What to Expect When You Merge Finances Pt. 1

My baby brother go engaged last week! I use the term “baby” loosely. He is no baby at 23 and has towered over me since he was 10 and I was 12.

Here we are back in 2009 during a tour at the Boeing factor.

See? Not a baby.

In any case, I wanted to take this opportunity to do some ‘splaining about what goes into merging your finances. In this post I’ll give some tips about how to do just that, and in the next one I’ll detail some of the ramifications for what happens when your finances collide.

Gotta Keep ‘Em Separated (?)
First, when you and your honey decide to merge your finances, you have a lot of options when it comes to the basics about how to access your money. Do you keep separate accounts, do you merge all your money, do you have a joint account and separate accounts?

I am a huge proponent of have one central, joint account and an individual account for each person. Here’s why: we human beings have a hard time being told what to do and we love to fight about scarce resources. If you lump all your money together into one central account, you will both be able to watch that amount dwindle down as the bills get paid and expenses pop up. Then his more expensive lunch and her daily latte habit will become a point of contention if your checking account gets below a level you both are comfortable with.

I recommend automatically transferring the amount needed to run your household into a joint account every month and letting the rest stay in your separate accounts to be used at your own discretion.

However, this can become difficult if only one of you is working. I have suggested to couples who only have one partner working to set aside an allowance for the non-working partner to be used at his or her own discretion. This is less an allowance in the sense of what you give to children or what housewives got in the 1950s, but more a wage from the working partner to the non-working partner for maintaining a household and taking care of children. The value of that partner can be over $100,000 a year in recent estimates. But discussing between you two what is an appropriate amount for this wage or stipend is an important conversation and will teach you exactly where you both stand on the value of a stay-at-home partner.

This all comes down to how important it is that each person have their own money that they can spend as they want. It is unfair for a working partner to scrutinize and criticize every purchase a non-working partner makes. We need time and hobbies apart from each other to have successful relationships and if that means he gets $75 a week to put towards a gym membership or a D&D play group or whatever, then you let him. Because I can guarantee that if you saw a check written out to a D&D play group every month your blood might boil a little.

Having said that, it is also important that the working spouse be given comforts for her efforts. She has to walk in heels all day for her job, she should not be criticized for a bi-weekly pedicure, or whatever it is that makes going to work every day rewarding (aside from you fabulous job, obviously).

What’s Mine is Yours
Ok, so now you’ve figured out how you’re going to split your finances, your next task is to figure out how to pay for your joint expenses. If you’ve gone the route of the separate and joint account situation laid out above, it’s easy to have money automatically transferred into your joint account every month.

But how much?

Well you’ve been keeping track of these expenses already (right?) so this part is easy. There are two schools of thought on this.

1. Split everything 50/50

2. Split everything based on your overall income

Splitting everything 50/50 seems fair and easy. The rent check is due, you each pay half and it’s done. Same with utilities, groceries and when you eat out together.

But hold on, what if one partner makes significantly more than the other? Splitting things 50/50 just got a little difficult since one partner has a lot of money left over while the other is forced to scrimp to have some luxuries and meet savings goals. If you are fine with this option, if the higher paid partner is willing to pick up the tab often enough to make it more equitable, then go ahead. But I can guarantee a lot of jealousy and resentment will breed if she gets to have a shopping spree and your D&D play group is a stretch to pay every month.

Instead, I recommend splitting everything based on your overall income. Add up how much you make together, then divide your income by the total you bring in together, that is what percentage you should be contributing to your joint expenses.

This year Andy made literally twice the amount I did, so right now I pay for 1/3 of our joint expenses and he pays for 2/3. Within our relationship we have made some concessions. He doesn’t eat as many fresh fruits and vegetables, so we split groceries 50/50, while I don’t watch as much TV so he contributes 50% of our Internet, Hulu and Netflix subscriptions. It’s about equal and instead of him racking up a huge surplus in his checking account as a result of me breaking my back to keep up, we are both comfortable in our retirement savings, emergency savings and how we use our discretionary income.

We track this rather complexly in an Excel spreadsheet. But you can create a separate account on a budget tracker like Mint.com to track only your joint credit cards or joint accounts. That way it’s not a mystery how much you are spending every month and settling up is easy and pain-free.

Phew! That’s a big post. Obviously these are not hard and fast rules and each couple is going to have their own variation on how they deal with these expenses. The key is communication and making sure money is discussed opening, without judgment and with the goal of having each partner being happy in their financial situation.

And if you need a mediator, give me a buzz.

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