It can be one of the most thrilling moments in your life--the moment when you find the love of your life, move in together, get married or get engaged, and begin to merge your two households. Then suddenly, from out of the dark corners of each of your lives come all of your financial triumphs and dirty secrets. You both have to grapple with the other's financial life in a way you never had to before. At that point, you realize your finances are truly tied together with your partner's. But not to worry--here is a step-by-step plan to painlessly combining finances with your significant other.
Have "The Meeting" Instead of "The Talk"
Talk, meeting—whatever you need to call it, a serious sit down between you and your significant other needs to happen before you can even consider moving forward and combining your finances. I recommend bringing three months' worth of bank statements to your meeting together, or any spending/debt analysis you may have if you track your finances through an online tool like ReadyForZero, Quicken, or Mint.
Talk about where you stand financially--all assets, debts or quirks you may have. Then you can come up with a plan.
Decide Which Approach Works Best For You
If you are getting married you may favor a total combination of finances, where you both put all of your money into one account that you both pay bills and spend freely from. Or you may prefer a "Yours, Mine and Ours" approach, with each person putting a portion of their paycheck into a joint account for bills and groceries while keeping a set amount to spend for themselves on incidentals or for personal debt pay down.
Decide How You Are Going to Split the Bills
If you are using the "Yours, Mine, and Ours" approach, it may make sense to split up expenses percentage wise rather than down the middle, particularly if one half of the couple makes significantly more than the other.
For example: Cindy brings home $5,000 each month after taxes, while Todd only brings home $2,800. The percentage they'd each contribute to the joint account would look like this: $7,800 total income for the household. And $5,000 divided by $7,800 equals 64%. So Cindy brings home 64% of the income for the house, which means Cindy could put in 64% of her salary towards the bills, which in this case would be $3,200. And Todd could put in 36% of his salary, which in this case would be $1,008. This way, each person in the arrangement is left with a fair amount of disposable income.
You have your homeowners insurance, car insurance, and health insurance; but what if something happened to your spouse or partner? Would you be prepared? If you are serious about commitment and joining your finances together, life insurance should be an important step in your journey.
This is the only way to insure your loved one would be taken care of in the event of your untimely death and each person in the relationship should have a policy.
It can get really old—fast—to have all the utilities in one person's name and have to constantly write checks to "pay them for your share." If you are getting married, buying a house, or deciding to cohabitate, you might want to consider joining utilities as well. Have half in your name, half in theirs, or have them all auto-debit from your joint account. There are also additional savings for combining utilities such as cell phone and car insurance into one plan.
There are many different ways to combine finances with your significant other. Ultimately, you and your partner will have to decide what is best for you as a couple. Each pair is different, and there is no right or wrong way to do things, especially when it comes to money and love.