I am getting married this year and we have started to discuss how to handle our finances. We currently maintain separate everything and each handle agreed upon expenses. I would like to combine our finances but I’m nervous about doing so. How do other couples navigate this?
Congratulations on your upcoming wedding, that’s wonderful news! May you both live long and prosper.
In our society money has a great impact on our lives and how we live them. As a result, the amount of money a person has and how they manage their funds is something which runs deep in people. Money management tends to be a highly personal and, often times, emotional experience.
This is the reason money is one of the three big topics married couples fight over. (The other two are dishes, something that needs to be done daily, and sex, another experience that is highly emotional and personal.) It’s probably no surprise that if you ask six different couples how they manage their money you’ll probably get twelve different answers! I bring this up because I feel the best thing you can do is probably to ignore what other couples do and focus on discussing with your soon-to-be spouse what will work for the two of you.
Granted, “Talk to your partner,” probably isn’t the advice you came here to get so I’ll share some common approaches I’ve heard about and point out what I feel to be the benefits and drawbacks of each one.
Before getting into that though, I’d like to mention one other thing. The question mentions the current situation involves all finances being handled separately and then mentions wanting to combine the finances of both people. But the reason behind why the change is desired isn’t mentioned.
Is this something you feel you should do because of an idea married people are supposed to share everything in one big pool? Do you feel your spouse-to-be is bad with money and you want to manage their funds? Do they have a lot more (or less) money than you do and you want to pool all your resources so everyone is on equal footing? Are you bad with money and you want to have them take over everything for you? If the marriage ends in separation what do you plan to do with the shared financial resources and debts you two accumulate? When you told your partner you want to merge finance how did they react?
These are questions I don’t need the answers to, but they are topics you should discuss openly and honestly with your partner (in detail) prior to the wedding. After you say “I do” is a terrible time to find out you two want to handle money differently.
With that out of the way, let’s look at some popular options for handling money as a married or common law couple.
One big, common pool
The popular approach most people think of when they talk about married people joining their finances is the idea of pooling everything together. In this scenario the couple has one or two banking accounts (probably one chequing and one savings account). All income flows into the shared accounts and all expenses come out of these accounts. Both people share credit card accounts, bills, and so on. There is a simplicity and transparency built into this approach which a lot of people appreciate. Both people can see what is happening, make decisions together, and share all income and expenses equally.
It’s a nice ideal, but it tends to only work in a specific set of circumstances. Usually for this to work both people need to have similar incomes, be very open and honest when it comes to discussing money, have similar approaches to financial planning, and have good impulse control. In other words, this sort of approach works best when you both have similar amounts of funds and similar views on money; can communicate clearly to come to agreements; and don’t make any impulse purchases prior to discussing them with your spouse.
It can work and it can be a straight forward, mutually beneficial approach. However, it tends to fall apart if any of the conditions I mentioned previously don’t line up. If you two have different approaches to managing funds, if one of you makes large impulse purchases, or if you have trouble agreeing on how to spend money this approach will become contentious.
This may sound a bit dark considering you’re about to get married, but it’s a fact that around half of all marriages end in divorce. If you do split up down the road, having all your assets (and debts) lumped together will make it a bit harder if the two of you ever separate. You’ll need to divide everything and each get separate accounts.
Entirely separate accounts
The polar opposite of the common pool of finances is keeping things entirely separate. It sounds like this is the current situation with the person who asked this question. One nice aspect about this approach is it requires slightly less coordination once both people agree on how it’ll work. You don’t need to go into the bank to merge accounts, you don’t need to get new credit cards you can both use, you don’t need to go through the dance of making sure both of you have the usernames and passwords to everything. You just keep using your existing accounts and your spouse keeps using their accounts. That part is straight forward.
The one tricky part is, with separate finances, deciding how to split things like bills and responsibilities. If you keep your finances separate while sharing a home then you’ll need to work out who is going to pay for what. Which one of you pays the mortgage, which one pays the insurance, which one puts money aside for future kids, which one buys the car when it comes time to do that?
This is an approach I’ve gravitated toward in the past and it usually meant trying to set up bills so that each person was paying an even (or evenly proportional) share of everything. Like one person would pay the rent, the other would pay utilities, one person paid for Internet, the other paid for insurance, etc. If the cost of things changed (due to a move or new service) we’d talk about how to re-shuffle things.
This approach is nice in that it’s fairly simple on paper and leaves each person to organize their own finances however they like. Which can be pleasant and simple. The main detractors from this approach are the negotiation up front and you need to trust your partner is paying their share of the bills. You don’t want to find out down the road that your spouse simply forgot to pay the electric bill three months in a row and power is about to be shut off, or that your partner gambled away all the mortgage money this month and you didn’t know because you weren’t looking at their account statements.
With this approach it is also important to have a backup plan in case something happens to your partner. If they will be away on business for long periods or were to pass away, you’d need to be able to access their accounts to pay the bills. They should provide you with account information, like account numbers and passwords, so you can keep things running in their absence.
In short, this approach gives you both some independence to do as you like, but that means trusting the other person to be responsible even when you can’t see what they’re doing with their money.
Shared common account, separate personal accounts
A compromise between the two extremes is for each of you to maintain separate accounts for most things, but set up one joint bank account for shared expenses and savings you want to use for shared goals. In this situation both people agree to put a certain amount of money each month into the shared account and all home expenses (groceries, mortgage, utilities, insurance, etc) come out of this account. Whatever is left over from your pay is up to you to spend how you like.
The nice aspect of this approach is, assuming the transfer of money into the shared account is automatic, the bills you both need paid are handled in a shared way and both people can see when things are paid for. Having a shared account allows you to both contribute, both see what is being paid, and support each other if one person loses their job or forgets to make a bill transfer. It keeps the important stuff shared and in the open. Meanwhile both people can keep any leftover money each month in their own personal accounts to use however they like.
The downside here is minimal and basically boils down to the hassle of maintaining one joint account. And, as with the second option, you’re going to need to talk at some point about how much money each person needs to dump into the shared account. This will involve totaling up your shared bills and then deciding how to share the cost.
Something to talk about ahead of time is whether you each pay an equal amount each month or do you each pay a percentage of your income? This will be easier if you both make about the same amount of money. But if one of you makes $50,000 and the other makes $200,000 you’ll have to decide if it makes sense to split expenses down the middle or have each person pay in a set percentage of their income. Different people view “fair” differently in these situations so chat with your spouse about how they feel income should be shared.
Conclusions
There are other ways to approach sharing money and dividing responsibilities, but these are the three I hear about most often. Whichever approach you take, I recommend talking about it first and then doing semi-regular check-ins with your spouse to make sure you’re both happy with how things are being handled. Money is a serious topic for most people and making sure you’re both on the same page, not only on how to handle money but with regards to your financial status, is a good plan. See if one of you is feeling stressed, or like they contribute more than their fair spare, ask if they have any debts you need to know about. When it comes to shared finances you don’t want any surprises or lingering frustrations.
Comments are closed, but trackbacks and pingbacks are open.