The case for personal allowances in a joint financial set-up

I will be writing more about budgeting in due course, including some expert input, but in the meantime wanted to write about personal allowances, as I seem to have had conversations about them with several people recently.

I think that if you are part of a couple, it is a very good idea for each person to have an allowance for their own spending, outside shared household spending. (This is assuming that your finances are generally joint, of course.)

My reasons for this are:

-It allows people to spend money on what matters to them without feeling that they need to justify their purchases to their other half. (I buy more clothes than my husband does; he buys more books than I do, but his habits don't bother me, and hopefully mine don't alarm him, because we each know that this spending is within agreed limits.)

-It encourages spending on things that each of us wants to buy. Illogically, but possibly not entirely surprisingly, before I had an allowance, several years' ago, I used to feel that buying an item of clothing for about £30 was pretty much always acceptable, but I would generally have hesitated in spending more, even for something really worth having.

I wouldn't have considered not buying anything for months, and then buying something costly, even though this might have added up to the same thing in terms of expenditure. Now, though, if I want to spend money on a really expensive item, or save up and buy several things all at once, that is up to me. Also, there is no need for the item to be useful, if it is what I've decided I want.

-It is a way of separating out personal spending from everything else that needs to be paid for, and makes it easier to keep track of your money.

How to track your allowances:

-Until the recent bank charges issue I wrote about with Halifax, we had separate bank accounts into which our allowances were paid, from our joint account. Now, though, we have closed those accounts and set up 'jars' within our offset account into which our allowances go automatically. I think the important thing is to be able to see and keep track of the money somewhere separate from the household accounts.

How much should it be?

-I can't really answer this; it depends on how much you earn, what you have decided it needs to cover, how much income you have, and how much you want to spend. For clothes allowances, I have heard the figure of 10% of net income suggested as an appropriate figure.

A letter about overdraft charges

My bank sent a letter to me this week, telling me that they would soon be introducing more 'straighforward' overdraft charges, under which they will be charging a pound a day, so three hundred and sixty five pounds a year, for having an authorised overdraft, whether for £1 up to £2500. I had to read the letter more than once to check that I had not misunderstood. The account involved is a personal account into which I pay my personal allowance, for clothes, books, and so on. The amounts going in and out are fairly small, but as it has an overdraft limit, up until now I have been pretty relaxed about going slightly overdrawn on it within the limit, when it suited me to do so, and this has cost me a few pence a month. I have learned my lesson now, however, and intend to close my account as soon as possible.

P.S After writing this post, I heard a discussion about this issue on the Moneybox programme, on BBC Radio 4, and there is a relaetd e-mail discussion on the BBC website.