Combining Finances as a Couple: Happily ever after?

Navigating the realm of shared finances in a relationship often gives rise to a sense of awkwardness and intricacy. Initially, there’s the discomfort of broaching the topic and contemplating whether merging finances is the right step. If that initial conversation sails smoothly, a more challenging discussion ensues on the intricate details of how to go about it. Both discussions can be challenging and even uncomfortable. If a couple decides to move forward and combine finances, more conversations will follow on what, when, and how the money is spent. These conversations are not easy but having them is important. Research shows that couples who successfully manage their money together generally have healthier, stronger relationships.

Read on to learn more about two important aspects of how to combine finances as a couple: how to have the important discussion and the recommended steps to take as you move forward.

The personal circumstances of each couple play an important part in these decisions. Young couples embarking on a life together may have different obligations and goals than older couples whose careers and personal lives are already well-established. Children — minor or adult — can be a major factor in money matters, as can an aging parent or parents. Different income levels and personal tastes also need to be considered. Two older, financially independent people with adult children may find it easier for everyone involved to keep their finances separate, with both contributing to shared expenses and experiences. Each couple has their own story and circumstances, and what works well for one might be challenging for another. That’s why it’s important to talk about it with your partner and understand what both parties need. For some, it might be best to bring in a third person, such as a financial planner, tax expert, or a family law attorney.

Remember, these conversations are about finding productive ways to improve your life together as a couple. There’s nothing romantic about them, but they just might help you live happily after ever, or something like that. Pick a good day and time that allows both of you to feel at ease and comfortable, where you won’t be interrupted or distracted.

Start by discussing your individual financial situation with each other; how much money you make, how you make it, what you owe, what you spend it on, and what your goals are. Include any other sources of income, such as bonuses or investments. Does your income fluctuate, or does your job feel tenuous? Talk about it. Consider using a checklist to track what you’ve talked about. Specifically, the basics should cover all the above, plus:

Dig deep (financially speaking)
What are your assets and liabilities? What are your views on debt? Do you want to handle your debts separately or take them on as a team? What is worth taking on more debt? What are your most significant obligations and how long will they take to pay off?

Save it for later
How much do you save? Do you think it’s enough? Do you want to save more? Can you save more? How much have you saved up and what do you plan to do with it? Do you have retirement savings and a plan? How would you prioritize saving together?

Secrets? Hang-ups?
Now’s the time to divulge your most intimate financial information. Do you love to splurge? Do you like to gamble? Are you terrified of getting in debt? Did you get in a bad situation and file for bankruptcy? Did you experience financial problems in your childhood, or overcome financial difficulties in your past that impact your actions and beliefs when it comes to money? Do you have a trust fund? Do you “never, ever touch the principal”?

Speaking of priorities
You want to fully understand what the other person prioritizes when it comes to managing finances, and you want them to know what’s important to you. Do you want a career that delivers financial security or a sense of purpose? Is status important? Are exciting experiences? Travel? Is it important to own a home? Find out where each of you stands on your career paths, family goals, and what you prioritize when it comes to saving. Do you dislike your job and want to go back to school or start a business? Do you plan to take care of aging parents or a disabled relative? What do you each consider essential? How do you define needs vs wants? Now is the time to say these things out loud to one another. Sometimes success comes down to “financial style”: if you’re a saver for a rainy day and your partner spends every dime because there’s always going to be more money later, you might be in for some difficult times.

The biggest benefit for couples who combine their finances are intangibles: a sense of security, a sense of purpose and responsibility, and the hard-to-define sense comfort that comes with making plans (some people call it “hope”).

There are also some lesser, but more tangible benefits, from the convenience of having more available cash on hand to not having to ask about the status of vacation plans or discuss who’s going to pay a utility bill. Your credit scores can get a boost by having a credit card in both your names – pay it off on time every month and both your scores will benefit. That boost will get you better interest rates on loans, and your combined savings will get you better rates on deposits. Finally, filing a joint tax return can result in significant savings for couples, especially if one earns significantly more than the other.

One significant drawback of joint finances is the potential loss of financial independence. When both partners merge their funds, individual spending autonomy may diminish, leading to a sense of restriction or dependency. Additionally, disagreements over money matters can become more intense, creating tension and strain on the relationship. The risk of financial conflicts and misunderstandings may escalate, especially if spending habits differ significantly. Moreover, in the unfortunate event of a breakup, unraveling shared financial entanglements can be a complex and emotionally charged process, adding another layer of difficulty to an already challenging situation. Couples contemplating the combination of finances must carefully weigh these drawbacks against the benefits to make informed decisions that align with their values and relationship dynamics.

You have a lot of options. Your first move is to evaluate what will work best for both of you based on what you learned from your discussions. Review your options and make a joint decision on your lifestyle, income, obligations, and financial goals. Those options can range from keeping your own accounts and splitting everything 50-50, to proportioning expense responsibilities based on income, to assigning one partner to oversee savings and investments while the other manages expenses. A good hybrid approach is keeping individual accounts while contributing to a joint account, which will be used for the couple’s shared expenses, like vacations, rent, utilities, and groceries.