I’m not talking about the very important financial discussions you should have with your partner before you combine finances. See our previous post if you haven’t done that yet. But rather the act of "whats mine is yours and whats yours is ours"
5 Ways To Combine Your Finances
After you've talked over the 5 discussions you should have with your partner (see previous post) you are ready to decide how to combine your finances. Based on my experience there are 5 options for combining your finances with your spouse.
1. Combine everything
Both people put all of their money into a joint account and include each other as owners of investments / savings accounts. This is complete commingling.
Example: Erin and Frank open a joint account and have their entire paychecks directly deposited into a checking account. Then, they move $1,000 of it into a joint savings account to meet their savings goals. All of their spending comes from their joint checking account. They have joint debit and credit cards; they do not have any separate accounts or cards.
2. Combine everything in a joint account except for a specific amount that each person keeps in an individual account
Using this method, all of the money you and your spouse are paid goes into a joint, household account, except for a certain amount or percentage that you both decide to put into individual accounts for a nest egg.
Example: Greg takes home $6,000 / month and Hannah takes home $5,000 / month. Greg and Hannah want to combine most of their finances but want to retain a little bit for a personal nest egg and for gifts for the other person. Aside from their joint account, Greg and Hannah have two personal accounts where they each put in 5% of their income. For Greg, that’s $300 / month and for Hannah that’s $250 / month. The remaining money goes into their joint, household account.
3. Combine a certain percentage of each person’s income in a joint account and put the rest into separate, individual accounts
This is the proportionate method. It is also the method that Suze Orman advocates. You both keep your individual accounts and put the same percentage of your income into a joint, household account.
Example: Amy takes home $4,000 / month and Ben brings home $3,000 / month. If Amy and Ben decide to put 20% of their incomes into a joint account, then Amy and Ben would put $800 and $600 into their joint account respectively. The rest of their money goes into separate accounts that they each have.
4. Combine an equal dollar amount in a joint account and put the rest into separate, individual accounts
This is the equal contribution amount method. Both people put in a specific amount into the joint account, regardless of each person’s income. This could seem unfair to the person who makes less because s/he will be putting a higher percentage of their income into the joint account than the person who makes more.
Example: Claire takes home $4,000 / month and Dan takes home $5,000 / month. Under this approach, both Claire and Dan put the same amount into a joint account, such as $1,000. The remaining amounts ($3,000 and $4,000) go into their individual accounts.
5. Keep everything separate
Under this method, you both keep your finances completely separate. This means that you each have personal accounts and do not have a joint account. You pay for household expenses by splitting them and each paying individually. This method may be good if you cannot trust your partner with your money or if you both are older and this is not your first marriage.
Example: Inga and Jim are both 50 and this is their second marriage. They each have kids from previous marriages and don’t plan on changing their estate plan to include each other (they want their kids to inherit). Because Inga and Jim both have long established credit histories and a variety of assets that they do not want to commingle, they decide to keep all of their accounts separate. When they pay for things, they alternate. When they pay their bills, they split it down the middle and each pay’s half.
A Note About Transparency
In the 5 ways to combine your finances, all of the options except of one includes having a separate account that is not your spouses. It’s important to point out here that separate does not mean hidden. I am a huge proponent of the philosophy of complete transparency when it comes to finances. Separate does not mean hidden. If you have separate accounts, those accounts should still be discussed and included in your budgets just as your joint money is.
