Combining Finances: A Rite of Passage (Part 2)
As seen in Part 1, how you choose to combine your finances is a very personal decision between you and your partner. There are a host of factors that determine the best method. For those who have already combined finances, what worked earlier in the relationship is not guaranteed to stay that way as the relationship evolves over time. No matter where you are in your relationship, there can always be an opportunity to work better together with your combined finances.
One tactic that doesn’t work very well? Avoiding any “money talk” and hoping that the situation will just resolve on its own. I would definitely not recommend “benign neglect” when it comes to talking about how to combine your finances.
Remember, no matter how you combine (or don’t combine) your finances when married, in the case of divorce, your assets and debt will be divided up according to state law. For example, in community property states (currently Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin), this means that any assets and property acquired during the marriage are considered to belong to both spouses. This community property is equally divided between both individuals at the time of divorce.
So, what are some ways in which you can both set yourselves up for success as you figure out a method of combining finances that works for you? Here are some tips:
It should almost go without saying, but being honest and trustworthy are qualities that everyone craves in any relationship. As uncomfortable as it may be, being open and honest about each other’s current financial situation is the first step towards setting yourselves up for financial success as a couple. Being completely transparent means disclosing information such as income, debt, current net worth, and credit score. Hiding or lying about a situation can create a sense of shame, guilt, and distrust into the relationship that can be difficult to repair as time goes on. Not only that, but it opens up the opportunity for negative financial outcomes if one partner is unable to manage their money properly and this mismanagement spills over into the relationship.
GOALS AND LIFE PLANNING
Being in a marriage involves having some common goals as a couple. There are usually financial aspects to almost any goal, so make sure you work the money piece into the conversation. Your goals can be small, such as saving an extra $100 a month into a savings account. Or it can be the goal of reaching financial independence in the next 5 years. Regardless, have some goals in place. Track your progress and celebrate as you hit milestones.
If you’re both at a loss for how to create goals, hone in on what you both value individually and as a couple. You may want to go through this exercise of life planning. It’s a series of questions that make you think long and hard about what you truly value and prioritize in life. Going through this exercise with your spouse can be eye-opening, and you may find yourselves having conversations that you’ve never had before. Understanding what you both value can bring clarity to future financial decisions.
Do you have a budget/spending plan in place? Are you fighting about numbers when you don’t even know what the numbers are? Don’t laugh….this happens. Everyone has an *idea* of what gets spent, but it’s less common to actually track those expenses and look at those numbers in the context of your entire budget. Numbers are objective measurements! If neither of you know the basics of your budget, such as your income and expenses, then go back to the basics and do this for your sanity!
HAVE REGULAR MONEY DATES
Another must in a relationship- open communication. Unfortunately, many of us were not taught how to have open, constructive conversations around money. It’s still taboo to talk about money in social settings, and even in intimate relationships, it can be very difficult to discuss money issues if either partner is not comfortable with the subject.
If talking about money doesn’t come naturally, then think about setting aside a time, preferably once a month, for money dates. This can be an actual night out where you focus on your finances, or it can be some time together at home with no distractions. Making this a part of your regular routine means that you’re both mentally prepared to talk money. Make this a FUN activity, not a dreaded chore! Have some wine, play some background music, have some of your favorite goodies to munch on. You want to make this into a positive experience!
TRY REALLY HARD NOT TO JUDGE!
Money fights can include hurtful comments that are not particularly helpful. Remember that you each have your unique money stories, as discussed in Part 1. Your partner may have a completely different mindset around money that has been shaped and molded since birth. Instead of placing blame or building resentment, come from a place of curiosity. What exactly is bothering you so much about your partner and their money choices? What does this say about their value system versus your value system? How can you come together to an agreement or a compromise that works for both parties?
DIVVY UP FINANCIAL TASKS
There are a number of different financial tasks that need to be managed in a household. Here’s a list:
- Paying bills
- Tracking expenses
- Contributing to retirement accounts and investments
- Filing taxes
- Buying and reviewing your insurance policies
- Keeping track of your net worth
- Reviewing workplace benefits
How can you divide up these tasks in a way that makes the most sense for you and your partner? Think about each other’s strengths and weaknesses. It’s also not a bad idea to put these financial tasks on a shared calendar so that you’re both on the same page.
Note: Even at a time when female breadwinners are the norm rather than the anomaly, women are STILL deferring financial tasks, especially financial tasks outside of shopping and paying bills, to their husbands or their “financial guy.” Women: please start taking ownership of your money. It’s fine to have some help, but don’t assume that men are better at this “money stuff” than you are just because they possess a Y chromosome and you don’t!
QUESTIONS TO GET YOU STARTED
Wondering how to get this conversation started? Here are some useful questions that can get you on track to successfully managing your money together as a couple:
- Which method makes the most sense for us? Combined, separate, or hybrid?
- If hybrid, where should be open up our joint checking account?
- What should be paid out of the joint checking account?
- How much of our individual pay should be going into the joint checking account? Should it be a set number or a percentage of pay?
- How much should we allocate towards “fun” money for each individual? Again, a set number or a percentage?
- What are our short term, medium term, and long term financial goals?
- (If there is debt involved): What is our debt payoff plan? Do we consider this “your” debt or “our” debt? Should we use the debt avalanche or the debt snowball method?
- What’s your credit score?
- How are we dividing up financial tasks?
- How often are we going to have our money dates?
- (If income is fairly equal): What are we going to do if there is a large income disparity in the future? Examples: career advancement with accompanying higher pay for one spouse, job loss, unpaid maternity/parental leave, disability/health problems, taking a career pause while caring for children/elderly, etc. This is an especially important conversation if handling finances separately.
- Are we going to set a spending limit before we consult one another prior to a purchase?
- Do we need a pre-nup (for those not yet married) or a post-nup (after married)?
Having these money conversations can be difficult, but necessary. This is an issue that you don’t want to leave “for another day.” Having these conversations early and often will ensure that you and your partner will be on the same financial page. Getting on the same financial page and coming to an agreement on how to combine your finances not only reduces a lot of marital stress, but it also fosters a closer relationship. Less stress and a better relationship? Yes, please!
Do you have any other tips that you’d like to share? Comment below!
Money dates are a great idea! We only started doing them once we started our FIRE path, but they would have been helpful before then (we may have figured out we could FIRE sooner!). And the shame is a real thing. My wife brought in her student loans debt whereas I brought in a fair amount of assets. It didn’t bother me that we were different, but it was a little hard for her to disclose the loan amounts. Once she told me and my response was, “OK, whatever, we’ll deal with it together”, that helped a lot.
Better late than never! I bet that was a big weight off her shoulders- other partners could have had very different responses!