Combining Finances: What Method Will Work Best for Your Relationship?

It’s not always easy for a couple to walk a journey together for a long time. The elements that frequently draw two people toward one another at the beginning of a relationship become less central as the realities and demands of day-to-day life sets in—switching your financial mindset from “what I want” to “what we want” does not happen overnight.

Money issues and disputes tap into some of our deepest psychological needs and fears, including and not limited to trust, safety, security, power, control, and survival. It will take time and focus on finding a money management style that will work well for both of you. Money is a critical part of any relationship, and it is crucial to have a good foundation on how you and your partner navigate and manage your finances.

Your partner may have different priorities and expectations regarding how to prioritize and systemize your household finances. You likely have been raised with varying money experiences. Spending time discussing your money stories is an excellent start to understanding how you bring those experiences into your method for managing money together.

There are many methods that couples can use to combine their finances, and we have seen couples use each of them successfully and not so successfully-- so what is essential is choosing the method that works best for you. You may have to try it on for size to see if it fits or needs to be changed to fit you and your partner.

Fundamental Methods for Combining Finances:

1. A complete combination of finances: Fully combining your finances means couples consolidate all household resources and are jointly responsible for making financial decisions and managing finances. Couples with this method will typically have joint bank accounts, and together they make financial decisions regarding spending, identifying goals, reaching those goals, and other priorities.
   
   
2. Complete separation of finances: Each person manages their own financial resources and makes their own financial decisions. They will have their own bank accounts and make spending and savings decisions individually. This system requires that couples work out a strategy to pay joint expenses, such as mortgage and utilities. Do you each pay equally, or is your contribution to the household expenses in line with your income relative to the household? Do you divide up the bills, so you each pay specific expenses, such as one paying the mortgage and the other paying all the other fixed expenses?
   
   
3. A combination of methods: Most couples will settle into a middle ground and partially combine their finances. This method works well for couples with different preferences for spending/savings. Often couples will each have individual bank accounts as well as a shared account.
   
   

Rules to Discuss and Decide:

Some core “rules of the method” may need to be discussed and agreed upon with any of the approaches.

1. How much “play” money do you each get? “Play” money is a set amount of funds consistently deposited into an account that can be spent without judgment or input from their partner.
   
   
2. What goals are we working on together, and how will those goals be funded? Will you each contribute to a common goal, or will you each have different goals you will individually fund?
   
   
3. How will we divide the household expenses? Will we use a joint account or split the bills, and each pays an agreed-on amount?
4. Will we want to track our spending? Who is responsible if you decide to track? Will you take turns?
   
   
5. What happens if there is an emergency – do you build an emergency account together, and what qualifies as an emergency?
6. Do you each feel that the method you have chosen is fair?

All of the decisions and rules outlined above will be framed by your income and expenses as a couple. Creating a spending plan involves understanding your monthly expenses and setting money aside for non-monthly expenses, unexpected expenses, and funding your goals. Bucket budgeting can be a helpful framework to build your financial management system.

Numerous studies have identified communication (or a lack thereof) as one of the top reasons for couples therapy, as well as one of the top reasons for break-up and divorce. We highly recommend setting time aside each month to talk about your financial life. Is it working for both of you? Were the spending assumptions you made reasonable estimates so you can live within your spending plan?

By deciding what method will work best for you, agreeing to the rules and continual communication you will find a system that will help you combine and navigate your financial journey.

Investment Advisory services offered through Birchwood Financial Partners, Inc. an SEC Registered Investment Advisor.

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