|September 28th, 2013|
For money that we spend on ourselves  we budget joint spending, Jeff spending, and Julia spending. Joint money we decide together how to spend, and involves questions like what groceries to buy, how much to save, and what sort of rent we can afford. Personal spending money is for discretionary spending like clothes, eating out, cell phones, candy, and contra dances. Overall this works well and leaves us with little financial conflict, because if I want to spend a lot on a new mandolin I don't have to convince Julia it's worthwhile.
We're looking at buying a house, though, which complicates this by being a big mix of essentials and non-essentials. Imagine we go look at two very similar houses, both of which we could see living in. One of them has much nicer light fixtures, doors, and trim, which Julia likes a lot and I don't particularly care about. The other is cheaper, and would still be cheaper even counting the cost and hassle of adding these things. The second house clearly makes more sense for us to get, but perhaps Julia says "if we get the first house it's all joint spending, but if we get the second house then those aesthetic elements would be from my spending money, so I'd rather get the first house." Of course she wouldn't say so explicitly or even necessarily think that, but because we both value money in our "spending money" category more than money in "joint spending" it's easy to get pulled that way.
So let's say we decide to buy the second house, and put aside a pool of joint money for making it nicer. Now imagine Julia says "I would really like nicer light fixtures, but money on light fixtures would make me less happy than money to spend as I wished." This makes sense to me, because why should we spend money on light fixtures when I don't care about them and Julia would rather have more money to go to morris ales and plant flowers? So we reallocate this pool of money as Julia's spending money, and she can spend it on house aesthetics or anything else that would make her happy.
This implies that buying a house should come with spending money for Julia. That's a little strange; wouldn't it be fairer to give us both more spending money? That doesn't fix the incentive problem, though. Imagine new light fixtures would cost $X and Julia would enjoy them approximately as much as 75% of $X to spend as she saw fit. If we're splitting the additional spending money then buying $X of light fixtures through the purchase of a house that already has them is converted into 50% of $X for me and 50% of $X for her. But 50% of $X is worse than the 75% of $X that she saw as equivalent, so incentives are back to pushing her towards the less efficient house. This mismatch applies to anything that she values between 100% and 50% as much as money to spend freely.
An alternative approach would be to say that any aesthetic elements in a purchased house above a baseline that we both think is minimally acceptable should get 'charged' to Julia's spending money. We could estimate how much less we think such a minimal house would cost, and then move that amount of additional money from her spending money to joint money if we bought the house. But that's really hard to estimate, and reasonable estimates range from small to very large. Similarly, in selling the house, which we would expect to do eventually, these improvements might increase the resale value. But how much? How to estimate that?
Overall, this is a very analytical approach and we actually care a lot about both each other's happiness and our joint financial shape, so the exact details here aren't critical. The main thing I'm worried about is bad accounting leading to us making decisions where we could instead get things for less money that we value more.
 That is, ignoring our donations, which we put into a separate pot and manage year-to-year.
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