The Allowance System
Our Foundation for Financial Peace as a Couple
Much scientific study has gone into determining the link between money and happiness (subjective well-being), and it appears to be a fairly complex relationship (see notes below). According to my theory of The Right Hand of Long Term Happiness, money is not a primary need, but it is a supporting need. Money is, of course, useful in helping us fill our six primary needs, especially physiological and safety.
Right now I want to focus on money in your core relationship. Money can be a major stressor in relationships (safety, social). Different spending habits, financial goals, and even just the act of talking about money can lead to disagreements. My partner and I found ourselves grappling with this reality early in our relationship. The best advice we received at our wedding was to use the allowance system to alleviate our financial stress. It's been a game-changer.
What is the Allowance System?
The idea is simple. We combine our incomes into a joint account that covers all our shared expenses: rent/mortgage, bills, groceries, savings, etc. Then, each of us receives a set amount of "allowance" semimonthly in our personal accounts. This money is ours to spend as we please, no questions asked.
Why It Works for Us
Shared Responsibility, Individual Freedom: We're both contributing to our shared life while still having the autonomy to make our own spending choices.
Transparency and Trust: We know exactly what's coming in and going out each month. There are no surprises. Our expectations and the outcome are clear and in line, which eliminates a lot of potential conflict.
Guilt-Free Spending: The allowance system removes the guilt associated with spending on things that are just for us (esteem). Whether it's a new video game or an endless supply of books, we know that money is within our designated budget.
Financial Goal Alignment: By having a joint account, we automatically save and invest together. This keeps us focused on our long-term financial goals as a couple.
How to Implement the Allowance System
Talk Openly: Have an honest conversation about your finances, spending habits, and what feels fair for both of you.
Set a Budget: Determine how much you need to cover shared expenses and how much you can realistically allocate for allowances. Be flexible and willing to adjust as needed.
Choose Your Method: You can set up automatic transfers for your allowances or do it manually. We've found that automating it makes things easier.
Track Your Spending: This is crucial, especially in the beginning. Use an app or spreadsheet to see where your money is going. Are you able to stick within your budget? What changes are needed?
Communicate Regularly: Check in with each other every month to see how the system is working and make any necessary adjustments.
Important Considerations
Fairness is Key: The allowance amounts should feel equitable to both partners. You can base them on income, personal needs, or a combination of factors.
It's Not for Everyone: The allowance system requires a high level of trust and communication. If you're not comfortable with shared finances, it might not be the best fit.
Flexibility is Important: Life happens. Unexpected expenses will arise, and you'll need to be able to adjust your budget accordingly.
Our Experience
We've been using the allowance system for 14 years now, and it's made a world of difference in our relationship. Money is no longer a source of tension, and we feel more financially secure as a team.
If you're a couple struggling with money, I encourage you to give the allowance system a try. It might just be the secret to financial peace you've been looking for.
What are your thoughts? Have you tried the allowance system, or do you and your partner have a different strategy for your finances? Share your experiences in the comments below.
Notes:
Two papers I’ve recently enjoyed about the complex relationship between money and happiness are
Will Money Increase Subjective Well-Being: A Literature Review and Guide to Needed Research by Ed Diener and Robert Biswas-Diener [PDF]. 2001.
Time, Money, and Subjective Well-Being by Cassie Mogilner, Ashley Willans, and Michael I. Norton [PDF]. 2018.