How to combine finances as a couple

There are a handful of ways to combine your finances once you enter a long-term relationship or get married, none are right or wrong, just some are right for you, and some are not. The major piece here is that you have a discussion on HOW you want to accomplish the goal.

First, take inventory of how you and your partner look at money:

• Do your spending habits differ, with one being more conservative while the other is more liberal?
• Is there a significant income gap between you and your partner?
• Do either or both of you carry debts?
• Are there shared financial goals you want to pursue together?
• Are you comfortable with how your partner manages their finances?
• Are you okay with full transparency, allowing your partner to see all your financial transactions?

Taking an inventory is crucial because it sets the stage for respectful and constructive discussions rather than conflicts. For a starting point, take a basic financial snapshot to get a sense of your net worth as a couple.

Choosing Your Financial Approach:

Your financial options can be summarized as "together," "separate," or a blend of both. Let's explore them in more detail:

Option 1: All In

I call this one all in, because that is truly what is happening. Everyone puts everything into one bucket, regardless of how much each person makes and regardless of where the funds go. This requires similar money mindsets, and shared spending values.

Pros:

• Transparency: You have complete visibility into your partner's financial activities, ensuring trust and accountability.
• No Dollar Unaccounted For: All income and expenses go into and out of one place, simplifying financial tracking.
• Teamwork: It fosters a sense of working together toward common financial goals, regardless of income disparities.

Cons:

• Loss of Financial Independence: Both partners need to agree on all expenses, which may limit individual spending choices.
• Potential for Conflict: Disagreements over spending decisions can be more intense when all finances are pooled.
• Equal Contribution: In this method, it doesn't consider income disparities, potentially causing friction.

Option 2: All separate

Pros:

• Financial Independence: Each partner maintains control over their finances, avoiding reliance on the other.
• Less Financial Stress: No need to worry about each other's financial issues.

Cons:

• Complex Shared Expenses: Managing shared bills can be complicated, requiring clear communication.
• Potential for Uneven Split: Income disparities may cause tension when splitting shared expenses.
• Limited Financial Transparency: It can be challenging to see the overall financial picture and track shared expenses.

Option 3: Combined with split “Fun Money”

You get the benefits of combining your finances (complete transparency), but your fun money allows you the freedom to buy whatever you want. It is important to figure out how much ‘fun’ money each partner will get.

Pros:

• Transparency and Shared Responsibility: You share financial responsibilities while allowing personal spending freedom.
• Accountability: Joint accounts provide transparency and a clear view of shared expenses.
• Negotiable "Fun Money": Partners can agree on how much "fun money" each receives.

Cons:

• Balancing Act: Determining the right amount of "fun money" and shared expenses can be challenging.
• Requires Open Communication: Disagreements over what constitutes "fun" spending might occur.
• Income Disparity: If income varies significantly, agreeing on "fun money" can be difficult.

Option 4: Buckets Proportional to Income

This one works with each person takes complete responsibility for certain bills. It can also work with percentage of each person’s paycheck going towards joint bills. The person that makes more money pays a larger percentage of the bills; the person that makes less pays less money.

Pros:

• Income-Fair Split: Expenses are divided according to income, reducing financial stress caused by income disparities.
• Personal Control: Partners maintain separate finances while contributing proportionally to shared expenses.
• Flexibility: Allows for adjustments if income levels change.

Cons:

• Complexity: Calculating the percentage-based split can be challenging.
• Shared Expenses Disagreements: Disputes may arise when deciding which expenses are considered "shared."

Option 5: Split Shared Bills 50/50

Pros:

• Equal Contribution: Both partners contribute an equal share to shared expenses, promoting fairness.
• Personal Control: You have control over individual finances while sharing essential expenses.
• Simplicity: Bills are split evenly, making financial management straightforward.

Cons:

• Income Disparity: If one partner earns significantly more, the other might find it challenging to meet their 50% share.
• Shared Expenses Disagreements: Disputes may arise when deciding which expenses are considered "shared."

Note: Financial Discussions and Setting Boundaries

Open communication and setting boundaries are essential in any approach. Discuss discretionary spending limits, major purchases, and expectations regarding lending money to friends or family.

Decide where you want to store and access your money, whether it's in banks, credit unions, credit cards, investment accounts, or retirement accounts.

Additional Resources:

For a guide on merging finances beyond savings and expenses, watch this Dow Janes video that offers valuable insights.

CNBC article: How to know when it is time to combine finances?

Consider getting a financial plan from a professional to help demystify the process.

Remember, there's no one-size-fits-all solution for merging finances as a couple. The key is finding what works best for your unique financial situation and relationship.

Charlotte Galamb is a financial advisor at Raymond James, based in Raleigh, NC. She focuses on helping women normalize the conversation around money and she her team focuses its efforts on helping women and their families secure their financial futures. For the rest of the story, please visit the website or email her at charlotte.galamb@raymondjames.com.

Any opinions are those of Charlotte Galamb and not necessarily those of Raymond James.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making a decision, and it does not constitute a recommendation. All opinions are as of this date and are subject to change without notice.