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April 21, 2014



Combining Finances as a Couple

One thing that every couple that is planning on getting married or is otherwise involved in a serious, long-term commitment needs to think about how they will merge their disparate finances into one united financial picture.  With how many accounts many people hold today, and the increased delays many people have before they get married, the financial picture of each individual can end up being quite complicated.  (Just look at my monthly updates to get an idea of how elaborate the financial situation can get, and bare in mind that I don’t list out individual bills that are owed, the sources of my income, etc.)

Relationships can be a lot like these heart balloons; beautiful, but delicate.

But, if you’re going to have a happy and harmonious relationship together, you need to deal with money issues together, as a united front.  To try to do things on your own might seem easier, but can end up complicating your lives needlessly and end up leading to arguments.  But it doesn’t have to be that way.

Advice on Combining Your Finances

Luckily, it’s not as hard as it might seem to combine your accounts and your financial information, so long as you’re willing to put the required work into it.  You just need to follow a few simple rules, and you and your partner will be a combined financial force in no time flat.  In order to go from two sets of finances down to one, you need to:

1. Be Completely Open and Honest: This might be a tough one, particularly if you are naturally shy and withdrawn person (I can relate).  But your partner needs to know where you stand financially, so honesty is definitely the best policy.  If you have some trouble spots in your financial past (lots of debt, a poor credit score, past spending you aren’t proud of, etc.) then it might be less than comfortable to open yourself up to such scrutiny and possible criticism.  You need to do so anyway, though, if you hope to have a successful relationship (and have the same consideration shown to you in return).

2. Don’t Leave One Partner All the Work…: There is a tendency in couples to take a divide and conquer mentality.  One partner will do the laundry and the dishes, the other will handle the yard work and the cooking.  So it goes with finances; there is likely to be one partner in the relationship that loves to go through the books, figure out where to invest, and save for the future (in my relationship, that’s me, as you might guess from this blog), while the other partner tends not to care so much, or even actively dislike having to deal with money (my fiancee Sondra is firmly in this category).  This is fine, and actually pretty normal for couples.

But, even if there is one partner who enjoys dealing with money, that doesn’t mean they shouldn’t get help or input.  If your significant other is the one who does the books, you need to make sure you keep an eye on what is going on with your finances, and share your input on where the money is going.  It is your money too, and helping to handle it wisely and invest it properly is not just the responsibility of your partner.  You need to help out and contribute too.

3. …Or Keep One Partner in the Dark: On the other side of the coin, if you are the partner who likes to deal with money, you need to make sure that your significant other knows what’s going on with your shared money.  Besides helping to keep them from making poor financial decisions that hurt you both (like buying items that you can’t afford because they think you have more money available than you do), it will also help to ensure that you are on the same page about what to do with your combined fortune.  Otherwise, there can end up being tension in the future when your partner finds out that your money has been going towards goals they don’t support.  Better to say on the same page, and to explain any changes you make to the money management strategy.

4. Contribute Appropriately to Household Expenses and Shared Goals: Now comes the tricky part: how do you divide up those household expenses to be fair to both partners?  Well, there’s lots of theories; you could combine all your income in a joint account and pay all your bills out of that account, you could split the total for the bills right down the middle and each contribute half that amount, or you could each pick some bills that you will pay each month and handle those bills out of your individual accounts.  Each of these methods can work, although they have their flaws.  The first doesn’t leave any money of your own for personal spending, the second isn’t fair to the lower income partner, and the third is tricky to make fair and can result in one partner subsidizing the other’s bad spend habits.  (If, for example, you make a ton of out of the country calls to your family and your partner picks up the phone bill.)

The best method I’ve come across to handle combined bills like this was from Suze Orman’s Money Book for the Young, Fabulous and Broke.  In it, she recommends determining the amount of the monthly bills (I would include things like retirement account contributions and saving for a home here, although Orman didn’t due to the audience of her book), figuring out the proportion of your combined monthly income required to pay those bills, and each person contributing that amount.  If your monthly expenses come to $4000 and your combined monthly income is $5000, for example, each partner contributes 80% of their income to covering the household bills, and is left with 20% of their income for their own purposes.  It’s fair, it’s reasonably easy to figure out, and it doesn’t require you give up control of all your spending.

5. Keep Talking: The most important thing you can do to successfully manage your money as a couple is to keep talking.  It’s easy for the lines of communication to break down, especially nowadays as everyone tends to be so busy and occupied with their own tasks.  But, if you’re hoping to successfully manage your finances as a couple, you need to keep talking.  Share your financial goals, your hopes, and your dreams, and make sure that you know what your partner wants.  Ensure that each person knows where you stand financially, how much you have available to spend, and what that money should be spent on.  Know what your partner hopes your life together looks like in ten years, and work with him or her to make that vision come true.  Above all, just talk.

What do you think is the most important thing in order to successfully combine finances as a couple?  How much independent control over your money should you give up to meet your goals as a couple?  Are there any techniques I missed that you’ve had exceptional luck using?

Comments

  1. The most important factors to be successful are communication and agreement. It is very important to understand what you are try to achieve and agree on these goals.
    krantcents´s last blog post ..First Job Lessons

  2. Yep, open and honest for sure. I like a hybrid model, so that each feels they have their freedom to do whatever they want.
    Financial Samurai´s last blog post ..Following His Dreams To New York City

  3. I know this is something I will be dealing with very soon, and Im kind of anxious to see how the conversation pans out. Thanks for the tips!
    MoneyIsTheRoot´s last blog post ..Penny Auctions…Are They Really Worth It

  4. Great tips, Roger, and I agree. It’s important to come together yet it’s also important for each person to retain their individuality. I just don’t agree with the idea of putting one partner on an “allowance”. There should be a good balance between both partners.
    Invest It Wisely´s last blog post ..Future Imperfect- How to Prepare for an Uncertain Future

  5. @krantcents: Very true; communicating your goals and coming to some sort of agreement is a vital part of coming together as a couple.

    @Financial Samurai: Yup, a hybrid approach of combining some money and keeping the rest separate seems like it’ll do the trick.

    @MoneyIsTheRoot: I’m glad this helped you out; as I’m trying to get a handle on this type of combination myself, I’m more than glad to try to help others out.

    @Invest It Wisely: It is tough to find a balance between two people. Finding a way to pay all the bills and allow two fully grown adults the ability to control their financial future is always a tough situation. Certainly, giving one person an ‘allowance’, particularly if you use that term, is unlikely to go over too well. Instead, creating a budget that allows each partner some ‘mad money’ definitely is a better approach.

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