14 – Combine Finances or Keep Them Separate?

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Episode Overview:

In this week’s episode, Ken revisits the IMPACT model and discusses how it applies to the combined finances in marriage. It is imperative that you and your partner create alignment around your finances and seek out the whole picture. If you have a personal goal, pursue it! But be sure to be transparent with one another and adjust accordingly. Learn about “financial infidelity” and how you should be wary of it. Ken then discusses his own marriage and the valuable financial lessons he’s learned.

Transcriptions are auto-generated, please excuse grammar/spelling!

Happy Day to you! This is Ken Kaufman. And I’m thrilled you’re here for episode number 14: Combined finances or keep them separate?

To lay the groundwork, I want to jump back to the Impact your Net Worth model. You’ll recall that “Impact” is an acronym for the six key principles that I have lined out as the governing principles for how to be successful financially and how to build net worth.

I is for iterate mindset and process. When it comes to combining, or I should say, when it comes to getting married, the decision to combine finances is already made. When you’ve decided to get married, you have to start to iterate your mindset. And you have to accept the fact that you are combining lives, and irregardless of how many different bank accounts you have, and whose names on each one of them and what’s jointly owned, individually owned, and so on and so forth. You’ve made a commitment to each other to be transparent, vulnerable, help, serve, and ultimately combine your philosophies into one joint philosophy about what you want to accomplish in life and where you’re going. So foundational, and fundamentally, you have to iterate your mindset to that basis. The second principle is “maximize income and joy.” You’ll recall when I talked about this, the joy element is to take all that income and make sure that you’re doing things that you enjoy with it, and you’re not just starving and struggling to try to save money, all so that you can be miserable. You want to find joy while you are working to maximize your income and you’re not going away and slaving away at a job that is just so depressing to you or so difficult, so draining emotionally or physically, that you don’t have anything left for the rest of your life so that you can’t be 100% present in other areas of your lives.
Prioritize the waterfall is the letter P in “Impact.’

I have to be honest with you here. If you can’t come together and see the whole picture of what your financial situation is, how in the world are you going to prioritize what you’re doing with that income or that Waterfall?

As you recall, the Waterfall is this concept of the income flows down and fills up the first pool, the second, the third, the fourth, until there’s no water, no money left. That’s your income. And you need to pick and choose what’s your number one, priority number two, number three, and then you allow your money to filter through your finances that way. If you don’t have full visibility to that as a couple, how in the world can you ultimately build all those right priorities?

“Align with partner and with Waterfall.” So once you get around these priorities, it’s making sure that you spend according to those priorities, and you allocate your resources according to your priorities, and you get total alignment with your spouse.

The last two: C is for cultivate assets, and T is for terminate debt. Again, taking actions and moving forward, it seems very difficult to really accomplish the idea of combining lives together in marriage without getting this alignment financially. So, a couple of key points to think about and to take on: the first one that I want to make sure that we’re super clear on is when we get married, we are emotionally, mentally putting lives together. And so it makes sense that at least from a philosophical standpoint, that you should be putting your finances together as well. Because that then enables you to start to plan and start to see where it is you want to go in the future.

Now, there is a lot of talk online about should you have joint accounts, should you have individual count accounts, and how should all of that work? At the end of the day, I’m much less concerned with how many accounts you have and whose names are on them. I’m much more concerned with transparency, and the ability for each spouse to see the full picture and understand what’s happening. And then, you know, some will say “well, I wanted to keep individual accounts, I wanted to spend some of my own money over here on my hobbies and different things.” And if the other spouse says “I want to spend some of my money over here on these different things,” that’s great. Just get alignment around it; you don’t have to feel like you have to hide from each other. Be aligned about what you’re spending and agree on it and move forward. And as a spouse, I’m not saying you have to agree with what your spouse wants to spend their money on; you may think it’s silly or foolish, that’s fine, but agree and align that they get their money to go do what they want with, and you get your money to do what you want with, and then you’re still moving forward on your all of your other goals and objectives in life. So that’s key point number one: you’re not going to see me tell you how many accounts to have or whose name should be on them. I have my opinion about how I do things personally and how my wife and I figured it out.

The second thing is, no matter what decision you make, in how many accounts and how you do all that. The other thing that I’ve seen, and I’ve heard it’s becoming more and more common, that destroys this financial alignment, this idea of combining lives and getting aligned on how you’re going to move forward with things financially, is a concept called financial infidelity. I read an article–it seems like it was about a year ago. And the author of the article–I wish I could remember his name, and I wish I could remember the publication that it was in–went on to talk about how there was a significant rise in situations where a spouse would open up a credit card account or a bank account, or engage in other financial activities and keep that from their spouse. That is a form of infidelity. And he was terming it “financial infidelity,” which I thought was pretty creative. And an interesting trend that’s happening: we know there’s study and study out there about how finances are one of the greatest sources of arguments in marriages. And you’ll often hear people cite them: “finances are the number one reason or cause for divorce.” I would question that, I don’t know. Because sometimes there are other systemic issues that are happening in a marriage, and they might be pointing to the finances, because that’s where things came to a head. But there might be, you know, some more underlying issues. So I’m not going to say that it’s the number one cause of divorce, but it certainly is in the mix. And it’s a lack of alignment with spouse. And then it’s sometimes when there’s some sort of financial infidelity that starts to come in to the mix or be in play that can cause real risks and real losses of trust in that marriage relationship. So with all of that as the context, I want to tell you about how things started for me. When we were married, I had just graduated from college and was starting a business, I had a grand idea and I thought I was going to go take over the world. It didn’t work out that way; it failed miserably. During that same period of time, my wife had one year of college left, but was going to spend it all as a student teaching internship where for the full year, she would be a school teacher and earn 50% of what a full time teacher made, which by the way 50% of not very much. It really is a tragedy, how our educators are paid and the secondary school system here in the United States. That’s my commentary on it, I guess.

But we didn’t have much income. My wife was the sole breadwinner while I was making pretty much nothing trying to get this business up and started. So after about six months, and I realized that wasn’t working, and I closed up the doors of that concept and idea that I was trying to pursue and I went and got my first real job after college. We then became joint earners and we both had money coming in.

We’ve combined right off. I believe her individual account became joint and I joined her on that account. And everything went out of that and everything was joint between us from there moving forward up until today, as of yesterday, 21 years of marriage later. So, then an interesting thing happened the following summer, because we had our first child 13 months after we were married, and my wife after she had our child, our first son, she did not go back to work and she has not been back to work yet in terms of in the professional workforce. We could certainly argue that raising eight children as a stay-at-home mom was way more work than I ever put in, or probably just about anybody else’s ever put in doing something. But our roles became very divided. I became the income earner. And she became the take-care-of-the-home and the kids and the activities, and everything that went along with that.

What was interesting, I did not know that it would happen this way. Primarily just because I was naive, and I was the sole earner. But from time to time in our marriage, my wife has felt embarrassed, guilty, sheepish about wanting to do things that cost a lot of money, or spend a lot of money on things because she felt like she was spending “my” money. I didn’t see it that way, and I didn’t feel that way about it. And I don’t think I’d really said or done things to make her feel that way. It was just a place where she was at. And so we’ve had different times in our marriage where we’ve had to back up and stop and kind of reset the framework philosophically, that when we got married, we combined everything. Everything’s together, we’re transparent, and we help each other. We’re trying to make each other successful. And no matter who was the one that had their name on the paycheck when it came in, once it comes in, it’s ours. It’s not mine, it’s not yours, it’s ours. And so it’s been interesting to work through some of that as it’s come up in our marriage. And it still even can come up today. It’s not that we’re perfect at it. But sometimes she might feel badly about that for some reason, and we have to communicate and try to get alignment. Otherwise, our alignment starts to slip away quickly. I guess my point there is that we need to continue to work on that alignment, communicate around these things openly and transparently to drive toward being aligned. Now, during this time, like I said, we’ve had basically one bank account, one savings account at a time that we’ve used. They were joined.

Right now we do have, I think really three, but we only use one of them. One is because it’s an account she’s had forever. It was that first one when we were married. Another one is because that’s where I found the best place to get our kids money and make all that stuff work. But we have one main one. And one main checking account, one main savings account. But I think this is the key point. This is the takeaway.

The point is, we’re combining emotionally, mentally, philosophically, regardless of how many accounts or whose names are on them. And then that empowers you to plan for and build your Net Worth in the most efficient and effective way. Because you can see everything. And there’s no reason to hide anything. And there’s only reasons to be open and transparent because everything is combined. And if I had married my wife, and she’d had a whole bunch of debt, okay, maybe I wouldn’t put my name on that. But certainly my income would have been going toward helping her pay off that debt or vice versa. Or if she’d had a whole bunch of money when we got married, then over time, right, the lives come together and the lives merged together.

Now we could make an exception for people who are much older, who lost a spouse or had a divorce for some reason and are remarried and they’ve got estate plans, and they’re allocating money towards kids and grandkids and certain ways. In those instances, the combining is a little bit more difficult, although still philosophically, you can end up achieving it. And I’d encourage everybody to do it. I’m talking more towards the newlyweds or those who are younger in their married years that are trying to sort this out and figure it out. Get aligned emotionally, mentally, philosophically, and then the other stuff will work itself out.

Well, there you go. The question we started with was, do we combine finances or do we keep them separate? My answer is a resounding combine in the framework that I talked about. Many, many thanks to you for joining today. This is a wrap for Episode 14. Happy Day.

Transcribed by https://otter.ai and Ms. Ashley the most amazing and valued employee of Ken Kaufman Family Inc.

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About the Podcast

Join Chief Financial Officer Ken Kaufman as he helps you track and hack your net worth. For those seeking financial independence, your net worth is one of the most significant measurements of success. Using his two decades of financial experience, Ken Kaufman helps you overcome your financial obstacles and look onward towards a better, brighter financial future.

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