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When you're in a committed relationship, particularly when living together, opting for the convenience of combining finances and splitting expenses can seem like a no-brainer. But the reality of relationships means melding your financial lives can add to heartache later on if it doesn't work out.
That doesn't mean you shouldn't combine finances at all. But avoid potential difficulties, now and in the future, by clearly communicating your individual money personalities, taking intentional steps to merge certain finances and developing a clear household budget.
Here's how to decide which finances to combine and how to make the process as seamless as possible.
Consider Your Relationship Stage
Perhaps the most important element in the decision to combine finances is trust. If you'll be splitting bills with a partner, and relying on them to regularly come up with their share, it's important to feel confident that you won't be left covering the whole balance.
Early on, you may decide to split expenses like meals out and flights for vacation using tools such as Venmo and Splitwise. Once you move in together, you may be more likely to split larger, more regular bills, such as rent, groceries or potentially a car payment. Falling behind on housing or car payments can have serious consequences—for your housing security and credit score, for instance—so waiting to combine these parts of your financial lives is a smart choice.
That means it may be best to wait to combine finances, either partially or fully, until you've reached the stage at which you're in a trusted, long-term commitment. The timing for each couple will vary, but the first several months of dating are an opportunity to get to know your partner—and it's wise to wait to understand their income, savings, debt and money philosophy before combining finances.
Set Aside Time for a Candid Money Conversation
The best way to build a full understanding of each other's readiness to combine finances is to have a frank conversation about your financial views and habits.
When you think you're ready to make the leap to merged finances, plan to discuss these topics at a specific time when you won't feel rushed and you can bring your full attention and compassion to the conversation. Money can be a difficult topic for many, so take it slow and allow for multiple check-ins if necessary.
Here are some important points for each partner to cover:
- What messages did you get from your parents about money as a kid? How have these affected your approach to money today?
- Do you save money regularly, or do you typically have no money left over at the end of each month?
- What is your annual income?
- What is your outstanding debt?
- What are your recurring expenses?
- Are you investing money for the future?
- What are your top financial goals?
- What is your current credit score?
Some of these questions might seem awkward, but it's critical for both you and your partner to be open and forthcoming before you decide to pool your finances. If you're afraid you'll offend your partner by asking specific money-related questions, your relationship may not be ready for the next step financially. You should also discuss at what level you would like to combine finances now—whether you merely want to split shared expenses, or whether it's time to save in a joint account for shared goals.
Explore Household Budgeting Options
Now it's time to consider the specifics. There are multiple ways to budget as a couple. The best route is the one you both feel comfortable with, and that allows for a fair split based on your earnings.
Some options include splitting everything 50-50, where each partner contributes half the cost for all shared expenses each month, or a split in which each partner contributes an equal percentage of their income. That way, if one partner earns significantly more than the other, the lower-earning partner does not contribute more than they can afford.
How to cover expenses can be another tricky subject. You may decide to set up a joint checking account, where each partner will send a certain amount each month so you can pay for shared expenses from that account. Or one partner can schedule an automatic transfer for rent and utilities each month to the other partner, for instance, who then makes the payments. Yet another option is to keep a running tally of each partner's contributions to the household—cleaning products bought, furniture ordered and the like—and to settle up at the end of the month.
In general, it's practical to combine finances to the point at which you can both enjoy the convenience of knowing your bills will be comfortably covered. For items you truly share, such as rent, groceries, household utilities or gas, come up with a system that allows you to pay for them as a unit.
But for other expenses, such as personal care, clothes and technology, there's no rush to merge finances. Some couples keep these expenses separate even after marriage; others consider all household charges to be shared. But keep in mind that if you use a credit card, how to pay for shared debt should be part of your ongoing money conversation.
Stay Open to Change
As your relationship grows and evolves, the types of expenses you share may change too. You may decide to add one of the partners to the other's credit card as an authorized user as a way to keep track of expenses and perhaps improve credit. That means you'll need to discuss how to pay for bills on that card.
If you have children, paying for child care and saving for college will mean adding new line items to the shared budget. It's also likely that one or both of you will change jobs, reduce or increase income, or take an extended break from working. Over the course of a relationship, you may readjust your budget and the finances you combine many times. Keeping the lines of communication open will be an important part of maintaining the health of both your partnership and your finances.