THIS POST MAY CONTAIN AFFILIATE LINKS. PLEASE SEE MY DISCLOSURES. FOR MORE INFORMATION.
HIS POST MAY CONTAIN AFFILIATE LINKS. PLEASE SEE MY DISCLOSURES. FOR MORE INFORMATION.
Starting a new chapter in life with the person you love is always a time filled with fun and excitement. But life is not all sunshine and rainbows; you must face real-life issues!
One of the first issues you will face is whether you should combine finances after marriage. On the surface, it is a simple question, but there are lots of gray areas you need to consider.
In this post, I walk you through everything you need to know about having joint finances, so you can decide if it makes sense for your financial situation.
After you tie the knot, you need to start having more detailed talks about personal finance. Most likely, up until now, you were keeping your finances separate. But now that you are a couple, you might want to take the next step.
Let’s dive in to learn everything necessary before you combine finances with your partner.
Table of Contents
This option is the hardest at first because you need to open joint accounts, change direct deposit information, and set up new bill pay instructions. But after that, it is mostly smooth sailing.
I say ‘mostly’ because money management with your partner still requires work. You will always have to be open and communicating to ensure you both know where you stand financially and that both are on the same page.
Let’s look at its pros:
#1. Joint Money Goals
When you join your finances, it is easy to set up and walk the journey of reaching your money goals together. You can see your total income and expenses and then develop the goals you want to achieve around this.
#2. Growth of the Relationship
This is arguably the biggest reason to combine money. When you are dating, it is fine for each person to be responsible for certain bills. But when you are married, you are a team.
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If you continue to keep your finances separate, you don’t strengthen this bond. You can easily make it feel like you are simply still in the dating stage and unwilling to grow up. By sharing finances, the relationship grows stronger over time.
Take, for example, the case where one spouse works and the other stays at home. While the stay-at-home spouse doesn’t contribute financially, they contribute in other ways.
For financial coach Theresa Bailey, this is something many people don’t think about.
“For couples with only one earner, combining can create a sense of security for the non-earner, making them feel part of the money process regardless of their status. This is a huge psychological gift, so to speak, and a great way to build trust in many circumstances.”
#3. Easier Access to Money
When you have a joint account, if one spouse passes away, you can access the account since your name is on it.
On the other hand, if you have individual accounts, you have to do a lot of work to prove to the financial institution that you are the spouse and that the account owner is deceased.
This involves showing a death certificate, a marriage license, and possibly more.
#4. Simplifies Things
It is much easier to pay bills when you combine your money.
For example, when you go out to eat, you don’t have to discuss whose turn it is to pay. You just pull out your wallet and make the payment. It also helps that one partner doesn’t have to collect money from the other for any upcoming bills.
#5. More Transparency
Since your income and expenses come from the same accounts, you can’t hide your spending habits. This can be a great way to help keep your spending in check.
It can also help you make better financial decisions in the future because you can see how you save and spend money.
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#6. Saves Money
There are some areas where you might be able to save money when you join your finances.
For example, having the same cell phone plan will probably be cheaper as the second line is discounted. Car insurance is another place where you can lower the amount you pay.
All in all, there are many ways you can lower your expenses when you combine your money.
#1. Loss of Freedom
A big downside to managing money together is a loss of freedom. As noted above, your partner will see all the things you buy, and this lack of freedom with your money can be a big issue for some people.
It can also be hard to change the money habits you have used your entire life.
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While it is important to come together in marriage, it is also important to never lose sight of who you are as an individual.
Financial counselor Melissa Mittelstaedt highly recommends that “married couples create a threshold for how much one person can spend without bringing it to the family for discussion. For some couples, it’s $50, and for others, it’s $500+, so knowing where that line is upfront will make married life a little simpler.”
This approach can provide some freedom when it comes to money.
Mittelstaedt also recommends that if married couples share finances, they should consider having personal accounts as well. This way, you can create a spending plan/budget with no strings attached to money.
For example, every month, $100 gets moved to each of your accounts, which can be spent on whatever you’d like.
This way, neither of you will be monitoring every dollar the other spends (and if you’re like me and love surprises, you can still receive a present without knowing where it’s from and how much it costs!)
#2. Compromise on Your Spending
You also may need to compromise on your spending.
Maybe you enjoy playing golf regularly, but because you have a joint goal of saving for a house, you have to cut back.
You also have to agree on the bank to use, what financial products to use, and more.
#3. Complicated If the Marriage Fails
In the event of the marriage failing, the divorce process gets complicated.
With joint accounts, you have to now divide everything up and transfer the money. The hardest part is dividing the assets. Coming to an agreement in the heat of divorce is hard for most people to compromise.
While it is easier if you don’t have kids, money is a sensitive and emotional matter, and things can get ugly when you add on a failed relationship.
#4. Easier To Get Into Financial Trouble
Another downside is getting into financial trouble.
You might be a saver, but your partner may be a spender. In this case, they could pile up a lot of credit card debt you’ll also have to repay. Hence, if one person brings a lot of debt into the marriage, the other will also have to pay a portion.
#5. May Lead to Arguments
When combining finances, you may start having more disagreements. Since all your spending comes from a joint account, you see exactly how the other spouse spends.
If you are not comfortable with how much money they spend on a certain activity, it can cause resentment, and if your spouse feels like they can’t spend money freely, they might get angry and lash out.
How To Do It
If you have decided to merge your finances, where do you start? Here are some important things to think about and discuss with your spouse.
#1. Be Honest
Before you start actively merging your money, you need to do some prep work first.
The first thing to do is remember to always be honest with your spouse. Ideally, this isn’t your first money conversation, so you know all the assets and debts your partner brings into the relationship. If you haven’t had one, now is the time.
Next, you need to talk about how you will pay for things, including credit card or student loan debt brought into the marriage.
The more open and honest you are, the easier things will be down the road.
#2. Discuss Goals
After discussing your finances, now is the time to think about your future. What goals do you each have in life? This can be anything from career aspirations, retiring early, buying a house, starting a family, and more.
Put everything on the table and discuss what goals are most important to you both and how you plan to achieve them. For example, you might agree that you first need to pay off your high-interest credit card debt before you start saving for a house.
It helps break your goals into short-term, mid-term, and long-term so you can follow along. This is important so that you know how to divide your savings to fund multiple goals at the same time.
Finally, understand these goals are not set in stone. Life happens, and plans change. You need to be willing to change your goals as you age.
#3. Understand Your Partner
Are you a spender and your spouse a saver, or vice versa?
Knowing what type of people you both are will not only go a long way in helping you to reach your goals but also limit arguments.
For example, if you are a spender, you might feel restricted with a joint account. To solve this, you could create a small fun account that you put $100 a month into, which you can spend on anything you want, no questions asked.
#4. Create a Monthly Budget
The foundation of any good financial life is a budget. While this might sound boring to some, the reality is there are many budget options out there, so finding the right one for you won’t be hard.
- Read now: Here is how to start budgeting
I recommend you start with the 50/30/20 rule, as it is simple to understand and follow. Plus, as your life changes, you can make small changes without worrying about starting an entirely new budget system.
- Read now: See the 50/30/20 rule in action
#5. Open a Joint Bank Account
Now that you have done the behind-the-scenes work, you can open a joint checking account. Once opened, you will both have to set up new direct deposit instructions for your paychecks.
Ideally, you will also open a joint savings account to start building an emergency fund.
In fact, having multiple savings accounts, also known as sinking fund accounts, for each of your goals is even better.
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After you do this, you can determine what investment accounts you want to merge or keep separate. Understand that you must keep your retirement accounts separate, as a joint title is not an option.
When it comes to credit cards, you can choose to keep your credit accounts separate or add your partner to your account as an authorized user. If you do this, know you will still have your credit report and credit scores.
As mentioned before, how you handle combining finances is a personal choice, so don’t think merging your investments is a must.
#6. Have Regular Money-Related Conversations
Finally, when you combine your finances, one partner often takes on the role of family CFO. This isn’t a bad thing, but it does become a problem when one person is left in the dark financially. Therefore, it is critical you have a monthly money conversation with your partner.
This is true even if they have zero interest in your financial situation. By keeping them informed, you keep your bond strong as you work towards your goals. Plus, it won’t be a shock to them one day when they want to take an expensive vacation and find out you can’t afford it!
Also, these conversations are a great opportunity to talk more about your goals and if anything has changed.
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So, this was all about combining finances after getting married.
However, there is no one size fits all solution here. Some couples swear by merging their money, while others work best by keeping things separate. You have to look at who you both are and how you live to determine which is best for you.
With that said, no matter which one you choose, you need to be open and honest with your partner at all times and have money conversations regularly.
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I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.