One of the real world aspects of being in a serious relationship is how to combine your finances, if at all.
Here are 5 different models for combining your finances. Take some time to think about what works best for you and your partner and your own unique situation. The best place to start is with an open and honest conversation about money. Discuss all aspect of your finances including your credit scores, debts, and future expectations like saving for retirement and spending habits.
Let’s look at an example; say James and Jessica are looking to combine their finances. James brings home $3000 per month and Jessica brings in $4000 per month.
1. All In
In this method, both James and Jessica put all of their money into a joint account with each being equal owners of all investments and savings accounts. This is complete commingling. Their pay checks are deposited into a joint checking account and all of their spending comes from this account. They do not have any separate accounts or cards.
2. A little on the side
All of James and Jessica’s earnings go into a joint, household account, except for a certain amount or percentage that gets put into separate individual accounts, say 5%. In this instance all of the monthly expenses will be covered by the joint account while they will each have separate discretionary money to pursue their own interests and hobbies.
3. Proportionate contributions
With the proportionate method, James and Jessica both deposit a set percentage of their income into a joint account for household expenses. They both keep their individual accounts for the remainder of their income. So if our couple decide to deposit 40% of their income to their joint account, then James will contribute $1200 and Jessica will contribute $1600.
4. Equal contributions
This is a very similar scenario than proportionate contributions; however instead of depositing a percentage of their paychecks, James and Jessica contribute an equal amount. For example, to cover all their house hold expenses they would both deposit $1400 into a joint account and keep the remainder in their separate accounts.
5.Separate but together
Keeping their finances, completely separate works well for couples who are already well established financially with a variety of assets. Couples entering a second marriage who don’t plan on changing their estate planning so their children can inherit like this method. The household bills are split 50-50 (or however the couple decides to split them).
No matter how James and Jessica decide to combine their finances, they need to remember to save an emergency fund as well as save towards their retirement.