Since your personal finances should reflect your personal priorities, it can be difficult but rewarding to create a financial plan with a partner. You are two different people with unique financial priorities and goals who decided to combine lives and share at least some priorities. Finding the balance between sharing couple goals and retaining autonomy on personal spending can be difficult.
Financial stress, whether stemming from disagreements on spending priorities and money management or simply from having enough and paying the bills in general, causes or contributes to many relationship and marital conflicts. Most divorces contain at least some financial stressors, ranging from small spending disagreements that magnify greater issues to serious financial abuse.
To avoid these issues, create a financial plan with your partner once the relationship is getting serious. This may be when you move in together or decide to get married or it may be sooner if you decide to set some joint financial goals, like taking a vacation together, before taking those steps in your relationship. There are different ways to organize your finances with a partner, and the details within those plans will vary for each relationship. No relationship or financial plan is the same, and the details of the plan only matter to you and your partner. What is important is that you have a plan with buy-in from both individuals in the relationship.
Transparency is Non-negotiable
Before discussing the different ways you and your partner can organize your financial plan, there is one constant for any successful financial coexistence: You must have transparency. Even if you decide to maintain entirely separate finances, you and your partner should both feel comfortable talking to the other person honestly about your respective financial situations. If you are uncomfortable honestly and completely conversing about financial matters with your partner, you lack the trust to have a serious partnership.
We recognize that many, and probably most, households do not have two partners both equally interested in learning about and managing finances. If you or your partner (more likely your partner, since you are reading this article!) are uninterested in financial organization or less financially savvy than the other person, that is okay! One person can be the main financial manager, but that does not diminish the need for transparency. Having one financially focused partner makes a joint financial plan even more important since the partner managing the finances should have an operating plan supported by the less financially focused partner.
Setting a standard of transparency regarding finances (and honestly, most things, but you can talk to other professionals about transparency in their respective fields) is the foundation for a happy and stress-free financial future with your partner. Talk about finances now so you do not fight about finances later, and revisit your finances regularly.
The Money Date
Life is better if you are the type of couple that has money dates to discuss their finances. I know, it sounds like the worst date in the world. However, money dates actually prompt exciting conversations with your partner about future goals and dreams that may never come up in day-to-day life! Since money is a tool to move your life towards certain goals, this is the time to discuss and prioritize those goals.
If you are not in the habit of having conversations about money with your partner, initiating the first money date may feel awkward, and planning topics of conversation may feel overwhelming. The BiggerPockets Money podcast has an excellent episode about the Money Date that is worth listening to if this is your first big money conversation. Important details include having the discussion when both partners feel positive, coming prepared, being receptive to your partner’s inputs since they may vary from your own thoughts, and focusing on working together to find a financial management system that works for both of you and your goals.
There are Different Ways for Couples to Manage Finances?
Yes! The outdated but resilient rumor that you must have separate finances if you are not in some form of a legal union and must have combined finances if you are married is not true. You can manage your finances however you want. You can combine your finances with a legally unattached partner. You can have separate finances with a spouse. The organization of your finances is completely up to you and your partner.
While the unique variations will differ from couple to couple, there are three overarching methods of organizing finances:
Completely combined finances
Yours, mine, and ours
Completely separate finances
Each has its own benefits and drawbacks, with varying degrees of complexity.
Completely Combined Finances
Completely combined finances are when all accounts that can be joint are joint. You and your partner operate a joint checking account where any regular paychecks or other income is deposited. Your emergency fund is a couple’s emergency fund, and you have joint high-yield savings accounts to save for specific safety nets and happiness spending goals. Employer-sponsored individual retirement accounts, like a 401(k), still must be individual since they are operated according to your employer’s guidelines. IRAs, while also individual by law, may be shown as two separate accounts within the same online profile at the same investment company, so either partner can log in, review balances, and make transfers as they see fit. All credit cards are shared, both names are on any owned real estate, and any other assets are equally owned by both partners.
If both partners are equally involved in managing the money, this is a terrific and transparent system that provides a comprehensive view of all finances as a couple. Either partner can quickly review any financial detail or the progress towards any financial goal.
In reality, one partner often ends up doing the bulk of the financial management in this scenario. That is okay, as long as transparency still exists. This means the other partner should know where all accounts are held, have the login credentials, and have a basic idea of the balances of each account, even if they only log in sporadically.
Yours, Mine, and Ours
The “yours, mine, and ours” format can vary the most within itself. Checking accounts can be separate or combined. When separate, each partner’s income will go to their individual account, and bills are split in a way deemed fair by both partners. (We have always been 50/50 folks for the big expenses, even when our incomes vary, but that can be unrealistic if one parent is providing the bulk of childcare responsibilities, caring for a sick relative, or participating in other time-demanding care.) When couples have a joint checking account, joint expenses are paid from that account before the left over money is shuttled to individual accounts.
Each partner has individual HYSAs to fund individual goals and hobbies. Couples with different hobbies find this method important. For us, Xa gets sticker shock when she sees the cost of entry for a particular race and cannot understand why Patrick would pay that just to get a medal at the end of running the same amount of miles he would run anyways. However, Xa spends money to tackle people for fun at rugby, something that Patrick chooses not to do for self-preservation. In reality, we both spend on our hobbies, and since our hobbies are different, neither of us would allocate that much money for the other person’s hobby. Rather than having a conversation about every running and rugby expense, we are both happier funding individual accounts and making individual spending decisions based on the balances of our respective accounts and our hobby priorities.
Employer-sponsored accounts will be separate, as they must be. IRAs can be in two entirely separate investment companies or in a common one where each partner has view access. Other brokerage accounts can be similarly organized with separate brokerages, joint brokerages, or a combination. A middle ground is to have some combined accounts and some separate accounts, allow “view” access to both partners for all accounts, but only the owner of the account can conduct transactions. Credit cards and other investments like real estate can similarly vary: Partners may have separate accounts or assets or join forces to invest.
The “yours, mine, and ours” method allows the flexibility for each partner to spend freely within certain predetermined constraints, limiting financial disagreements based on differing financial priorities. It also still provides the ability to save and invest in goals as a couple, an important benefit since you have chosen to shape your life with this partner. The method balances transparency with individual autonomy to create a healthy mix of personal identity and building a life together.
However, it is also the most complex method of managing money because so much variation exists within this method. If both partners dedicate time and energy towards occasional money dates and prioritizing finances, this method can eliminate financial disagreements from your life completely. However, if it ends up becoming a chore or one partner does not agree with the complexity, it can cause more harm than benefits.
Completely Separate Finances
Completely separate finances are when you continue operating exactly as you were before you and your partner became a team, with only the addition of transparency into your finances so your partner knows where you are. All accounts are separate. You may have “view” access for certain investments just so both partners can track finances more carefully, but all checking accounts, HYSAs, retirement accounts, credit cards, and assets are separate. Sometimes a big asset, like a couple’s home, will be the one joint asset, but most are held individually.
This method of organizing finances helps eliminate issues that arise regarding spending priorities and allows each partner autonomy in their spending decisions. It can also just be easier to manage finances as you were before, assuming you both managed them well.
The difficult aspect of having completely separate finances is agreeing how to pay any joint expenses and sticking to it. This is why transparency remains important! While your partner’s finances are their own, you should still have a general idea about their income, savings and investment rates, and net worth. Have discussions about whether you want to pay for all household expenses 50/50, base expenses on a percentage according to income discrepancies, or have each partner assume full responsibility for specific items. Make sure any childcare, elder care, or other care time is valued as much (or more – work is easier in our opinions!) as any income-producing work when determining percentages. If you do not have children but anticipate having them in the future, discuss your financial split now and how it will or may change if/when you have children.
As long as you are both transparent in your financial assets and your financial goals, you can have a combined life and healthy partnership with completely separate finances. The one point of caution is to avoid thinking that separate finances means not disclosing your financial situation to your partner. You decided to be a team, so you are a team regardless of whether your money is held in joint or separate accounts. Even if you live in separate households, you need to be on the same page once your relationship gets serious.
Switching Your Approach and Adapting Over Time
While you should have a plan from the very beginning of your relationship, it is also okay to make changes over time. This includes overarching structural changes. Initially, we had completely separate finances, but we have moved in the direction of a “yours, mine, and ours” financial structure. (We often quip that we have combined finances, but separate accounts.) When we were younger and had less money, our financial goals were simpler. As our salaries and net worth grew, we created additional financial goals. Some of those goals were joint goals: In particular, we decided we wanted to take an excessively luxurious vacation to a Greek island every five years, starting with our honeymoon. To fund this goal, we opened a joint travel investment account. It is also okay to move in the other direction, too: Start with combined finances, and then realize you want separate accounts to fund some individual hobbies.
Transparency, and talking about money throughout your relationship, are the important aspects to recognizing when these changes may be right for you. First figure out what works best for you right now. Then, keep talking. Communication is a foundational quality of a good relationship. Include money in your communication, and you and your partner will always be on the same page. You will recognize together when a change may be right for you. Your finances can be combined, separate, or a hybrid approach, but your financial discussions should always happen together. Only you and your partner can decide what is right for the two of you.
Comentários