The Stress-Free Guide to Merging Your Finances
“How do we combine our finances? Are we doing it right?”
We find that most couples who start working with us often wonder how to combine finances the right way. Surprise: there is no one-size-fits-all approach when it comes to combining finances with your partner. A number of factors can influence how to approach this exercise and, as you probably have guessed by now, it’s not just about the numbers.
In this post we’ll address how to begin creating a mindful spending plan with your partner. We want to give you some easy steps to think about how to start communicating with your partner and how you can practically put your finances together.
We’ll take it in three steps:
Step 1: Set consistent money dates
Step 2: Get organized and get on the same page
Step 3: Take action by simplifying and automating your financial life
Step 1: Money Dates
A money date is a set specific time each week to talk to your partner about money. Ideally, your money date happens on the same date and time each week and, eventually, it becomes a ritual you both look forward to honoring. Money dates don’t need to be long and grueling - even a 20 minute check-in is great. The point of the money date is to collaboratively face your financial realities - ie. changes in your net worth, details of your mortgage refinance, money spent or saved in the past week - and to come up with a plan of action for the next week. Progress is greater than perfection. You want to set consistent times to chip away at this conversation.
If you’re just getting started with money dates, many couples find it valuable to first spend time discussing their money stories. So here are some questions you might spend time answering:
What are some of your earliest memories of money?
How have these memories shaped the way you think, believe, and behave around money today?
What did your mom teach you about money?
What did you dad teach you about money?
Sharing these stories can be a really great way to get started. We’ve found in working with couples that many times individuals learn something new about their partner that helps to understand them better on the whole. Sometimes individuals even uncover parts of their own money history that seep into their day-to-day life.
Once you get more comfortable, a money date can simply even be - what brought us joy in what we spent this week or the past two weeks. Just a quick check in on how much you spent, what brought you joy and if necessary, how can you adjust your actions for next week?
Being mindful of spending doesn’t mean you need to restrict yourself all of the time, but rather by prioritizing where you spend money in smaller increments of time, you will start to understand that you can have anything you want, but you just can’t have everything.
Step 2: Get organized and on the same page.
Many times in relationships, there is one partner that drives financial decisions for the household; or in other cases, each partner handles their own finances without a clear collaborative understanding of the ‘big picture’. An uneven playing field can result in built-up resentment, and the more complicated life gets, the more challenging it can be to get on the same page.
Before combining accounts, we recommend getting organized. The best way to do this is to get all of your financial accounts together on one page. This means all of your assets: checking accounts, savings accounts, investment accounts, retirement accounts, your home, your cars, your jewelry, your art; as well as liabilities: credit cards, mortgages, car loans, student loans. You can use an aggregator like Mint.com or Personal Capital - or if you work with a financial planner, they can help you do this. Getting everything on one page will provide transparency and will allow for a much easier dialogue about all of it.
Assets
Ask yourselves: Why do we have this account? What’s its purpose? This presents an opportunity for the person who isn’t as involved to understand why the family finances are handled in a certain way as well as an opportunity for each of you to express how you think about your own accounts.
Liabilities
What liabilities (e.g. credit cards, student loans) are you paying off every month vs. what are you paying off over time? Did you establish a payment plan based on the minimum amount required or are you looking to pay down a liability faster than the original term? Understanding how you each think about debt is a valuable conversation. No judgment is needed - seek to understand.
Seeing your assets and liabilities in one place is also known as a “Net Worth Statement”. You calculate your Net Worth by subtracting your liabilities from your assets.
A goal as a couple should be to increase your net worth over time. You increase your net worth by building assets, as well as paying down liabilities.
After you have a good understanding of all of the accounts in your household, then work together to develop a family budget. We like to use a simple formula:
Take Home Pay
Minus: Essential Expenses (these are the expenses you need to live - e.g. your home, car, insurance, medical, kids, education, and groceries).
Minus: Proactive Savings (an amount that you save every month to fund your future goals like retirement, travel or a home down payment)
Equals: Guilt-free Spending (the amount that you can spend on things and experiences that bring you joy. Without guilt!)
If you’re having trouble getting started, we like to use 60% Essential, 15% Proactive Savings, 25% Guilt Free Spending as a starting point. These percentages are based on monthly take-home pay, which is equal to your after-tax income. But if you’re looking to save for a home in the next few years, you might want to reduce your essential and guilt-free spending buckets to enable you to achieve your goal of home ownership faster. If you have young children, you might notice your essential expenses are higher because you live in an expensive home and are currently incurring childcare costs. These variations are normal! Work with your partner to envision your mutual goals to find the right balance for you.
Step 3: Take action!
Simplifying and automating your financial life will save you time, stress and money.
What can you simplify?
Your checking accounts. Honestly, couples don’t need more than 3 checking accounts.
Your credit cards. Pick 1-3 credit cards that give you the benefits you love and cut up the other ones. If you’re not being charged fees, no need to cancel. It will fall off your credit after 7 years. If you are being charged an annual fee, it is usually best to close the card. But do know that this will impact your credit score, so you would be best off to increase your credit limit with the card(s) that you choose to keep. You can do this by calling your credit card company.
Your retirement accounts. The fewer accounts you have, the easier it will be to implement a comprehensive strategy. Yes, this means it’s time to call the companies that have your 401ks from the employer you worked for ten years ago and consolidate them all into one Individual Retirement Account. Consolidation is key.
What can you automate?
401k contributions: Set this up with your HR department or through your 401k website. The earlier you start saving for retirement, the better.
Savings into your emergency fund. Your goal should be to build emergency savings of 3-6 months of expenses.
Savings into other investment accounts. The easiest way to achieve your financial goals and to build financial wealth is to contribute to your investment accounts every single month. If you only do this manually each month, it will be more challenging to stick to your plan and reach your goals.
Paying your credit cards. Set your credit card to automatically pay your statement balance every single month. If your credit cards are all due on different dates - this can be challenging, but you can actually call your credit card company to request a new due date. If you know you get paid on the 15th every month, set it for the 16th or 17th so you will always have money.
So how do you do this together as a couple?
Some couples decide that everything should be joint, which means that all money flows into one joint account and everything is paid out of one joint account. However in our work with clients, we have found that this does not work for all people. And that’s OK! If you’re hesitant to merge finances entirely, you could set up three bank accounts:
Partner 1 Checking
Partner 2 Checking
Joint Checking
This can then be done in two ways (there are certainly more variations - but we hope this provides you with ideas!):
Joint Income > Separate Guilt-Free Spending Buckets
All income is deposited into a joint checking account;
A fixed amount of money is automatically sent to Partner 1 and Partner 2 Checking accounts;
Joint checking account is responsible for paying all essential expenses, plus all expenses charged to the joint credit card. The joint credit card is only used for joint family essentials. You should agree on the definition of joint family essentials and use this as a conversation during your money dates.
Each partner has their own credit card for Guilt Free Spending, with a limit set to the amount of the deposit their checking receives.
Separate Income > Contribution to Joint Expenses
Each partner gets their income deposited into their own checking account.
Each month, they contribute a set amount of their income to go toward their joint essential expenses and joint savings goals.
The money left over in their respective accounts goes to their guilt-free spending and personal savings goals.
Many couples don't ever begin this process because they don't know where to start. Either partner might be hesitant to even initiate the conversation for fear of creating a sense of imbalance and/or making the other feel judged. Having a script to follow can be the perfect way to facilitate healthier financial communication in non-threatening (and fun!) ways.
So, you now have a set date and time you and your partner set aside each week to talk about money, you understand why it’s important to put everything you own and everything you owe on one sheet of paper and you’re working on assigning each of your accounts a job description. The stress on your shoulders has gradually begun to lift. How does it feel?
Keep going and iterating upon the system you’ve created...
Cristina Livadary, CFP®, RLP® and Stephanie Bucko, CFA®, CPA are fee-only financial planners based in Los Angeles, California for Mana Financial Life Design. Mana Financial Life Design provides comprehensive financial planning and investment management services to help clients organize, grow and protect their wealth throughout life’s journey. Mana specializes in advising professionals in the tech industry, as well as women who work in institutional investing, through financial planning and investment management. As fee-only fiduciaries and independent financial advisors, Cristina and Stephanie never receive commission of any kind. They is legally bound by their certifications to provide unbiased and trustworthy financial advice.