Ask the Readers: How Do Couples Combine Finances?
Published on - September 28th, 2007 (by J.D. Roth) Most young couples must eventually decide whether to keep separate or joint financial accounts. We’ve discussed the pros and cons of each method, but we’ve never explored the practical considerations: how do you make each system work? More importantly, how do you make each system work well?
Recently, I’ve received a couple of questions about the details of combining finances. For example, Patrick writes:
I am getting married next year, and know that our W-4 forms should be adjusted affective January 1st. However, I am getting mixed results from filling out a blank W-4 following the directions versus using the IRS calculator on their website. What is the best way to account for the deduction change? Also, what other things do we need to keep in mind when getting married?
Similarly, Lindsey is looking for advice on how to move from separate finances to a joint accounts. Her situation is complicated by her partner’s poor money habits:
What should you do if you and your partner decide to combine finances (checking accounts, credit cards, leases, etc.), but you, in the past, have had very different personal finance personalities?
I meticulously keep track of all my expenditures and income in a budget spreadsheet. I save all my receipts to check against my statements. At any given moment, I can probably tell you how much money is in my different accounts and how much money I have left to spend in a certain area each month (or for the year for more irregular expenditures). I have an emergency savings fund, a Roth IRA, and a 401K through my employer.
He basically lives paycheck-to-paycheck, has no savings, does not keep track of where his money is going, and has very little credit (which can be worse than bad credit!).
Though it may be best to not combine everything (or perhaps it is — I don’t know), we do want to combine. How do you recommend doing this? Is there a way to responsibly consolidate, or perhaps a happy medium?
Lindsey should definitely read the tips Sara Wallace offered last month in “When a Saver and a Spender Say ‘I Do’”. But beyond coming to terms with differences in money habits, .jpg)
what’s the best way for her to merge accounts with her partner?
To build a strong relationship, couples should strive for trust, honesty, and open communication in their finances. Without these three components, it’s difficult to work together as a team toward common goals. And note that there’s no one right system. It doesn’t matter what others think is best — what’s important is finding a method that works for your relationship. (In other words: Don’t let your father make you feel like a heel if you choose to do things differently than he does.)
But these are all platitudes. Patrick and Lindsey want real-world advice. How do you know what to claim for taxes? What are the steps to establishing joint accounts? If you keep separate accounts, how do you divide the financial responsibilities? If you’ve been with your partner for a while, how does your current system differ from the one you used when you began? What pitfalls should Patrick and Lindsey be aware of? Any tips or tricks you can offer?
This article is about Ask the Readers, Real-Life, Relationships
SEARCH FOR RECENT ARTICLES
I have always had seperate money, a hangover from parents that divorced and a mother that had to learn to be self sufficient to survive. My husband also has a seperate account which we only opened recently.
All our wages go into a joint account, the bills are paid from that and then we each get some spending money (I save mine!) transferred into our indiviudal accounts.
We have been together almost 30 years and both had nothing to start with. If I had assetts before I met a partner I would keep them all seperate and have a pre-nup.
loading....
I like Quinton’s response a lot – that’s sort of the approach we took – gradually. Using Daniel’s terminology, we started out with 3 accounts (his, hers, ours) and had our paychecks direct deposited into our individual accounts and then transferred a set amount into the joint account (our salaries at the time were identical; if not we would probably have done a modified percentage). We had a single joint credit card to put purchases that qualified as “joint” (eg, household goods, groceries, etc). This allowed us to understand what it was like to share responsibility for a pot of money and to make financial decisions together without going in too deep at first (this was also pre-marriage, when we moved in together).
After we were married for a few months, and bought a condo, we decided to just share everything. This has come up a few times in the comments, mostly in regard to going to one income, but having kids really makes it feel a little silly to have separate finances, since it seems like all our money goes towards our son in one way or another (even in saving, we are working on his 529, and the motivation of saving for a house downpayment is baby#2 on the way).
Our salaries are now really different and I work way harder than he does (he will freely admit this) but somehow I’d rather just share it all than worry about percentages, etc. We do have separate retirement accounts, and mine is growing more quickly, due to higher salary and thus higher match, but he is actually contributing a higher percentage of his salary to compensate.
As I’ve mentioned in comments before, my dad is addicted to gambling and I have a definite need to control the finances. If my husband had the same need we might have to have kept this somewhat separate – but he’s happy to let me deal with it. We do each handle a subset of investing money – he likes to pick individual stocks, while I am more comfortable with mutual funds – so we each have a pot of money with which to invest.
loading....
Just read all the comments and noticed something..
Many people are suggesting a 3 account system (his/hers/ours). But there are two ways of running this: One system is to deposit all income into the joint account, then transfer back an “allowance” into the individual accounts. This is really joint finances with a layer of privacy/freedom built in for each person to control some money without being “watched.” The other system deposits money into the individual accounts, then each person transfers dollars into a joint account according to a percentage or equal split or some other formula to cover joint expenses. This is really individual accounts.
I believe that there is a huge psychological difference between the two. In the latter case, when your income goes first to you and then you agree to give some of it up to the joint needs of the couple, I think it reinforces a way of thinking of yourself as an individual first, a couple second. It’s “my” money that I am sharing with us.
Conversely, when you put your money first into a joint account, you are saying that the money is “ours”, and we agree to spend some of that for individual expenses because we each deserve to have some $$ to spend as we see fit outside of joint needs.
Individual accounts are all well and good until the time when your partner is not bringing in income. How will everyone feel then? Will he/she feel comfortable living off your income or will they feel like they are free-loading? Will you be perfectly happy giving the a good chunk of your money to this other person who is no longer contributing, or will you feel resentful?
It takes a while to feel comfortable with “our” money, and there are certainly great risks involved should the marriage fall apart. However, I believe that in the end joint finances CAN be part of building a stronger marriage…a stronger sense of “us.”
loading....
My wife and I have been married 5 years now, and we have never really fought over money… and here’s what we’ve done.
We both have our own separate checking accounts, and one joint checking account. These accounts are all tied together. We both have 75% of our paychecks direct deposited into the joint, to pay bills, and 25% transferred to our personal accounts, which we use for gifts, or our personal wants. Gives us both an ‘allowance’, and works out very nicely.
loading....
You have to talk about money a lot before getting married – a lot. Get all the ugly stuff out in the open before you go down the aisle. In my case, it was cc debt left over from my first marriage and finishing paying off a grad school loan.
We made the retirement of those debts a priority in our first year of marriage. My wife worked full-time until we had a child – that salary was banked for a down payment on a home. She has worked part-time some since then.
She has her own savings account. We have joint checking, a overflow savings account, a car repair savings account, and a “no-touch” savings account. All accounts are at the same bank. All the savings accounts are MM accounts generating around 5%. We save the same amount in overflow and no-touch every month (auto-transfer from our checking account), pay routine bills via electronic banking, and take the same amount of cash out every month for groceries, gas, and other spending. We NEVER touch no-touch!
We also have an online MM emergency savings account with ING.
loading....
One important question I don’t see addressed here is applying for loans when one partner has very good credit and the other has very bad credit. Is it better to leave the bad credit person out of the deal completely, even though you lose some monthly income in the process?
loading....
@Mark:
I don’t know that it matters either way. When my wife & I applied for our home loan, we did it just in my name, since only my income was going to pay for it. When we applied for her car loan, we both went on the loan (so that we could both be on the title). Since she is on the house deed anyway (because she is my spouse), that was a non-issue for the mortgage.
loading....
We use the same system as Gucky — and I used it for a 23-year previous marriage as well. This is the yours/mine/ours approach. Each partner contributes the same percentage of their income to the joint account. The higher earner gets more money to spend personally, that’s only fair.
Never, never mingle funds you bring into the marriage. Just don’t do it! You can share the benefit of your savings down the road if you like, but never give up your legal right to what is yours alone!
loading....
For those of you with his/hers/ours accounts, how do you decide how much goes into the individual accounts? Is it whatever is left over after you each contribute to the joint account or a set amount? We’re trying to figure out what is a “fair” amount since I’m a big saver and he’s more of a spender (expensive hobbies, eats out for lunch a lot, etc). If anyone is willing to share dollar amounts, that would be extremely helpful.
loading....
I am a saver and my fiance is the spender. I have a retirement account, savings, and no debt, he has around $9k in debt and no savings or retirement. Luckily the $9k is from past child support, so once we finish paying it off it is gone and wont keep rebuilding like a credit card would. We have already started combining our finances and the approach we are taking is that I handle everything. He knows he is not good with money and is at least able to admit this. He has no prblem and fully trusts me to make sure things are fair and that all our financial goals are being met. We will have 1 checking account (for all household bills), 1 savings account (short term, emergencies, vacations, etc) 2 retirement accounts (I am setting one up for him this year) and then 1 investment account for future desires (a little slack when we have a baby, a house at some point etc) I plan to keep him fully aware of what we have and how much we can spend as well as build in a small percent that we each get to do with what we want (he likes this is cash, I prefer using credit for everythign I want and paying it off with each paycheck) This is a plan we are both committed to so I think it should work. We will adjust for any isues along the way
loading....