Combining Finances- A Rite of Passage (Part 1)

First comes love, then comes marriage. Then comes….combining your finances?

For many couples, the idea of combining finances is about as appealing as nails on a chalkboard. But when you are sharing a life together, and more importantly, when you are now legally bound to one another in the form of a marriage, the subject of combining finances can’t be put off for very long. Figuring out how to best combine finances should be one of the first steps that married couples should undertake together. Ideally, you should both have this money talk about combining finances BEFORE the big day.

Ideally. But who wants to spoil that dreamy engagement period with money talk? And then those days leading up the wedding are incredibly busy and stressful- not the most conducive environment to have serious money conversations.

In fact, you may have already had some uncomfortable money conversations regarding who’s paying for what when it comes to the wedding. Or for couples that are co-habiting, you keep doing what you’ve been doing because it’s been working so far.

After a blissful honeymoon, it’s time to start life as a married couple. And like clockwork, those bills start rolling in. Like it or not, the subject of money is never very far away.

INDIVIDUAL MONEY STORIES

Why is it so hard to talk about money? 

Remember that each of us come into the relationship with our own unique money stories. Our money stories start from birth- we are born into families and environments that are continually affecting how we think and feel about money. We have our own distinct personalities and life experiences that further shape our money stories. The way you think about money, and the actions that you take with your money, are very much your own. 

Now, it’s time to consider that your significant other is coming into the relationship with a different money story. S/he came from a different background, with separate life experiences and his/her own individual personality. The chances that your money stories are going to match 100%? Pretty slim. 

That’s not to say that you can’t be financially compatible with different money stories. But when trying to tease out why you simply cannot understand your partner when it comes to money, don’t forget about their money story.

We may have a hard enough time figuring out how to handle our OWN personal finances. Now adding another person to the mix? No wonder this can be challenging. 

There is no one-size-fits all when it comes to combining finances. The goal is to find a method that works best for the couple. There are 3 main ways that couples decide to handle their finances:

COMBINING FINANCES 100%

Traditionally, couples completely combined their finances from Day 1. For households where men were the sole breadwinners, this was the default choice. Obviously, we’re in an era where this is not the typical family setup. However, many couples continue to combine finances, regardless of breadwinner status or individual income level.

So what does it mean to combine finances? This typically means having a joint checking and savings account. This can also mean having joint credit cards and investment accounts. Let’s look at the pros and cons for completely combining finances.

PROS

• Both parties have access to all financial information- no surprises
• Convenience and simplicity when handling joint expenses
• Easy access to money for both parties (could also be a con!)
• Fosters the idea of working together, teamwork
• Combining forces allows for you to reach common financial goals easier, faster

CONS

• Lack of autonomy
• Easy access to money for both parties: can end badly if one person makes decisions without the consent of the other party
• Difficult for couples that manage and spend their money differently

KEEPING FINANCES SEPARATE

As couples are getting married later in life, this means that they are entering into the marriage with a set of financial habits and systems that have become more ingrained. Or they may be coming into the marriage with a significant amount of assets, or a significant amount of debt. Perhaps they are wary of combining finances if they are previously divorced, or they have witnessed parents or loved ones getting divorced with bad financial outcomes. In short, there are multiple reasons why individuals would rather keep their money separate.

PROS

• Clear delineation between what’s yours versus mine
• Less of a need to change your personal money habits and systems
• Convenience and simplicity when handling your personal expenses

CONS

• Potential of putting yourself at financial risk because you aren’t aware of your partner’s finances
• Increased risk for financial infidelity- keeping secrets or lying about money
• Slower progress towards any shared goals; lose the “teamwork” mentality
• More effort figuring out how to pay for joint expenses
• Contingency plans needed when there is a significant change in income, such as a job loss, disability, career change, pursuing advanced degrees, taking a career pause in order to care for children or the elderly, one partner making significantly more than the other over the course of his/her career, etc.

Note: For couples that are very concerned about keeping their finances separate and protecting their individual assets, a prenuptial or postnuptial agreement could help smooth this transition.

THE HYBRID METHOD

Of course, there is no need to go to one extreme or the other.  What would probably work best for most couples is to have some sort of hybrid method. A common recommendation in order to promote the idea of togetherness in the marriage, in addition to having a little bit of “me” space, is to combine the majority of your finances in order to pay for joint bills and work on crushing your financial goals as a couple.

Then, each couple needs to decide on how to set up individual accounts for each person’s “fun” money. This is essentially a set allowance that allows each person to spend that money however they choose, no questions asked!

Here are a few variations of the hybrid method:

• Each person contributes 100% of their earnings into a joint account. They mutually decide on a set amount of the combined earnings that should be set aside for each person’s “fun” money, and this money is automatically transferred to their separate accounts. All other expenses are paid out of the joint account.
• Each person contributes a percentage of their earnings into their joint account, from which joint expenses are paid. They are free to manage the remainder of their earnings as they wish.
• Same as above, except each person contributes the same fixed amount of their earnings into their joint account, regardless of individual income.
• The couple decides to live off of one spouse’s income and use the other spouse’s income for savings and/or debt payoff and fun money.

The hybrid method is about getting the best of both worlds. There is the overarching theme of unity, having each other’s backs “for better, for worse, for richer, for poorer.” But it’s understandable to want your own space and autonomy, so having your own personal money fulfills that need as well.

There is no one-size-fits all, even for the same couple! Circumstances and attitudes change over time, and the way that couples handle money evolves as well.

In Part 2, I’ll discuss tips that will set couples up for success when combining finances, no matter which method they choose!

How do you combine your finances? What has worked, and what hasn’t? What do you wish you could have done differently?