When I got married, it would’ve been helpful to have a blueprint of how other couples structured their finances. The below system is a possible way of doing it, using three pools — one joint and two individual. The joint pool consists of at least three accounts — savings, checking, and investment accounts. The individual pool for each spouse consists of at least a checking account per individual.
With these accounts in place, income is allocated to accounts as follows:
- 80% of each spouses income goes to the joint pool. 12.5% of a spouse’s income goes to their own individual pool. The remaining 7.5% goes to the other spouse’s individual pool.
- The percentage allocated to each account within an individual’s pool is decided autonomously by that individual. The percentage allocated between accounts in the joint pool is agreed upon by both spouses.
The percentages can of course be tweaked based on your preferences. The idea behind this division is that the joint pool is used for “community” expenses, savings, and investments — such as a mortgage payments, a family trip, savings for a family car, or investing for a child’s 529 plan. The individual pool allows some autonomy for each individual, and provides an avenue for spending on things like solo trips, individual hobbies, or high-risk investments, without the bargaining, negotiation, or guilt that may come from doing those things from a communal pool.
Another useful rule is to always have at least X months of living expenses in the joint pool, where X is decided upon as a couple. I’ve heard people use anything from 3 months to 15 months for this “rainy day fund”. In this case, no funds are diverted to individual pools until the joint pool meets this minimum threshold.
Note that since we’re referencing post-marital income, all accounts (whether denoted “joint” or “individual”) contain community property (see this post for a further discussion of this).