Personal Finance for Couples: Managing Joint Finances

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Making sound financial decisions is already hard enough as an individual. But when you factor in another person’s ideas and beliefs about money, making joint financial decisions can be even more challenging. Shifting your mindset from “yours and mine” to “ours” requires good communication and compromise.  

Start the conversation by sharing how you envision your financial life together as a couple. It’s critical to be open and honest with your partner. These discussions build trust and lying or withholding information can lead to bigger problems later. Different things work for different people, but all couples will need to use the power of compromise to be successful. Making financial decisions may not be the easiest or most natural practice, but with regular check-ins, it will become easier for you and your partner to get on the same page. 

Budget Basics for Couples 

A budget can help improve your spending habits, pinpoint areas where you can lower your overall expenses, and build savings. Start by discussing your incomes and reviewing your financial documents. It is also a good idea to get credit scores for each of you to establish a baseline for your financial wellness.  

After breaking down your current financial situation, you’ll need to create a budget that works to reach your financial goals. Together, establish both short-term and long-term goals and decide how the money in your shared and individual accounts will be used. Some categories to consider in this process include debt (loans and outstanding bills), cashflow (bank account balances and salaries), investments (401(k)/IRA and mutual fund contributions), and assets (property and vehicles).  

Budgeting as a couple can sometimes lead to over-spending, especially if you are both earning, and your combined incomes add up to more than your individual needs. Before you adjust spending to match the higher income, make sure to establish some new savings goals to tackle things that were tough to save for with only one income. To help keep you on track, you can set up a spending plan in an Excel or Google Sheets document. There are also apps designed especially for couples, such as HoneyDue, Goodbudget, Mint, or You Need A Budget (YNAB). For a low-tech option, try using labeled envelopes for each spending category and allot yourself an amount of money each week or month. There is no one-size-fits-all approach to managing finances as a couple. You may need to try a few options before finding the one that works best for both of you. 

To Merge or Not to Merge 

There are three common approaches when it comes to financial planning as a couple:  

  1. Merge everything together and share all income and expenses. For couples that decide to go with one joint account, try using salary to determine contribution amounts. For example, if one person makes 60 percent of the total household income, they would contribute that percentage of the total monthly joint bills. If there’s a large discrepancy in income, splitting expenses 50-50 could lead to problems later. 
  2. Create a joint account for shared expenses, while also maintaining separate accounts. For joint accounts, follow the general rule that if the other person is splitting the expense, ask for their input before making the purchase. Consider a joint savings account for shared goals, such as saving for a wedding or purchasing a new home, or a joint checking account for common household bills. Consider separate accounts for more individual purchases, like clothing and entertainment, so you don’t have ask your partner for permission to make the occasional luxury or experiential purchase. 
  3. Keep everything separate and split the bills. Some well-founded reasons for keeping finances separate might include: 
    • One person holds a significant amount of debt. 
    • One person owns a business. 
    • You have significantly different financial habits. 
    • You psychologically need independence to feel safe and secure. 
    • There is a history of mental illness, substance abuse, or a spending addiction. 

Maximizing Resources 

Married couples often choose to file their taxes jointly, submitting one tax return together. In most cases, filing jointly qualifies for the highest standard tax deduction. And, because of the way “married filing jointly” tax brackets are structured, you may get a “marriage bonus.” If one spouse’s income is more than the other’s and they file jointly, the higher earner could potentially owe the government less than if they filed separately. The opposite is also true and the lower earner’s tax rate could increase. You will need to do the math to determine whether filing jointly or separately is more beneficial in your specific situation. If the option to choose to file “married filing jointly” or “married filing separately” isn’t obvious, try preparing practice forms for both filing options, then choosing the way that works best. Some tax preparation software, such as H&R Block or TurboTax, will automatically determine which method will yield the lowest tax liability based on your inputs. The IRS also offers a free STATucator tool to help you determine your filing status. Alternatively, consult with a licensed tax preparer or accountant to determine which option is best for you. If you filed separately or jointly and didn’t know it was better to file the other way, you have the option to amend your tax return. 

Another way for couples to maximize their resources is by merging health insurance coverage. If you each have health insurance provided at work, review your coverages to determine whether you get savings by combining coverage under one policy or by switching to family coverage. Check to be sure you won’t incur additional fees if you join a family plan or decline your employer’s health insurance. And, if your preferred plan includes a Health Savings Account (HSA), set a plan for how you will contribute to and share that account. 

An additional benefit to getting married is lowered auto insurance premiums. The discount usually requires using the same provider and combining your plans. While it may be simple to pick your current insurance provider, changing your insurer could significantly lower your rates. Take this opportunity to compare car insurance quotes and find the best deal for you. 

It’s All in the Prenup 

If your financial situation is complicated, such as having children, property, or a business from a previous marriage, consider a prenuptial agreement that designates who is responsible for which debts and expenditures. You may also want to consider having separate retirement accounts. However, if you are both saving for retirement based on your own incomes, you may not be fully optimizing your investments. 

Planning for the Worst-Case Scenario 

When a romantic partnership is new, you may not want to think about planning for potential tragedies. Better to be safe than sorry by making sure you and your partner have a plan for the worst-case scenario. Create an estate-planning folder that includes a will as well as power of attorney, life insurance policy, property titles, living trust, and beneficiary documents. Having your finances in order now will make it easier for your partner to carry on should the unthinkable happen. Additionally, when making large purchases together such as buying a house, consider establishing a plan to pay for and maintain that purchase. If you are ever faced with having to sell the house, you can split the proceeds depending on how much you’ve invested in it individually. The same goes for any financial commitments you’ve made for childcare, college education, or long-term care for yourself or your parents. 

Consult with an Expert 

Consult with a knowledgeable, licensed financial advisor to help you plan for your specific financial circumstances. They can provide expert guidance when it comes to taking more technical steps, like combining or sharing accounts, estate planning, saving for retirement, etc. The DFPI regulates investment advisors and financial services providers. To see if your investment advisor or broker is licensed, use our online Licensee and Service Provider Directory. If you have a question about evaluating an investment advisor or financial service provider, contact us at [email protected] or by calling toll-free at (866) 275-2677. 

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