 50% of the original value if you would split up.
These complexities only make sense for large expenses (depending on your worth e.g. >10.000).
- Any mutual money not spend goes to a joined savings account.
- 6-months worth of expenses is set aside in a mutual savings account as emergency cash fund.
- Money is set aside monthly on a mutual account for planned incidental expenses such as housing maintenance, car repairs/replacement, etcetera.
- In case of a breakup, the mutual bank account, invested funds, and assets related to that money are split 50%/50%. Any private money remains private.
- If someone gets an inheritance, it is not considered mutual income and goes to the private account of that person.
- If there is an unequal pension buildup, at breakup the difference of buildup during the relationship is split (and paid out assuming the highest tax bracket).
- If someone has to make a career sacrifice (e.g. to spend more time with the kids), you can skew the monthly private income to compensate for that. This should be part of the (mutual) decision.
This system aims to achieve a fair balance. You want to enjoy life together, and not get a financial imbalance or dependence. Even if there is just a single income, or a significant difference in income, it allows both individuals to buildup private money whilst sharing responsibility over the monthly income/expenses and future.