The solutions for combining finances with your partner are going to depend quite heavily on the dynamic of your relationship as well as your individual and joint financial goals. Many couples choose to treat every dollar as a dollar of the overall relationship. Other couples choose to employ a "yours, mine, and ours" philosophy with joint assets and invidual spending accounts. Another approach is the "pro-rata" method of sharing shared expenses and splitting by percentage of income as a portion of the total household income. Separate spending accounts are OK! Just be up front with how much money will be kept separate as well as the level of transparency each of you expects for those pots of money.
Relationship <> Money
"Failing to plan is planning to fail." -Ben Franklin
Failing to treat finances as a big factor in a relationship can be a fatal flaw for many couples.
If you're in a long-term relationship where expenses and financial goals are shared, it's important that you and your partner are on the same financial page. Legally married or not, this will ensure that both of you are making prudent decisions and planning for the future together.
Despite a growing number of individuals keeping financial secrets, an overwhelming majority (80%) of Americans said they're comfortable talking about money with their partner. Sixty one percent of respondents claim to discuss money within the first six months of a relationship.
Spending habits are one of the biggest causes of disagreement, so you can strengthen your relationship just by determining how you will spend your money. That includes daily expenses like coffee and groceries as well as big-budget items like cars, housing, and vacations.
Separate spending accounts are OK! Just be up front with how much money will be kept separate as well as the level of transparency each of you expects for those pots of money.
Talk to your partner about your definitions of money, happiness and success.
Before you begin to talk about combining your finances, it's important to understand that money is a tool, not the source of happiness. It's not the source of your affection for each other either; in fact, if you're hoping that merging your financial lives will bring you closer together as a couple or give you some sense of security and stability in that relationship, then chances are high that it'll do just the opposite. Money is merely an asset with which we can choose how to use our time and energy throughout our lives.
Talk about your past history with money.
It's also extremely important to talk about your history with money. It is very rare for two people to come to a relationship having the exaxt same amount of money in the bank, the same income levels, the same credit score, the same upbringing with money, etc. Start by exploring how you grew up thinking about money and whether or not it was ever discussed in your household as a child.
Things become more complicated if the following types of situations exist:
- 1 partner brings significant credit card debt to the relationship
- 1 partner brings significant student loan debt to the relationship
- 1 partner has previously had a significant windfall (sale of business, company stock, inheritance, etc)
- 1 partner works, the other partner does not (or general income disparity)
The very best thing that both of you can do is be completely open and honest in the beginning. The worst thing that can happen is if 1 partner begins to develop a sense of resentment towards the other for their positive or negative financial situation.
Make sure you're both on the same page... and then revisit this conversation at least once each year.
We recommend coming up with some powerful reasons "why", both as individuals and as a couple.
- Why get better with money management?
- Why payoff debt?
- Why be more mindful about spending?
- Why combine finances?
Here are a few example answers:
- To provide for each other and support our desired lifestyle for our family, children's education, and retirement.
- To be able to start saving for retirement in a meaningful way ($___ in liquid assets by 2030).
- To feel better about our week-to-week finances and not have it hanging over our heads.
- To be able to purchase a real estate property by ___(year).
- To be in a better position for buying into the equity of a company or purchasing other income producing investments.
Make sure you're both on the same page... and then revisit this conversation at least once each year. Take time to discuss what both of you want out of life, individually and as a couple.
This includes both short-term goals (buying a new car) and long-term ones (early retirement). Decide how much money each person will contribute to the household's finances, which should be an amount that leaves them feeling financially secure enough to not worry about paying rent or bills but not so much that they're living in luxury. You may also want to decide how money will be allocated for things like groceries, utilities and other necessities—and make sure you're both comfortable with these decisions!
Create a master view of all financial accounts, assets, liabilities, and insurance.
This list should include not only the accounts you use every day but also any that are in your name, as well as those that are in your partner's name and even ones that have been changed over from one account to another. If there are any assets—such as a family heirloom or jewelry—that aren't currently active but should still be documented for tax purposes, add them to the list now. It's important not to forget about these items because they could affect everything from how much money you pay for insurance down the road (if anything) to what happens if one partner dies first (also known as death benefits).
Do you have life insurance or retirement accounts (IRA's, 401k's, etc)? Review all beneficiary designations to make sure they reflect your true intentions in the event of your passing.
Do you both have employer benefits through work? Do a comprehensive side-by-side review of your benefits packages to see which benefits should be utilized. The biggest one is often healthcare. Which plan is better and/or more cost effective? Should you consolidate into one medical insurance plan and both be covered individuals? (Note: You can often qualify as a "domestic partner" even if you are not married. Certain conditions must be met!)
Make a budget for all the bills you will pay together and separately.
- Set up a budget by listing all income sources, day-to-day expenses, and discretionary expenses. Be sure to set aside money to build up your cash runway.
- Come to an agreement up front about day-to-day spending as well as big-ticket item purchases.
- Make sure you're both happy with your budget and each of your willingness to follow it to the best of your ability.
- Track the budget you've set up, and stick to it.
The answer to how to treat assets, debt, and budget items is going to depend quite heavily on the dynamic of your relationship as well as your individual and joint financial goals.
Many couples choose to treat every dollar as a "100% jointly owned" a dollar of the overall relationship. Accounts are merged, expenses are shared, and there is total transparency with regard to financials.
Other couples choose to employ a "yours, mine, and ours" philosophy. This approach involves keeping finances mainly separate with the exception of joint accounts used to cover shared financial obligations. There's also the option of a prenuptial agreement to protect each other in the event of future divorce. If either partner has been given large sums from family or inheritance, those dollars can also be protected in trust.
Another approach is the "pro-rata" method. Simply add up your 2 incomes and find the % that you and your partner bring in as a portion of the total. Major expenses like housing and other large ticket items are split by applying those percentages to each dollar amount.
According to a study conducted by the American Psychological Association:
"...couples who pool all of their money (compared to couples who keep all or some of their money separate) experience greater relationship satisfaction and are less likely to break up. Though joining bank accounts can benefit all couples, the effect is particularly strong among couples with scarce financial resources (i.e., those with low household income or who report feeling financially distressed)..."
There is no one-size-fits all philosophy here, and every relationship is different. Find the right balance and what makes sense for you.
Have a cash runway account and other savings programs that both partners contribute to regularly.
The point of this fund is that both partners contribute to it. This makes it a true joint cash cushion account, rather than just a source of money for one partner's goals. It should be enough to cover 3-6 months of your expenses if you were unable to work due to illness or injury, or if you lost your job.
Consider creating other savings streams for specific goals, like buying a house.
Divide responsibility of various financial tasks among each of you.
When thinking about a budget, it's important to remember that you and your partner are on the same page. If you're looking for a quick way to get started, try setting aside some time for one of you to create a shared tool like Range where both of you can enter all of your financial information. The best thing about this method is that it eliminates any confusion over how much money is going into what area—and makes sure that both partners are on the same page when it comes to their personal finances.
Automatically calculate you and your partner’s joint net worth into one single view without combining checking or savings accounts. It’s the best way to view everything together, while keeping your money structure as it is.
Once the budget has been created, set up automatic payments from each of your main checking accounts into 1 main shared account so that all auto-pay can be set up and bills are paid on time and no late fees are incurred (it might take some time for this process). You each might also want to maintain a separate savings account; if so, make sure there's enough money transferred into it every month so that the cash cushion doesn't dry up at any given moment in time.
Create a shared space that allows you to see all of your financial information.
After you’ve connected all your financial accounts to Range, you’ll be able get a fully personalized financial analysis that auto-updates. No need for spreadsheets or other monitoring apps.
See all the money coming in and going out of your accounts without opening a new bank. There’s no limit to how many accounts you can add—but there should be a limit on how many accounts you have! Each account should have a distinct purpose or benefit to you. Otherwise it's just one more account to keep track of and potentially one more tax reporting form to deal with!
Obtain your credit scores and track them frequently so you can reach all your major upcoming goals. This helps notify you when things change so you have peace of mind.
Upload documents to the site, collaborate at the end of the year for holiday spending, work together to create "budget amounts" for big ticket items like furnitures and vacations - the possibilities are endless.
Make sure that both partners are able to manage their finances on their own so that neither feels beholden or dependent upon another person who doesn't understand what it's like being in debt or making less than ideal choices about spending habits due only being able sustain themselves financially.
As you’re figuring out how to combine finances with your partner, remember that it can be stressful and that you are placing inherent trust in each other.
When issues arise, try talking about the situation with your partner and exploring strategies for working together. You might find it helpful to make a list of all the bills you pay together and separately; this will help clarify who pays what when it comes time to go over your budget (as well as give both partners an equal say in deciding how much money they want to spend on their shared expenses).
Having cash runway cushion will also help keep both parties calm during times when one person is not feeling financially stable or confident enough to contribute as much towards shared expenses.
Have fun with the process! Money is the engine that drives a number of life goals (or makes them significantly easier), so always remember the true purpose of your dollars and the exercise of getting on the same financial page.
Range is here to help.
With Range, you can connect all your finances into a single dashboard to track, monitor and plan the best version of your life. Say goodbye to middlemen and spreadsheets and hello to the new financial you.