6 Ways to Combine Finances With Your Partner

Alden Wicker
Posted

Long gone are the days when combining your finances with your partner involved:

1. Getting married

2. Assuming that your husband would control your joint financial fate

Good riddance! With more women bringing home the bacon nowadays, that wouldn’t make sense, anyway. But there’s no one-stop 2012 solution for handling money with your partner, either.

This becomes especially apparent when you move in together or get married.

Today, LearnVest Certified Financial Planner® Sophia Bera weighs in on six different methods for sharing your finances, based on the real lives of six different couples.

Already living together or married? Keep reading to find out if you want to stick with your current system—or if another might work better for you.

1. The “We’re All Equals Here” Approach

What it is: Keeping most of your finances separate, except for one joint account. Both people contribute to that account equally.

Who it’s good for: Couples who are on equal footing when it comes to income and debts, especially ones who are not yet married and haven’t seriously discussed getting married.

The couple: Agatha and Matt are in their late 20s and have been dating for a couple years. Neither has student loans or other debt to pay off, and their salaries are about the same, plus or minus $10,000. They have decided to start looking for a place together to rent, though marriage hasn’t come up yet.

How to do it: Set up a joint checking account for the rent, bills, groceries and other shared expenses–then contribute equal amounts each month. “They should understand that having a joint account gives them both access to the funds,” our financial planner Sophia cautions. “Each has to trust that the other person is going to use the money the way it was intended.”

In the case of Agatha and Matt, they should consider having a separate lease, so one isn’t on the hook if they break up. They should also think about setting up a formalized cohabitation agreement, and share how much each has in emergency savings, in case someone loses their job. Here are more resources if you’re thinking of cohabiting.

2. The “To Each According to His/Her Earnings” Approach

What is is: Similar to the “We’re All Equals Here” Approach, except each member contributes a percentage of income to the shared account, rather than a dollar value.

Who it’s good for: Couples–married and not–who earn unequal incomes, especially where the one earning more would like to have a shared lifestyle (dinners out and vacations) that is more than the lower earner could afford on his or her own.

The couple: Leesa has a thriving architectural business and is earning significantly more than Steve, a graphic designer. They’re about to get married and move in together, and Leesa has her eye on a house on the pricier end of their range. Steve wants to contribute, but half the mortgage is more than his budget can handle. (Find out why we don’t recommend spending more than 50% on essentials like housing expenses and groceries.) They also have very different tastes in food. Leesa prefers organic and gourmet foods. Steve, on the other hand, is happy with burgers from the grill.

How to do it: Our trusty financial planner suggests opening a joint account where each person contributes a percentage of his or her income to pay for essentials–ideally under 50% of each person’s take-home pay. For example, Leesa and Steve might agree to contribute 45% of their take-home income to this shared fund. If Leesa takes home $6,000 a month, that’s $2,700 a month; for Steve, 45% is $1,800. They can use this pot to decide how much they can afford for a mortgage and other shared expenses.

3. The “I’ve Got It” Approach

What it is: One person pays for all expenses.

Who it’s good for: A couple–married or not–in which one makes many times more than the other. Or a couple in which one is going to school, staying home with the kids or otherwise not earning an income.

The couple: Sara and Leslie met two years ago. Sara has been accepted to graduate school and starts next fall, at which point she’ll leave her current job. Leslie has a fairly well-paying job she sees herself keeping for some time. Sara is a little worried that, even with her grants and stipend, she’s going to struggle with a reduced budget, and wants to make it out with as little debt as possible. The two of them have discussed the possibility of marriage or a more formalized partnership, but they’re not quite ready to take that step.

How to do it: If the higher-earning partner can afford it, he or she can take on all the household expenses. But before doing so, talk about all eventualities: If you broke up, would the breadwinner want to be paid back, or would you part ways guilt-free? If and when the other partner returns to the workforce, will she take on more of the household expenses to make up for the years she didn’t contribute? ”It’s important to have open communication about these arrangements because otherwise this can lead to conflict around money,” Sophia says. Once you’ve had that conversation, formalize what you decide in a cohabitation agreement.

In this particular case, Sara should consider a part-time job, freelance work or assistantship position at the university so she can contribute to groceries and some utilities while she’s not working.

4. The “Pick Your Bill” Approach

What it is: Each person picks certain bills and expenses to pay for. These may not necessarily be equal.

Who it’s good for: Couples earning different amounts, especially when they aren’t married, or one is paying for a mortgage. Perfect for couples who don’t want to combine finances at all.

The couple: Mike has asked Ruth to move in with him in the condo he bought last year. He’s paying down his 30-year mortgage, in addition to several hundred dollars a month in housing association fees, cable, and utilities. Ruth has a lower salary than Mike, but she loves to cook, and is always happy to whip up dinner for the two of them. She’s not too psyched about paying for cable, however, since she never watches TV.

How to do it: Pick a bill. Maybe Ruth pays for the association fees, gas bill (because she’ll contribute to a higher bill using the oven a lot) and electricity, while Mike pays for cable and homeowner’s insurance. Mike should also take care of the mortgage, as we never recommend that you help pay down a mortgage for a home that someone else owns. (Ruth might consider paying him rent, however.) Ruth might take on more of the grocery expenses and Mike might pay for dinner more when they eat out. “The most important thing is that they talk about it and figure out a plan that works well for both of them, then put it in a cohabitation agreement,” says our intrepid financial planner.

5. The “What’s Mine Is Yours” Approach

What it is: Combining finances completely.

Who it’s good for: Married couples who don’t enter the marriage with significant separate assets.

The couple: Mary Beth and John are just out of college and are getting married in a few months. Mary Beth has student loans to pay off, but neither of them has much in the way of assets at all. John’s not worried by M.B.’s loans (though some people may consider that a nonstarter) and he’s told her he’s committed to helping her pay them off so they can start saving up for a house together, then eventually a family.

How to do it: Option 1 is to have a joint account where you deposit all your income and from which you pay all your bills and set aside savings. Option 2 is to have one joint account for shared expenses and savings goals, plus a separate checking account for each of you, with ’fun money’ that you can spend however you want. Either way works.

If you have debts to pay down, decide together how much you will dedicate to paying off loans, and how much you will put aside and save for a down payment or other financial goals each month. Have monthly meetings to talk about your spending and your progress on savings goals.

6. The “Act as If” Approach

What it is: Even though both partners are working, they live on one income and save the rest.

Who it’s good for: Couples in which one has an inconsistent income, or couples planning to live on a single income in the future.

The couple: Irene and Anthony have been married for about a year. They don’t have any children yet, but they have discussed the possibility of one of them staying home with the kids when they do. Right now, Irene has a steady salary and Anthony has a variable income from his freelance work. They don’t have any large debts, but their emergency fund isn’t where they want it to be and they want to save up for a house.

How to do it: Set up your shared budget according to just one partner’s income, which means limiting essential expenses like rent, utilities and groceries to less than 50% of that person’s income. Use that one income for everything, from lifestyle choices like dining out and shopping to financial priorities like paying off debt and saving for retirement. Then, send all income from the other partner straight to another savings account.

“This is one of the best things that a couple can do for their finances because it forces them to keep their essential expenses low and ramp up savings for emergencies and retirement,” says our financial planner. “Sometimes, this isn’t possible at first, but it’s a great motivator to see what it would take to get you there.”

For Irene and Anthony, this would mean living off Irene’s salary and setting aside Anthony’s income for their emergency fund and the down payment on a home. That’ll help them hit their goals sooner, and it’s like a dry run to see how feasible it would be for one of them to stay home with future children.

One Last Note:

If you’re at all nervous about combining finances with your partner, it might help to look out for these eight financial red flags. But who knows? Moving in together could inspire you to revamp your finances completely. Moving in with her boyfriend changed this writer’s whole approach to money.

  • DNH

    Money is the top reason for divorce, if you can’t agree on finances, which are the foundation for living (shelter, food/water & clothes), and how to spend your money, you have another problem coming, statistically speaking. 

  • Erin

    Thank you thank you THANK YOU for this article!!! My boyfriend and I are going through the struggles of this right now – we’ve been together for 3 years, we live together and I make a lot more money than he does. It’s so hard to find a balance but I sent this article to him and we are going to try and pick a plan that works best for both of us :) THANK YOU AGAIN!!!

  • Mel

     As someone thinking of getting engaged soon, this was really helpful! I only knew of two of these ways, and having them laid out like this was invaluable.

  • http://twitter.com/t_hall Tiffany Hall

    helpful article AND open to same-sex couples? what a relief! THANKS

  • mona

    very helpful article but I think that each of these ways should not be the set way for certain times in a marriage.  right now I am in school full time and my husband works.  however, i hope that we can change to one of the other approaches once I am out of school.  

    • http://mischievouskitty.blogspot.com/ Stephanie

      Absolutely agree!  It’s important to periodically evaluate whether the method you’re using works.  For the first 2 1/2 – 3 years of our marriage my husband did a variation of #1 (“we’re all equals”).  I was in charge of actually paying the bills, but we maintained separate accounts and he “paid” me his half of the expenses each week. 

      It worked well when we were living in an apartment, but once we bought a house it felt more important to have us both clued in to the whole picture of our finances, so we combined everything, and now that works well, too.  And who knows, maybe at some point down the line, this way will stop working and we’ll switch it up again? 

  • http://Www.Plantingourpennies.Com/ Mrs PoP

    We’re pretty much #5 and #6
    http://www.plantingourpennies.com/2012/05/29/separate-or-combined-finances/
    We have a “what’s yours is mine” approach, and try to live on just one of our salaries so we can invest the other.  Awesome so far.  

  • AHP

    Thank you–so helpful!

  • JJ

    We’re sort of combing part from 1, 4, 5 and 6 lol, if that even makes sense.

    We’re married but don’t have a “joint” account.  Instead we sat down and combined our monthly income, then worked out a budget based off that.
    So my paycheck goes towards:
    - savings (we’re saving for a house)
    - car payment (I’m almost done paying off mine, then we’ll get him a newer car when mine is finally paid off)
    - student loans
    - health insurance
    - weekly grocery budget
    - My 401K

    His paycheck pays our: 
    - rent
    - utilities
    - cable/internet 
    - insurance
    - gas for cars
    - weekly spending budget
    - His 401K

    We actually use an app that’s on both of our phones – it’s a simple envelope budgeting app but allows us to quickly record transactions/deductions from our shared spending budget throughout the week.

    On that note though, if we weren’t saving so much (1/5 of my paycheck) we’d could theoretically increase our spending budget but we’re doing our best to keep spending in check with the future goal of house, kids, etc.

  • Littlebleuheron

    This is great we (my hb and I) play the pick your bill approach combined with a joint house acct which we added when we bought the house to contribute equally too, with the flexibility of the I’ve got it approach when one of us needs to ease pressure off the other so we can work toward our joint goals.   

  • kj

    Are there any sugegstions for couples who earn similar incomes, but one partner has zero debt and a large savings while the other has zero zavings and large debt?

    • Sophiabera

      Hi KJ,

      Both of you should be contributing to your retirement accounts. In addition, one idea you might try is to have the person without savings, keep growing their emergency savings until they have six months of net pay saved for emergencies, while the other partner can focus on aggressively paying down his or her debt. You could try to contribute the same amount each month to both goals and use the “We’re All Equals Here” approach. Or if your goals require unequal contributions, use the “To Each According to His Earnings” approach, adjusting how much you’re contributing to shared expenses based on what you have left over in income after paying down debt and contributing to an emergency fund. Finally, the “Pick Your Bill” approach might work too, especially if you’re not yet married. 

      Hope that helps!

      p.s.  Check out our great LV Plans to get more personalized advice!

      ~Sophia Bera, CFP®

  • Rockstar_chick87

    The plan that has worked with me an my boyfriend is having separate accounts. Neither of us really knows how much money the other has (unless we ask). We pick which bills we want to pay, and it’s our responsibility to pay them. My boyfriend is very responsible in this aspect, I never have to worry about if he paid a bill or not. And I tend to be a bit controlling so I think it’s better he has his own account and I have my own. So far it’s worked for us perfectly. We’ve never argued about money.

  • Jen

    My husband and I have been together (total time since we started dating) for 4.5 years. We’ve gone through 4 of these already! Even just communicating about our changing financial needs has helped us learn to communicate better about everything else. When we first started living together, we did #1, because it kept us from feeling like we were dependent on each other, and allowed us to build financial trust without being in too deep if things didn’t work out. We didn’t have a joint account at this point though, we transferred money to each other as needed. We also made about the same amount back then. Then we moved across the country for his work, and I knew it would be awhile before I had any income, so we talked about it and decided to switch to #3. I took on all the cooking, grocery shopping, and housework so that I was still contributing a fair share to our well-being. After I started earning some income though, we switched to #2 combined with #6, because my income was way less and unpredictable. We would each contribute a % of income to our joint account, but our joint budget was set up so that if I earned nothing, the bills would be paid- so my income went toward more money for fun and savings. Shortly before we got married this summer, we decided to switch to #5 and include all of our separate expenses in our joint budget. We still have individual accounts as well as joint though, so that with the portion of the budget designated as each of our “spending money” we can do whatever we want. I’m sure that our method of dealing with finances will evolve again when we have kids, and possibly more often than that. 

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