Ask the Readers: How Do Couples Combine Finances?

In answer to Lindsey’s question, since you are used to tracking expenses it might work best for you to continue doing what you do, and let your partner continue to be himself. The most important thing in combining finances is that you are both on the same page about how you make spending decisions.

Make sure that you and your partner have an understanding about what purchases require communication (i.e. any purchase over $100 need to be agreed upon) and which don’t. As long as you both understand each others’ needs and you don’t try to force him to try and track everything, you should be okay.

We combined our bank and investment accounts shortly after getting married. It’s sort of odd because we were older and somewhat stuck in our ways, but we viewed debts, assets and expenses as “ours” so it seemed easier to combine them. Now all the groceries, mortgage payments and utilities come from one account. (Not to mention it, combining the investment account facilitated estate planning as well) As we were in the midst of our careers, we were also looking at an early retirement as a shared goal. I would add, though, that was it was obvious from early on in the relationship that we had similar views about money and spending.

But, we do give ourselves equal allowances to cover clothes, going out money and lunches. It’s the simplest way for us to budget those things without excessive record-keeping and still gives us the freedom to make purchases without feeling overwhelmed by restrictions or that the other person is looking over our shoulder.

Finally, as for taxes. I spent three hours shortly before we got married trying to figure it out. I even tried to figure out if we were going to get hit with ATM. After it almost brought me to tears, I gave up and we are both withholding as single for this year.

When my wife and I got married, we combined our bank accounts, and everything except retirement accounts (which are set up on an individual basis). She’s never been much of a budgeter, or paid much attention to personal finance.

That being said, she didn’t have any debt, I however did, though it was just a car note and student loans. She was fortunate enough to have parents that could afford her college education and a new car for her. That doesn’t mean she’s financially irresponsible. She doesn’t go out spending tons of money all the time….but she couldn’t really tell you what our budget looks like, or how much money was in the account. She just knows about how much money we can spend each month comfortably, and leaves all that “finance stuff” up to me. That works for me. I’m very much an OCD type when it comes to finances. I grew up in a house where money was always an issue, so now I watch where every penny goes, and make sure we have an emergency fund, and am saving and paying down our mortgage.

Our system works for us b/c it lets me monitor everything and still feel secure that our finances are in order, but it lets her be her, and not feel like she’s being “controlled” since I control the money. The worst that’s come from this when I occasionally notice a charge on the credit card, or debit card that I don’t know anything about, so I ask her about it. Usually it doesn’t bother her, but sometimes she asks “how am I supposed to buy something for you”. My response has always been, “just tell me that…I just wanted to make sure it was valid”, which is the truth. Those quibbles are getting less frequent, as she’s learned to accept what I’m doing as not checking up on her, and I’ve learned to frame the question more along the lines of “hey, I noticed a charge for $x at fill_in_the_blank store…was that you?”

@ mjmcinto: our individual spending/checking accounts also work fabulously for gifts.

@Katie: I can see where it would, and once we get our house paid off, I might look into that. However, right now I think it might make things a little more complicated, and could lead to some resentful feelings….let me see if I can explain.

We’ve set up a budget. In it, we’ve set aside x dollars for “mad-money” each month. This is money that either of us can spend as we see fit. We don’t really track who spends what percentage of it (and we don’t want to either), especially since most of it gets spent on us (dinner out, movies, etc). Whatever is left from that mad-money at the end of the month, I move to the savings account for the extra payments on the house (we cut a check whenever we reach 5K in it or yearly…which ever comes first). I would be afraid that if we started to keep our mad-money in separate accounts, then a few things could happen:
1) we wouldn’t transfer the extra money into the account for the extra house payment, something we’ve both agreed to as our #1 priority (i’d rather invest the money, but since I can’t guarantee that I’d beat what we’d save in interest, she’d rather pay it off….and as much as I’d like to play in the market, paying off the house is a guaranteed money saver, which fits Buffett’s Rule#1 – don’t loose money)
2) If we did move the extra money out to go towards the house as we do now, we’d have no choice but to notice who was spending, and who was saving for the house, which if this pattern did emerge over time, resentful feelings could start to form. However, with it being “our” money, it doesn’t matter. And since there’s not that clear cut line, it’s not obvious, and as the saying goes ignorance is bliss

For the first year I wouldn’t change the W2s. I’d wait to see how it turns out tax wise. The adjust after the first year. Either that, or save a decent amount of money to use in case you owe. It’s entirely possible you will.

As for all else, we have our paychecks deposited into a single account and pay bills and credit cards that we use for day to day expenses from there.

I think I’m lucky in that my husband and I are both pretty much on the same page when it comes to money. I’m a bit more frugal and OCD than he is about it, but neither of us are spenders, both of us had great credit scores coming into the relationship, and we both agree that getting out of debt, establishing an emergency fund, saving for retirement, and setting financial goals as a couple are key to a couple’s success.

When my now-husband and I first moved in together in the beginning of 2006, we decided to merge our finances following Suze Orman’s “Equal Share” method in The Money Book for the Young, Fabulous, and Broke. We tracked our spending for three months, then put the system to work once we had a pretty good idea of how much we spent on shared expenses.

Basically, we each kept our own separate checking accounts and credit cards, but we opened a new joint checking account for all of our shared expenses–mortgage, utilities, food, shared entertainment, household maintenance and improvement, vacations, etc. We calculated how much these things cost us on average each month, then added an additional 10% to that total for irregular expenses. Then we divided this modified shared expense number by the combined total of our take home pay to get a percentage. Multiply each person’s take home pay by that percentage, and voila! That’s the amount we each transfer into the joint checking account each month for the shared expenses.

Anything left over in our individual accounts, retirement accounts, and our individual debts are handled by us separately at the moment, though we did open a joint savings account recently (it was originally used for our wedding funds, but now it is going to be our emergency fund).

I handle most of the nitpicky budgeting and tracking of the joint accounts as well as my own, but my husband (who mostly just keeps a casual eye on his own accounts) can log into the joint account anytime online and see what’s going on. He hands over his 401(k) quarterly statements to me when he receives them so I can update our net worth in Microsoft Money. We always discuss major purchases from the joint account.

As for taxes…not sure what we will do about that yet. We just married this July, so our first opportunity to file taxes as a married couple will be this coming tax season. We recently ran our numbers in the IRS Withholding calculator online and discovered that we were both withholding way too much ($4800 for my husband, and around $2100 for me), so we both submitted W-4 changes to pretty much cut off withholding for the rest of 2007. In January we’ll both submit new W-4s with more accurate exemptions.

I’m with mjmcinto and Jared – except that it’s my husband who has no idea what our accounts are – an I can tell you at any time down to the dollar.

We combined all of our accounts immediately after getting married. My credit was very good and his was rather poor – mostly due due to his lack of attentiveness at paying bills on time. We canceled all of his credit cards and transfered the balance to mine. Adding him as a co- and therefore helping his credit. And with me paying the bills – everything gets paid as it should and his credit has improved greatly since then.

When he wants to buy something that he doesn’t want me to know about (gifts – he’s not ‘sneaking’ money) he just takes out cash or like Jared said – there’s a credit card that I’ll tell him to use near Christmas (and my birthday) that I just don’t check the balance on during that season.

We don’t have precise ‘allowances’ for personal items, but we have a ballpark – and if it’s something over $X he just checks with me if we have it in the budget for the month, do we need to wait and save for it, or do we need to say no.

It works really well and he knows he’s bad at keeping track of money – so he really appreciates that he doesn’t have to look at it all.

For taxes we do married but at single – it gets us a big refund which we used in the first years to pay off the credit card debit we both came with – but I’m reconsidering for next year.

Gosh this is a tough question and one my husband I have been trying to work through.

Background: We each have our own checking and our own saving accounts, then we have a house account for our joint expenses and we have other accounts for our investment properties. This is our first marriage, we were both professionals with good careers and established financial histories and habits when we got married. I earn more than double what my husband earns.

Before marriage: We each managed our own finances ourselves. I paid all the bills for our primary home and for our investment properties. We did not have an exact formula for splitting expenses, we each paid half the mortgage, I paid all utility/cable/other house related expenses and my husband picked up most of the grocery expenses.
After marriage (10/06): Our split of the expenses stayed pretty much the same. However, we undertook a big debt paydown project ($55,500) and as aresult we started tracking our expenses, budgeting, and putting a lot of unallocated monies towards paying down our debt. 2/3 of the debt paydown has been paid by me, more than 2/3 of the debt was husband’s pre-marriage debt. Said another way, we combined debt. We talk about the debt as ours, the pay-down project is a team effort.
We are still operating with our own individual accounts and a joint account, but I would like to consolidate to 1 account for the both of us. Husband is not a spender, but he is not organized or careful with what spending he does. He regularly overdraws his own account and regularly withdraws money from the wrong joint account when he needs money. He likes the idea of combining accounts because he would have more available money but he has concerns about screwing up our account. I want to combine accounts, because its too complicated to track so many accounts in Quicken and at this point in our relationship I think its time. We are still working through this issue.

We also have an agreement that any expenditure over $300 has to be discussed and generally agreed to.

@mjmcinto: I have usually found it cheaper for each person to get the insurance from their employer.

Now that I’ve read the other comments, a couple more points to add.
- After reading Ramsey’s Total Money Makeover, we both have the same general financial goals (the first one being debt free) and we are happy to be different (not buying new cars, flat screen tv’s, trips to Europe, etc. like our friends [who are all broke] are).
- We both max out our 401ks and we check in with each other on the account balances as we are tracking our net worth on networthiq.com.
- We are planning on maxing out IRA’s once we get our debt paid off.
- We agreed on other finanical goals, emergency savings fund, vacation savings fund, etc. I managage those accounts along with our savings accounts for our escrow payments (real estate taxes and insurance). Those savings monies also come out of “my” money. So, I cover 1/2 the mortgage, all utility and other house related expenses, the majority of debt payements, and savings for e/r fund, escrow fund, and other savings funds.

@mjmcinto: on insurance, my wife negotiated a higher salary because she skipped all benefits, including health insurance. We knew we would eventually have her on my plan since our goal has always been to be a one-income family when we had a child, so we went ahead and put her on my insurance.

We also talk about our long-term goals A LOT. For couples who don’t, I wouldn’t say you have to. But for us, money informs so many other decisions that it becomes the framework for discussing them. For instance priorities, environmental issues, travel, kids, quality of jobs, career goals, all relate to our financial goals. So by continually discussing our goals, we touch on all manner of other issues.

@george, if you have never had a disagreement about money, one of you must be conceding, at some point, when you shouldn’t. Statistically, it’s not good to never disagree.

You don’t have to have an all-out brawl, but if you really never have disagreements about money, it sounds like something is askew. I’m happy for you, but I don’t buy it.

But anyway, it really doesn’t matter to me what you think about what I said. I simply offered my opinion, based on my experience, about the subject at hand, and if you disagree with me, that’s fine – no skin off my back.

@sam: you might want to consider a setup like my wife and I have done. We have two accounts, one for billpay and one for monthly expenses (dining, clothing, etc). We spend ALL money out of the monthly expense account – we NEVER spend money out of the billpay account. The reason for this separation is that any accidental overspending in the monthly account (which has never happened, btw) will not cause any bill payment to bounce.

The billpay account is an ING Electric Orange account, so we have no checks for that one. We do not carry the debit cards that ING gave us – they are in our safe. The other account is a credit union account; we have checks and debit cards for that account. This type of simplification might help your situation, since there would be only one account from which to withdraw funds, and then there’s the other great benefit: overspending will not affect billpay.

While my wife is working, we have both of our paychecks deposited into the billpay account, and I have an automatic money transfer from there into the spending account. (In actuality, I have my paycheck split between the two accounts, to make the logistics of the “transfer” easier. There is an automatic transfer too, but it is for some temporary expenses; I didn’t want to trouble my employer’s HR department with multiple direct deposit change requests.)

I use Quicken to track account balances, but I use Excel to track our budget (it’s my version of the envelope method). The spreadsheet is set up with one tab per category, and a “balances” tab that sums up all of the categories; I always double-check that this balance matches the one in Quicken. I actually have several of these spreadsheets – one for the spending account, one for the escrow account, and one for the savings account.

I can provide more details if you are interested. I wish you well on your merger.

I feel the IRS calculator does a better job of estimating the actual tax liability than the W-4 form. What it comes down to is that you need to fill out a tax return with the income and expense amounts that you expect to realize for the year, determine your forecasted tax liability, and then play with your exemptions on the W-4 until you get a federal withholding amount that at the end of the year will total about what you expect to pay. (You can do the same with your state income taxes but bear in mind that sometimes their rules about what you may claim for exemptions will differ from the federal government.)

If you pay at least 90% of last year’s tax amount, you will not get hit with an underpayment penalty in most situations. I know many folks like to get that refund at the end of the year, using the process as a forced way to save, but I encourage folks to look at this practice as giving an interest free loan to the IRS. Are you really okay with that? If not, and you can be disciplined enough to do this, pay the minimum amount that you have to in order to avoid an underpayment penalty, and put the extra that you would have paid into a savings account. At the end of the year, you will have saved enough to cover the resulting tax bill, and you will have earned interest on that money throughout the year.

@Daniel: I never said that we have never disagreed about money issues – please do not put words into my mouth. As noted in my comment, we’ve never had and argument or a dispute, but we’ve certainly disagreed at times.

@Daniel: I think most couples are able to distinguish a disagreement from an argument. If you don’t see the distinction, that’s fine.

I stand by my point a yours/mine/ours account system, combined with good communication and mutual goal-setting, strikes a good balance between independence and togetherness. It has eliminated arguments about money issues in our household.

On occasion my wife and I may disagree on some things (I don’t think a haircut should ever cost $80, for example), but we don’t argue over the issue, since she is spending “her” money on it rather than “joint” funds.

My husband and I combined our expenses. I have a hard enough time figuring out which bills get paid from the first check of the month or the second – much less trying to figure out spliting them up between us! Besides my husband makes about $10k more than me a year and constantly trying to figure out the right % would drive me nuts.

I guess that just seems too ‘roommate-in-college’ to me personally.

As far as the W4′s – we have some random income from freelance and we were really worried about what to put on these. When we first got married we just left them at 0. Our familys financial advisor said that if we were worried about possibly having to pay in at the end of the year, it would make sure that didn’t happen.

But once we had a baby this year we both just put down one dependant (set at 1) and it helped bring in a little more cash each month for our new expenses. I would say that we get about $50 to $100 more each check because of that. (BTW – yes we had a terrible time trying to figure out just how much putting 1 number more would add to our paychecks till we actually did it!)

Lots of people are couples without being married–I spent 28 years with my husband before we got married (we were waiting until gay/lesbian couples were able to marry…when Spain changed their laws I finally felt able to be married without guilt and start getting those 1000+ benefits in the tax and other codes). We waited another year to get a joint account (the house account) from which to pay joint bills. Before then, it was a check from each of us or, since his income was always about twice mine, he would pay some bills by himself. This worked great for us, and we both have independent credit scores and independent retirement accounts etc. I think it is important for both partners to have an independent financial life (and skills) since you can’t know what will happen in the future. I also think it is very easy to disapprove of someone else’s choices, and why add another possible source of conflict? Very early on, I did mess up and get in some trouble with a credit card, but it was my trouble and I finally got out it, and learned lessons I think I wouldn’t have learned if we’d had only joint accounts then. When we first moved in together, a lot of people assumed we would join our finances, but I’ve always said that not joining them helped us survive the early years of forming a relationship, making the really deep ties that aren’t formed by a marrriage ceremony, only by years of a loving relationship.

My wife and I combined our checking accounts while we were living together before we got married. Later, after we got married, my wife took over all of our finances. Unfortunately, my wife is TERRIBLE keeping track of spending and managing money. I don’t know why we arrived at the decision that she should be in charge of paying the bills or that she should “be in charge” but I don’t think it’s necessary that married couples maintain joint accounts. We now each have our own savings/checking accounts and this system works great. I pay all of the bills from my account, and she contributes to the expenses by giving me the money we need to pay monthly bills. Whatever she has left over is hers to spend as she sees fit. She has gotten much better with money, but if you are the kind of couple in which one is a “spender” and the other is a “saver”, make sure the “saver” is in charge of the finances! It will save you a lot of money in the long run.

My fiancee and I have used the method Dan outlined and it has worked great for years!

This situation is really easy if each of your checking accts and the joint acct are all in the same institution – then you can transfer money easily, instantly, and without any associated fees.

We are combining half of our finances at the moment, in the sense that we put 50% of our net income into a shared account that pays for rent, food and things we agree to spend on. It works wonderfully for us.

The percentage of course does not need to be 50, it could be less or more than that, depending on what you want and need.

Lindsey,

A thought came to me earlier today, and I don’t recall seeing this in the comments.

Logistically, there are basically 3 ways to combine your finances:
- 3 accounts (his/hers/household)
- 2 accounts (ours/household)
- 1 account (ours+household)

My wife and I used to do the first one (3 accounts). In this scenario, all paychecks are deposited into the household account. Individual monthly spending happens from one’s individual account (this allows for freedom in spending), transfers are made periodically from the household account to the individual accounts, and bills are paid from the household account. This scenario probably would work well for you, at least at first, since you say you have had vastly different spending patterns. However, it accomplishes your other goal of having combined finances.

The 2-account method is similar to the 3-account method, but the only separation is between bills and monthly spending. This is what my wife and I do today, and I explained it earlier.

The 1-account method is probably what most people do, and is the same as the 2 account method, but without the previously mentioned protections for billpay.

I hope this gives you some ideas of what you can do. Whatever you decide to do, communication is of the utmost importance. Good luck with it.

My wife adds: it might be helpful to explore why he lives/lived paycheck to paycheck. Does he just need to be on a budget, or is he a spendaholic, or is there something else at work? Combining finances also means discussing goals.

Another issue. When we bought our house together in 2004 we were not married. I sold my house and the profits from that house (@ $100,000) was the downpayment for our house. Husband kept his house as a rental. Because we were not married and the downpayment was my money we signed a side contract documenting that the downpayment was my money and in the event we split I was entitled to the $100,000 plus interest if we sold the house. When we bought an additional investment property in 2005 we again documented who paid the down payment (mostly me) and who paid for the renovations (mostly husband). We got married last year so its not an issue now, but I have known other folks who bought real estate before they got married and then they split up and the party who bought the house got screwed. We didn’t pay anyone to review our side contracts, we just wrote up the facts, wrote up the agreement and had our signatures notarized.