Money can be a touchy subject as there is usually a lot of emotion involved when discussing it. When it comes to the blending of finances, all bets are off. There is no real “right” answer to any situation, it really comes down to what you and your significant other are comfortable with. Although there are different ways to go about this, the most important thing to remember is to be open and honest with each other, and yourselves, from the start.
Current Situations
To start, it’s important to identify where you are today. This would include all of your assets as well as your debts. This is also a good time to write down any current shared expenses, if applicable.
Individual Assessment
Next, it’s time to look at your financial habits. Are you a “spender” and your spouse a “saver”? Or vice versa? This is where that self-honesty comes into play, as it can be hard to evaluate your spending habits. You also want to look at your respective incomes, both on their own and relative to each other. This will come into play later when we look at different ways to combine your finances.
Goal Setting
This is the fun part! You get to sit down with your significant other and talk about your hopes and dreams for the future. Where do we want to be in 5 years? Or 10? Do we want to own a home? Have kids? How much will we invest? The list can go on and on. Once you know your goals both individually and as a couple you can figure out how you want to budget moving forward. There are a multitude of ways to achieve this as a couple, the three that highlight this spectrum are budgeting separately, jointly, or a combination of both. Let’s take a minute to look at each method:
What’s Mine is Mine & What’s Yours is Yours
This is the total separation of finances. Each partner is responsible for making and managing their own money, with completely separate accounts. You will have complete control over how you would like to save, spend or invest and can split (or try to split) shared expenses like rent or a mortgage. Usually, one partner pays one bill and the other pays something else of similar or equal value, which doesn’t always come out as a 50/50 split and can get messy.
What’s Mine is Ours
This method is a complete combination of accounts. Joint accounts are set up with each of your names on them. All of your income is deposited in these accounts and all of your expenses taken out of them. This is the easiest method from a math perspective, you don’t need to worry about splitting bills or relative payments based on different incomes. However, this method can be seen as unfair depending on the couple’s individual income, spending and saving habits. For example, if one partner makes significantly more than the other, or if one is extremely frugal while the other likes to spoil themselves, etc.
Yours, Mine, and Ours
This method is a combination of the previous two. You each keep individual accounts to save and spend as you choose, while creating a joint one for shared expenses and goals. A pre-determined amount is then contributed to this joint account by each person. The way in which you contribute to the joint account can vary depending on income levels and what you are comfortable with, but can be a nominal amount or a percentage of each of your incomes.
To Recap:
First – you and your partner have to sit down and discuss your current financial situations, individual habits and combined goals.
Second – choose a structure for your budget going forward: separate, joint, or some kind of combination of the two.
Third – shape this budget into something that will help you and your partner reach your financial goals.
Fourth and absolutely essential – make sure to have regular check-ins to ensure that your plan is working. Most plans will need a little tweaking as time goes by!
