With wedding season in full swing, it is a great time to discuss going from my finances to our finances. My wife and I met over 13 years ago. As our relationship grew so did the merging of our finances.
So what is the best way to bring together your finances? Like so many things in life, there is not a one size fits all solution. But you absolutely need to discuss your financial life and plan together. Make no mistake about it, finances are a common reason couples fight. Taking the time to plan your finances together now can help you have a happier family life later.
Merging Your Finances
Keep Them Separate
Some couples choose to keep their bank accounts and investment accounts separate. Keeping your accounts separate gives you both autonomy but it also means keeping tabs on more accounts and communicating very clearly about who pays what to ensure that all of the bills are paid each month.
If you choose to go this route as a married couple, I would recommend that you add POD (payment on death) and TOD (transfer on death) on your accounts. PODs and TODs allow you to designate who receives the funds if you die but it doesn’t give them access to your accounts while you are alive. This ensures that your spouse can have access to the funds if you pass away without going through probate court.
Yours, Mine, & Ours
Many couples prefer to take the yours, mine, and ours approach as they merge their finances. Keeping separate accounts allows you to have some autonomy over your “fun” money while ensuring that all of your essential expenses and savings goals are covered through joint accounts. For example, in my house my wife likes to get a weekly manicure while I like to save up for a new surfboard.
As to how much to put in the joint accounts, some couples choose to contribute equally while others choose to prorate their contributions based on take home pay. I recommend the second approach for couples with unequal incomes.
Combining accounts right out the gate makes it easier to keep track of your funds, but it may also create the need for more negotiations over your spending. Since you will see each others spending, it will be important to be open minded and not make each other feel you have to justify your spending. Set an amount for each of your discretionary spending and then don’t pass judgement on each others purchases.
As time rolls on and your financial lives become more intertwined it may make sense to consolidate all of the accounts.
Combining everything seems to work best for couples who have similar assets and liabilities as they bring their finances together as well as families on a single income. It also works well when you decide to live on one income and save the other income for your goals.
Dealing with Debt
Just as important as setting up your bank and investment accounts, you must decide how you will deal with outstanding debts. For most married couples, it makes sense to take a team approach paying down debt and considering those payments another monthly expense.
Decide how you will tackle your debt together. The faster you get your debt under control, the faster your family will be headed toward a solid financial footing.
Make a budget
As a family you more than likely cannot fund for all of your wants, needs, and goals. Sit down and map out a budget that you both agree on. Don’t expect to be perfect from month to month – simply looking at your spending each month and seeing how it compares to your budget is a huge step in the right direction. Planning your savings and spending ahead of time, as a team, can help you achieve your financial goals faster.
My clients build out their budgets on their personalized financial website. It allows them to track spending and net-worth in real time from the palm of their hand. Check it out below.
There are many decisions to make as you merge your finances together and it is not a one time event. My wife and I lived together long before we were married. At first, we had separate accounts and split everything equally. Then we got married, opened a joint account and split based on earnings since our incomes weren’t equal. Now we essentially use a joint account with very little remaining in the old separate accounts. As we grew as a couple, so did the way we manage our finances.
As you work together to figure out the best solution for your family, realize that communication is key. Check in with each other once a month to discuss the family finances, check your spending versus the budget, and see if you have hit your savings goals. If you have a month where you may have overspent or under saved don’t beat yourself up, you’re not going to be perfect. Be careful not to blame each other, instead discuss how to do better next month – as a team.
Openly communicating about our finances and working towards common goals has helped my wife and I have a stronger marriage. I hope it will do so for you too.