Joint or Individual Checking Accounts?

Joint accounts are not necessarily a resolved matter for newly married couples. Financial matters are often complicated by previous marriages, child support, friendships, student loans, current mortgages, or credit card debts. Additionally, the couple may want to maintain a sense of financial independence.

One Joint Account

One option is to pool both of your incomes into one joint checking account. With this system, both of you contribute money to the account, and both of you spend money and pay bills from the account. The amount each of you contributes or spends depends significantly on how much each of you earns, your expenses, and how you divide household expenses.

The One Plus Two Method (Joint Checking Account Plus Two Separate Accounts)

Instead of one checking account, some couples create a joint checking account while keeping separate checking accounts for each of them. Each person contributes an agreed-upon amount monthly to the joint checking account and uses this account to pay household bills. In the meantime, they use their personal accounts to cover individual spending.

One major advantage of this method is that each person retains financial independence, which helps avoid using money as leverage in the relationship. No one is monitoring the other or questioning purchases.

If the One Plus Two method is used, establish a method for determining how much each of you will contribute to the joint checking account. Set up a budget so you know what your shared monthly expenses are and how much will be needed in the joint checking account. If you both earn about the same amount, it makes sense to contribute the same cash amount to the joint account. If one of you earns significantly more than the other, it is better to contribute based on a percentage. For details on how to calculate your contributions based on percentages, see the example at the end of this article. Set up a joint savings account into which both of you contribute for your shared financial goals, such as saving for retirement, investing, buying a new car, taking a vacation, and paying for your children’s college education. Continue to pay off previous credit card debts, student loans, and other financial obligations from your personal checking accounts.

Which One to Choose?

None of these methods is right or wrong. Money dissatisfaction can exacerbate and ultimately poison a relationship if it is not handled in a way that satisfies both partners, so what works for you as a couple is what works for you. For your long-term relationship, both should feel comfortable with how money functions in your relationship.

Example: You earn $25,000 a year. Your spouse earns $50,000 a year, with a total joint income of $75,000. Determine the contribution by performing the following calculations:

1. Add your annual income to your spouse’s annual income.
2. Divide the lower salary by the total combined income to get the percentage for the lower-earning spouse. $25,000 / $75,000 = 0.33 or 33%.
3. Multiply this percentage by the amount of cash you need monthly in the joint account to pay the shared bills. This amount is the monthly contribution of the lower-earning spouse. 0.33 × $3,000 = $990.
4. Subtract this amount from the cash required in the account each month. This is the contribution of the higher-earning spouse. $3,000 – $990 = $2,010.

Doing the calculations this way can help create a sense of fairness in how you handle the household budget. But it is important to be clear about how this distribution works when it comes to saving and paying off debts.

If

One of the spouses had a large amount of student loans, for example, but had a lower income, and thought about how it would affect the budget. If you earn significantly more and have no debts, do you consider paying more of the household bills so they can pay off their loans faster or help them pay down their debt?

The same idea applies to saving. You may have a savings goal, but if one of you earns significantly more, should you save more in the joint accounts? Or should you choose a specific amount to save that works for both of you, based on your incomes? You can apply this to short-term savings goals, like building an emergency fund, as well as long-term savings goals like retirement.

Having these kinds of discussions can help both of you feel more satisfied with the decisions you make regarding your finances. When both spouses have a voice in managing household money, there is less room for disputes.

Source: https://www.thebalancemoney.com/joint-or-separate-checking-accounts-1289691