When a couple marries or otherwise commits to be in a long-term relationship with each other, the question of whether to combine money usually arises. The debate about whether what could be called “his money” and “her money” should become “our money” is endless. Different arrangements work for different couples, and this article doesn’t address that question.
Those couples who do decide to combine finances often stop at the minimum. They might create a joint checking account for shared expenses like rent or mortgage payments but don’t make an effort to take co-ownership of the complete financial picture. I have not been in a situation that warranted a combination of finances, but I’ve given the issue some thought.
1. Agree on life goals. This isn’t necessarily a pure financial concept, but your money depends on what you want to do with your life. Being wealthy is not a goal because money is nothing but a tool to help you achieve accomplishments that are important to you.
It may be safe to assume that a successful relationship stems from agreement on world views and major life goals, but work out the details. For example, what will retirement look like? What is the philosophy about philanthropy? Will you leave an inheritance? Opening the communication about these larger issues, and finding compromises if necessary, enables a better decision-making process.
2. Combine basic spending and savings accounts. As mentioned above, this is usually the first and last step couples take. This is easy: open a joint checking account at your favorite bank. Even the question of whether each individual in the couple contributes the same dollar amount, the same percentage of income, or some combination, is one of the easiest questions you’ll have to consider when combining finances.
This step is easiest when each side of the couple produces roughly the same amount of income for the same amount of work. Perhaps a better way of looking at this question is considering how much each individual should keep for his or herself, making the shared account the default.
3. View investment portfolios as a whole. More difficult than an income disparity is a risk tolerance disparity. There could exist a couple wherein one individual is comfortable putting most of the family’s long-term wealth in the stock market for a better chance of growth over that period while the other would prefer the funds to be safe and less volatile. This couple will have a more difficult time finding a compromised solution.
My company offers tools to manage the risk of my 401(k) investments, but the facility of tools like these are limited. If my 401(k) was my sole investment, this automated questionnaire-based tool would be sufficient, but it takes neither my other investment accounts nor a theoretical spouse’s investments. Rather than relying on these tools, a couple should manage their risk in total and make sure they asset allocation and diversification is in line with goals and needs.
4. Work together to pay off debt. Like merged assets such as bank accounts, a committed relationship also turns “his debt” and “her debt” into “our debt.” It’s in the couple’s interest to pay off debt as quickly as possible. This can certainly not seem fair, particularly if one side of the couple worked diligently to pay off debt while the other slacked.
As long as trust, honesty, and open communication are a part of the relationship, there should be no surprises.
5. Everyone is involved. I’ve seen couples where one person handles the finances and the other prefers to have nothing to do with the details surrounding money. I understand that not everyone has an interest in personal finance, as much as I wouldn’t like to believe it because fewer people interested means fewer people reading Consumerism Commentary, and so I accept that not everyone wants to deal with the bits, bytes, cents and dollars. Each couple needs only one person in Quicken or Mint tracking finances with that level of detail. Perhaps some of the bill-paying duties, however, should be shared.
A business partnership is different than a life-long committed relationship. In a business, perhaps only one person handles the finances. In a couple, taking care of money is like taking care of children. Both will grow and develop best when everyone is involved.
How have you succeeded in combining your finances — and your life? If you have decided to keep your money separate, why was this the right choice for you? For everyone, combined or not, what obstacles have you encountered?
Updated March 21, 2011 and originally published August 2, 2010.