8 reasons couples should combine finances, according to experts
- Research shows that combining finances with a partner can lead to a happier relationship, but more and more young couples are opting to keep things separate.
- It might be worth pooling your money, though, since shared finances may help you build a stronger sense of togetherness and (bonus) help you grow your savings faster through compound interest.
- Combining finances also makes paying bills easier and budgeting more transparent.
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Figuring out your finances is an integral part of beginning any life partnership. How you handle your finances depends on other aspects of your relationship, but the first step is to discuss the pros and cons of whether to combine or keep things separate.
Here are eight reasons why couples should consider combining finances, and why this idea isn’t as old-fashioned as you may think.
Increase flexibility to handle life’s changes
Relationships are all about supporting each other in times of need, or just change. You might have a medical emergency, decide to go to graduate school, or suddenly need to purchase a new car. You will inevitably encounter curveballs, and they aren’t always bad.
Amanda Clayman, financial therapist and Prudential financial wellness advocate, explains that these curveballs are sometimes harder to deal with in a separate system.
“With everything separate (two pots), there is no structural requirement that you communicate and coordinate, so there is lower potential for disagreement and less individual vulnerability to your partner’s choices. But you also lose the advantages of ‘pooled risk’ and you’re less flexible as a team to deal with changes (such as one partner wanting to return to school, or have a baby, etc.).”
Combining finances and sharing assets can better prepare you for these events that may need some extra financial assistance. Having a shared bank account removes the need for your partner to transfer money into your account or pay “your” bills and potentially cause more conflict.
Simplify shared financial responsibilities and goals
Between student loans and years of credit card debt, most long-term relationships start out in the red. With debt being so normalized, it’s essential to make sure that you and your spouse share the same views on fiscal responsibility, and the goals you have for the future.
This doesn’t just mean whether you want to buy a house or travel, but how much that will cost and how long you have to save to reach that goal as a couple.
“[The] couple has to agree on financial goals. How much of a balance is too low? How much to spend on eating out? Who contributes what? Will there be an emergency fund?” explains Dr. Sherri Newpol of Newpol Psychological Services.
Combining finances can help simplify that process, and keep tabs on debt. Also, having the foundation to start putting money away for shared financial milestones will make it much easier to facilitate more substantial expenses such as buying a new car or investing in new furniture.
Create a stronger sense of equality
Shared finances often creates a sense of security, but also balance. Instead of having two separate incomes, you have a shared income that funds your shared home and a significant portion of your lifestyle. Your salaries don’t need to be precisely the same if both partners are working, but combining finances establishes a newly shared baseline for you and your spouse.
Clayman advises couples to determine what that combination means to them specifically, not necessarily what’s traditional or common.
“Decide on what’s ‘fair.’ Does fair mean equal (both contribute 50-50 to joint expenses/accounts) or does it mean proportional (each contributes a proportionate amount based on their income)?”
This can significantly change the mindset from thinking about money as “my/your” income, but rather “our shared” income. With inherited wealth, such as a trust fund or valuable property, this can also level the playing field so that both spouses can healthily plan on incorporating that inheritance into their shared future.
Streamline paying bills
When it comes to talking about bills, it’s nice to talk to your spouse as a spouse instead of a roommate.
Some couples choose to open a joint checking account just for living expenses, even if you want to keep other costs separate between the two of you. That way you only need to make one transaction to pay your rent or mortgage, as well as other basics like utilities and groceries.
Make budgeting more transparent
If you know exactly how much money is coming and going between the two of you, it becomes much easier to track your shared budget and where you might be going over in some places.
A shared account is especially useful if you follow the 50/20/30 rule, where 50% of income goes to living expenses (bills, food, necessities), 20% goes to financial goals (savings or paying off debt), and 30% is allocated for fun (entertainment, dining, travel).
There are many ways to think about your budget, but it’s essential to have one and make sure you as a couple are not trying to live beyond your means.
Budgeting also encourages even more of an open conversation surrounding money. The days of money being taboo between a couple are long over, and it’s essential to have these discussions to make sure that both partners feel secure in your financial present and future.
More in savings = more interest earned
If you share a savings account and each continue to contribute the same amount that you did before combining your savings, your interest payments will increase thanks to compound interest.
The average interest rate for a savings account is 0.09% APY, though there are many online banks with savings programs that have a much higher interest rate. Either way, combining this aspect of your finances is smart so that you can make a little more money off of your nest egg.
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Talking about money and budgeting is stressful enough for an individual, let alone a couple.
Clayman suggests that couples “take the time to go slow. Communicate more up front about your financial goals and values with your current partner to make sure you’re both on the same page.”
Combining finances from the beginning and having regular check-ins about your finances can prevent the surprises that lead to conflict. This means discussing your financial situation on a regular basis, not just when there are problems.
Make a plan for the (now shared) debt
As Brian Face, certified financial planner, notes, “The best way to be on the same page with your finances is to actually go over the past, including how you grew up, what your current debt is, and what your goals are with your money in the future. Most couples will have someone who is more of a spender and someone who is more of a saver. Remember: This is about compromise.”
When you commit to someone for the long-term, you accept everything about them — including potential debt.
Debt from loans or credit cards can affect many things, and not just for the first couple years of your relationship.
Getting a higher interest rate on a mortgage will inevitably affect you long-term, so it’s essential to understand each other’s credit scores and set goals for improvement if needed.
If you know you are inheriting debt, start planning to ease the burden as soon as possible. Working out a full monthly budget to maximize the payments is a good start when you first combine finances.
Realistically predict what times of the year you are likely to spend more, and when you’ll be able to conserve. For example, spending is often higher around the winter holidays or over the summer due to vacations.
It is healthy for your relationship to make sure you budget for a fun trip or a nice present, but not to the point where it gets in the way of your required payments.
“Combining finances can be very stressful for most,” says Face. “We end up bringing up the past, which may not feel the best for some. But remember, money is just a tool to help you move forward in life. This includes moving your relationship forward.”