If you just got married or are getting married soon, it's time to start talking about money with your partner. Super romantic, we know, but listen up: agreeing on money is a key part of a successful marriage as it sets you up for financial security now and in your golden years together!
Combining finances with another person is a big and tricky transition, but it's not an all-or-nothing proposition. Some couples combine simple checks with pension funds, credit cards, and family budgets. Others keep their funds separate while sharing one or two bills to pay or take annual vacations.
Either way, there's no wrong way to personalize your bank and bill payments, as long as it's transparent, fair, and sustainable for both parties.
Why talk about money?
Before we get into the steps to combining your finances, let's talk about why it's important. Money is the number one stumbling block that couples face. In fact, according to research, financial disputes are the second leading cause of divorce after infidelity.
Being on the same page now doesn't mean you'll never have difficult conversations in the future, but it will help you avoid fighting over money because you're headed in the same direction. Talking about money helps lay the foundation for a healthy marriage that will stand the test of time.
Remember, when you get married to your spouse, you become a "we." It's a big change. And speaking of money, it forces you to discuss really important topics, such as your goals, your dreams, how you want to retire, and what legacy you hope to leave behind.
These conversations create a common vision for your marriage, which makes it financially secure and stronger. PS: Don't wait until you've been declared husband and wife to have your first conversation about money.
Now that you know why you should talk about money let's look at some of the methods of combining money.
Methods of combining money
Proportional method
Couples who use the proportional method to pool their finances contribute to family bills in proportion to their income.
Example: John and Jane
John earns $2,000 a month, or 33% of the family's total income; Jane earns $4,000 a month, or 66% of the family's total income.
The couple spends $3,000 a month on bills, including mortgages, utilities, and food, with twelve of their annual expenses going to property taxes.
John pays 33% of his monthly bill of $3,000, which equals $1,000; Jane pays 66% of her monthly bill, or $2,000.
Pro: Neither partner feels obligated to "keep" or "cut the budget" from the other partner's income.
Con: The partner who earns the most may begin to resent or feel penalized for earning more.
The couple can also take advantage of an intermediate stage of combined financing. They share family accounts but also keep separate money for themselves as individuals.
Gross contribution method
Couples using the gross contribution method each contribute the same raw number, regardless of how much they earn.
Example: John and Jane
John earns $3,500 a month. Jane earns $5,000 a month.
Their family's bills exceed $4,000 a month. Each contributes $2,000 and keeps the rest of the money in separate accounts.
Pros
The partner with the highest income does not feel penalized for her earnings.
The lowest income member does not feel subsidized.
Cons
Their relationship could be strained if Jane lives more luxurious than John.
Some couples also criticize this method because it feels like they are "roommates."
Complete Combine
Couples who fully combine their bank accounts pay all bills from the same fund, have only joint credit or debit cards and are associated with retirement investments.
Example: John and Jane
John earns $3,700 a month; Jane earns $2,600. Both salaries are deposited directly into a common checking account, which the couple uses to pay all their bills.
The couple also has joint credit or debit cards, which they use to pay for all their purchases, whether it's a home purchase (like a microwave) or an individual purchase (Jane spends $50 a month on old records, while John enjoys collecting baseballs and cards.)
Pros
John and Jane are united as one unit: "we" instead of "you" and "me."
If one person's income goes up or the other person's income goes down, it will rebalance.
Record keeping also becomes easier.
Cons
The member with the higher income may feel that the member with the lower income is spending their income.
If one person tends to spend while the other tends to be modest, there may be an imbalance.
Conclusion
There is no single best practice for budgeting a couple's money. The most important thing is to realize that there are options for your relationship and that you can customize the process to your collective needs. Of course, whichever method the couple chooses, they must agree on what to do if one partner's income drops to zero (i.e., if either partner loses his or her work).
Once you've decided on a method, don't be afraid to modify or change it. As a team, you must experiment with different strategies to find the perfect balance between your individual and your shared money. Evaluate the cons and pros of each strategy together and decide which method feels most natural to you.
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