Money Matters: For richer, for poorerBy Efren Ll. Cruz
Philippine Daily Inquirer
Question: My husband and I are constantly arguing about money, particularly on who should control the family’s finances. We are also at odds as to whether we should maintain just one account for our personal spending or maintain separate accounts. Can you give us direction?—Sent via “ask a friend, ask Efren” service on www.personalfinance.ph
Answer: Imagine a country with no constitution; it would be in utter chaos. And since the family is the basic unit of society, it too should have a constitution, more specifically a financial constitution. Furthermore, you and your husband should agree on the provisions of this financial constitution.
At RFP® Philippines, we teach that household finances can be run in the same manner as company finances. In a company, the board of directors sets the policies based on the by-laws and rules on corporate governance set out by the board itself. This board answers to the company’s shareholders.
In a household, husband and wife are the default members of the board. As their children come of age, they can be included as observers and/or advisers. The financial constitution takes the place of by laws and rules on corporate governance.
The shareholders of the household are just the spouses.
In a company, policies set out by the board are executed by management, who are appointed based on their ability to perform specific functions. The “C” levels of management in a company are the chief production officer, chief marketing officer, chief human resources officer and chief finance officer (CFO). The chief executive officer (CEO) coordinates and activities of the other “C” level officers, provides direction and is where the buck stops. Management reports to the board.
In a household, only the spouses can be appointed to the “C” levels of management. And in the typical Filipino family, the husband takes on the roles of chief production and marketing officer. The wife assumes the roles of chief human resources and finance officer.
Please note though that with the exception of the CEO, no “C” level management position is higher than the other. In fact, in households where both spouses work, husband and wife share in the duties and responsibilities of all of the “C” levels of management. Nevertheless, the role of CFO should ideally go to the person who has the know-how, discipline and patience required in financial planning, record-keeping, financial analysis and financial risk management. The CEO is the person who can direct the household, makes the ultimate decisions and is where the buck stops.
Ask your spouse who among the two of you is better in these areas.
As to whether husband and wife should keep separate accounts for their personal spending, consider how profits are booked in a corporation vs a household.
Revenues for a corporation come from its sale of goods and services. Deducted from revenues are operating expenses of the firm. Any excess is profits available first for reinvestment in the corporation to afford higher levels of dividends in the future and eventually for distribution as cash dividends to the shareholders.
In a household, revenues come from salary, professional fee, gross income from business and the like. Deducted from revenues are the household’s operating expenses, which include both fixed and variable operating expenses. Anything in excess would be profits available first for reinvestment in the household to afford higher standards of living in the future and eventually for distribution as cash dividends to the household’s shareholders.
In a household, the only two shareholders are entitled to a split of the household’s dividends. But this is only possible after the reinvestment requirements of the household are first met. If there is nothing left after reinvestment, then neither husband nor wife gets to enjoy any dividends.
On the other hand, if the household has already met its lifetime financial goals, all profits can be distributed to the household’s two shareholders. This is typically the case when husband and wife are nearing the end of their life.
Please note two things: 1) dividends to shareholders or household members are never paid out of debt but only from excess profits; and 2) it is only at the option of and not a requirement for either husband or wife to surrender his or her share in the dividends to the other or to their children.
To help you better in financial planning, please download Ya!man™, the country’s first personal finance mobile app. The Android version of Ya!man™ may be downloaded from Google Play. The app’s Symbian (40 or higher) OS may be downloaded from www.personalfinance.ph. The iOS version is coming very soon. Ya!man™ also comes with a feature where you can pose questions to a financial expert. And everything with Ya!man™ is absolutely FREE.
If you want to learn more about effective personal finance for couples, please visit www.personalfinance.ph. You may also want to attend EnRich™ on Aug. 3, our public training on personal finance. Details for EnRich™ may be found in the website.
Have a financial constitution. It will go a long way in fostering peace and harmony within the family.
(Efren Ll. Cruz is a Registered Financial Planner of RFP Philippines, personal finance coach, seasoned investment adviser and bestselling author. Questions about the article may be sent by SMS to 09175050709 or e-mail to email@example.com. To learn more about the RFP program, attend a FREE orientation on Aug. 8, 7 p.m. at the PSE Center. Text Name_E-mail_RFP Info at 09173464126 to register.)