If you’re in a serious, committed relationship, you likely feel comfortable sharing everything with your one-and-only; from your deepest, darkest secret to your plate of French fries. However, one topic that gives many couples pause is discussing finances.
Discussing finances can feel uncomfortable for a lot of people, it is perfectly normal and you’re not alone. However, you’ll be a lot happier if you have the discussion before combining your income and expenses with another person. It’s not always easy to determine how to divide up finances in a marriage or other partnership. However, splitting bills is a fact of life for many couples who live together or otherwise have shared expenses and responsibilities.
Here are four couples finance strategies that may work for you and your partner:
1. All shared
On paper, the all-in arrangement might seem simplest. You and your partner share one checking and one savings account, and you direct both of your incomes into these accounts.
An advantage of this arrangement is ease of use. All of your expenses come from this account and you can easily move money from checking into savings.
This finance-sharing system can come with some challenges too. Are you and your partner always on the same page with all of your purchases? For example, say you want to buy a new pair of shoes but your partner thinks clothes shopping is a frivolous way to spend your money.
This arrangement doesn’t have to be stressful, but to make it work, it requires an open conversation about finances that you both can agree (and stick) to. You can help reduce the risk of stressing out your partner with your spending habits (or being stressed about your significant other’s spending habits) by laying down some ground rules. Perhaps choose a spending threshold above which you need to discuss a purchase with your partner. Establishing a budget can be helpful too, as long as each of you sticks to the budget, there shouldn’t be any arguments.
You will also want to agree on how to track expenses. If you like to use a check register or balance expenses online, but your partner doesn’t, that could make it difficult to predict what is actually available in joint accounts.
2. Totally separate
If you prefer to have more autonomy in how you choose to spend your discretionary funds, you might consider not sharing accounts at all.
One advantage of this? Financial independence. However, with this arrangement, you will need to get creative with how to share expenses. You’ll want to discuss what you both think is fair: should you divide bills exactly 50-50? Base expenses on income levels? Or something else entirely? If one of you makes more money, you both might be comfortable with the higher-earner contributing more money to shared expenses. You can also set up a system where you choose who pays which bills; perhaps one person takes the mortgage and the other picks up the car payment, etc. Alternatively, you can add up all the expenses and one person pays all of the bills while the other pays the first person directly for their part.
Another approach could be to set up a monthly meeting between you and your partner where you each review your credit card bills. Highlight each line item that was a “shared” expense. You’ll add up everything you bought that was shared, and your partner will do the same. Whoever spent less will pay the difference back to the other person to even it out.
There are a lot of ways to split expenses. If you have an open conversation with your partner, you’ll likely find a method that works well for both of you.
3. Combined accounts
Many couples choose a “best-of-both-worlds” approach, where you each have your own, personal checking and savings accounts, but share joint checking and savings accounts.
With this approach, you can easily pay for shared expenses because each person can contribute their part of the money to your joint account while keeping other expenses separate. Each of you will have easy access to your own money, and you’ll have the freedom to spend your discretionary income without needing to track each other’s personal expenses directly.
This approach could allow you to spend money on clothes while your partner spends money on tickets to events and travel. If maintaining your own personal hobbies is important to you, separating accounts could be a good solution for both of you to pursue your passions.
Of course, you’ll still need to decide how each of you will contribute to your joint accounts. Here are two strategies you can choose from for funding the joint account:
With a percentage-based approach, both partners contribute the same portion of their respective incomes to the account. For example, you might agree to each contribute 35 percent of your income to the account.
If you or your partner earns significantly more income, that person might wind up contributing a lot more money to the joint account with the percentage-based approach. Some couples might be fine with splitting bills based on income. If not, you can choose a fixed-dollar amount that you both contribute each month. This amount can split the bills 50-50, 60-40 or any other ratio to which you and your partner agree.
Comparing percentage-based vs. fixed amount
Both strategies work well as long as both partners are OK with them. It’s important to be honest with your partner as neither of you wants the other person feeling like the amount they contribute is unfair. Have an open discussion about what you and your partner agree suits both of your needs; chances are that you can find a reasonable compromise.
Determining shared expenses
It’s also important that the joint account covers all shared living expenses. To determine how much money you need in the account each month, tally up all your monthly and annual shared expenses. Try not to let the balance dip below one month’s worth of expenses.
Some couples might also choose to have a combined savings account. You can use these funds to save up for shared future expenses, like a house, a car or a new baby. Discuss your savings goals and strategy to make sure you’re on the same page.
4. Live on one income
In some situations, couples might choose to live entirely on one person’s income. A few reasons for this might be:
One person doesn’t work
If one person is a student, makes a low income or is a stay-at-home parent, you may live on one partner’s income. When this is the case, it’s still important to discuss financial goals and put rules in place to determine what nonessential purchases can be made without discussing it first.
One person plans to leave the workforce
Perhaps both partners have well-paying full-time jobs but anticipate a change in the near future. Maybe one person is considering going back to school, you’re thinking about starting a family or your partner wants to open a business. You might “practice” for the transition by testing out the one-income approach, knowing you have a safety net if it doesn’t pan out as planned.
You want to maximize savings
If you can both live on one partner’s income, you might choose to set aside the other’s income to maximize your savings; this could be a way to pad your nest egg quickly.
Are you and your partner considering a joint account? Or would you like to make sure you are getting the most from your existing account? Check out these great checking and savings account options from OnPoint.