So You’re Thinking of Merging Your Finances…

Valentine’s Day is right around the corner, and some of you may be considering taking your romantic relationship to the next level. Whether you and your partner are thinking of getting married or moving in together, you should start discussing how or whether you will merge your finances.

To start the conversation, each of you should lay everything on the table: outstanding credit card debts, student loans, mortgages, or any other financial skeletons in the closet. Without complete honesty, neither of you can fully prepare for the future.

These conversations can also help you better determine how you will manage your checking and savings accounts. When it comes to this arrangement, you and your partner have a number of options, and choosing the best one for you entirely depends on your circumstances.

1. You could consider keeping your finances mostly separate except for a joint account for mutual expenses, such as groceries, rent, and utilities. Each of you could contribute equally to this joint account, or you could each contribute a fixed percentage of your income. The latter may work better for couples who do not earn equal, or close to equal, incomes.
2. You could also consider splitting the bills. Your partner could pay the cable and housing association fees, while you pay the water and electricity bills. The split does not necessarily need to be equal, and you could divide bills according to who might make more use of that commodity. For example, if your partner is an avid cooker, they might take on the gas bill.
3. You might consider completely merging your finances. If so, you both could share a joint account, or you could share a joint account while also having separate checking accounts for personal, discretionary expenses.
4. You and your partner might also consider living entirely on one partner’s income, even if both of you are working. In this scenario, one partner’s income would pay for utilities, groceries, and other necessary and discretionary expenses, while also contributing to a retirement plan or other savings account. The other partner’s income would then go into an entirely separate account, possibly as an emergency fund.

Of course, there are many other ways to merge your finances, but these are a few options to consider at the onset of your discussions. As you determine how your saving and checking accounts will be split, if at all, you and your partner should also draw up a budget.

You could have individual budgets and a joint budget for joint expenses, or solely a joint budget. Either way, the budget should entail how much each of you will spend on various items and how much you would contribute to a joint account. You should also note when it’s appropriate to draw from a joint account and when it’s appropriate to pay for an item using an individual account.

If you haven’t already done so, determine who will pay off which bills, even if you are paying the bills using a joint account. Having a system in place will ensure important bills don’t fall through the cracks.

Along those same lines, you and your partner should determine an amount — perhaps $500, perhaps $10,000 — that would warrant a discussion with your partner before spending. Having this discussion earlier may save you from arguments or disagreements later.

Finally, set goals and make long-term plans. How much will you each be contributing to a retirement savings account? How much will you each contribute to an emergency fund? How will you work towards paying off debts?

While these conversations are only the tip of the iceberg, they will help you and your partner develop an initial plan that ensures both of you are aware of your financial needs and goals. The ELM3 Financial Group team will assist you throughout this process and would be happy to answer any questions you have as you make this exciting step in life.