It’s Valentine’s Day and you know what that means… couples can’t wait to get home tonight, open up a bottle of wine, and get down and dirty… discussing their finances. Because what’s more romantic than talking about money, right? Figuring out how to split the bill can be awkward enough so how are you supposed to bring salaries, savings, student loans, credit scores, etc. into the mix.
It may be an uncomfortable conversation at first, but if you’re going to cohabitate or get married it’s a must. And given that money is frequently cited as one of the leading causes of stress in relationships it’s something I’d recommend doing sooner rather than later (and definitely before moving in or getting engaged). There isn’t one right way to merge your finances, but you’ve got to start by being honest about your own money habits and open to the fact that your partner’s finance style may differ from yours.
The way I see it there are three basic ways to combine your moola:
What’s Yours Is Mine
The Setup: All for one, and one for all. You combine all your accounts, debts, income, expenses, etc. Administratively, this is the least fussy and takes the least amount of work other than the upfront time of combining accounts and updating direct deposit/auto-debit. Set it and forget it.
Things to Consider: It’s easy and 100% transparent. No debating who pays for groceries and who pays the utility bill. On the other hand, if income isn’t equal, the higher earning partner may feel like it’s unfair to share everything. Or maybe your partner has credit card debt, and you don’t feel it’s your responsibility to assist in paying it off.
What’s Mine Is (Mostly) Mine
The Setup: To me, this means you essentially keep your finances separate. You maintain your separate accounts and find a way to split the bills. Maybe you each write a check for your half of the rent and divvy up other bills like groceries, cable, etc. with Venmo.
Things to Consider: Having your own accounts allows both partners autonomy but may require number crunching on an ongoing basis depending on how flexible you and your partner are. For example, if you ordered a movie on demand or the water bill is higher one month, are you having to recalculate who owes what with every bill variation?
A Little Bit of Both
This is where Roberto and I fall… somewhere in the middle. And between the extremes of combining everything and keeping everything separate, there are 1,001 other possibilities. You’ll likely end up with a combination of joint and separate accounts, and some of the variability will come from deciding how much goes into each “pot”.
One Joint Account
In this scenario, you maintain your separate accounts and use a joint account to cover shared expenses (however you define them). After tallying up the expenses you’re planning to split, you’ve got to decide exactly how you’re going to split them. If your incomes are similar you might choose to contribute equally to the joint account, but if one person earns more perhaps you’ll split expenses according to your income levels. A common way to do this is the percentage method. As an example, if one partner earns $40,000 annually and the other person earns $60,000, they’d split expenses 40/60. So if their joint expenses were $3,000 the higher earner would contribute $1,800 to the joint account and the other partner would contribute $1,200. Anything over and above that amount they would keep in their separate account.
One Separate Account
The opposite of the above is that you merge everything with the exception of one separate account. All your income is deposited to your joint account where your shared expenses are paid from. Each month, a set amount is transferred from the joint account to each person’s separate account as essentially an adult allowance. These funds are for discretionary or “fun” spending with the idea being that each individual can use their funds as they see fit without necessarily needing to clear the expense with their partner. For one person that could mean a $5 caramel macchiato each afternoon, while the other may prefer to save their funds for bigger ticket items like a watch or a purse. Just like the “One Joint Account” scenario, the tricky part is deciding what that allowance should be and if it should be the same for each person
My Bae and Our Bills
That thing I said about having different money habits than your partner. Couldn’t be truer for Roberto and I. We have the same values around what things are important to save for and what we’re willing to splurge on, but the way that we handle our finances was (and still is!) pretty different. I’m always curious about what is working for other couples, so in the interest of sharing, I wanted to give you some insight on what has and hasn’t worked for us over the last couple years. But before I can tell you how our finances have changed since getting married, I think you’ve got to know where we were both coming from first.
My personal finance style has always been a little… obsessive. I check Mint.com about seven times a day. Before we got married, my paychecks were split between multiple accounts all calculated down to the penny for specific reasons in specific amounts. To ensure I wouldn’t owe anything or get a big refund come April 15th, I built a spreadsheet to calculate what my state and federal withholding should be and updated it multiple times a year (sorry payroll, but you’re welcome co-workers 😉). I can fully admit I have a problem, but it worked for me.
Roberto, on the other hand, is super laid back. To this day, I’m not really sure what his strategy was, but his bills got paid and whatever he was (or wasn’t doing) worked for him. He wasn’t spending half the time I was worrying and calculating, but to my amazement, it seemed like his “system” was working a-ok. He had a savings goal and would make transfers to that effect periodically, but other than that it was pretty laissez-faire. I would say he remains the “idea guy”, while I’m clearly captivated with the nitty gritty. Which leads me to “the merge” (which reminds me of ‘The Purge’ which is fittingly unromantic).
Roberto and I’s income is different enough that it didn’t make sense for us to split our expenses down the middle. Given my penchant for calculating things to the penny, the percentage approach to contributing to one joint account seemed like a good option for us. So I tallied up our expenses and updated our direct deposit to reflect our calculated contributions. What was left of our individual paychecks went to our separate accounts. This setup was my idea and it seemed fair to me, but before long it gave Roberto a total headache. His income varies quarter to quarter and I was making him crazy trying to calculate and re-calculate our income and percentages every few months. He also didn’t think it made sense that he was “keeping” the income over and above his prescribed contribution to the joint account. He truly views everything as one pot so all the extra calculating just felt silly to him… were we saving up for separate vacations and homes or did we have the same goals? I still liked the idea of having separate accounts for “personal” spending, but I decided to give it a shot and see if I could let go of my double decimal addiction. And you know what? It’s worked out. The way we’re doing it certainly is not the only or the best way, but it’s what works for us given our income patterns and finding a happy medium between both of our money styles. The fact that we tried something only to discover it wasn’t going to work for us in the long-term is a testament to that fact that finances, like anything else in your relationship, isn’t a one-time conversation. But if you want to skip “the talk” tonight, I’ll forgive you 😘.
Like I said, I’m always interested to hear what method other people are using, so let me know what’s working for you!