Here's what couples need to know about merging finances
Personal finances embody deeply rooted emotional characteristics that shape one’s behavior toward their money. It’s important to remember that when sharing finances with a significant other, it’s not a one-size-fits all kind of deal. Individual emotions, trauma and beliefs around money will differ from person-to-person.
As a financial adviser, I see many questions around this topic. For example: My fiance and I are getting married. How should we save together for this goal? My partner just lost their job due to the pandemic — how long can we lean on one income before having to reduce our expenses? My partner and I are a new couple. Should we merge our finances?
Sharing finances with your partner depends on your comfort level, trust, relative income levels and, ultimately, the dynamics of your relationship. To help aid the conversation necessary around merging finances as a couple, here are three ways it can be approached.
This is a “your money is yours, and my money is mine” approach to saving and spending. Each partner will retain their individual bank accounts, and they won’t have a shared account. They’ll each contribute a portion of their income toward shared expenses, including things such as entertainment subscriptions and mortgage payments.
This is when a couple has a joint bank account where both partners contribute some money to be used for shared expenses, but each partner still retains their individual bank accounts for their personal expenses.
This is when a couple’s finances are completely joined, with a “your money is our money, and my money is our money” approach to saving and spending.
In my opinion, the only way to approach this is by having a sincere conversation with your partner. It can be a tough conversation to have, but it’s necessary to achieve whatever you and your partner have set for financial goals. You will need to be honest and forthcoming with each of your financial situations, and you should approach the talk empathetically.
Some questions you may want to ask yourself and your partner:
I’ve gotten quite a few texts from unmarried users who are considering merging their finances with their significant other, and I think that it’s definitely a worthwhile discussion if you are in a serious committed relationship, especially if you live with your partner or share noteworthy expenses.
One thing to consider if you and your partner are living together is creating a cohabitation agreement. This specifies how expenses should be divided, how to handle debt and what happens in the event of a breakup.
Sometimes equal payments does not mean equitable contributions. For couples who have disproportionate levels of income and use the semi-separate or separate approach to merging finances, it may make more sense to have the higher income earner contribute a larger portion toward shared expenses.
For example, let’s say the wife earns $100,000 per year, while the husband earns $50,000 per year, bringing the total combined household income to $150,000 per year. It may be more equitable for the wife to contribute 66% of her income toward the joint account and the husband contribute 34%, instead of splitting down the middle at 50/50. Keep in mind, this also depends on the dynamics of your specific relationship.
Whether you are an engaged couple planning your wedding for 2022, a couple who have newly moved in together, or a married couple celebrating many years together, it’s never too late to talk to your partner about how to handle your finances together. Remember to keep each other’s point of view in mind, be genuine and open during the conversation, and challenge each other to achieve your financial goals together. These tools mentioned can help guide the conversation, but it will be up to you and your partner to put a plan into action.
The contents in this article are being provided for educational and informational purposes only. The information and comments are not the views or opinions of Union Bank, its subsidiaries or affiliates.