When merging finances with another person, it requires a significant and sensitive transition, but it is not a proposal that requires all or nothing. Some couples merge all accounts, from simple accounts to retirement accounts, credit cards, and household budgets. Others maintain separate accounts while sharing one or two accounts to pay bills or enjoy an annual vacation.
The Relative Method
Couples using the relative method contribute to household bills in proportion to their income.
Example: John and Sally
John earns $2,000 per month, which is 33% of the household’s total income; Sally earns $4,000 per month, or 66% of the household’s total income.
The couple spends $3,000 per month on their bills, including mortgage, utilities, and groceries, with a portion of their annual expenses going to property taxes.
John pays 33% of their monthly bills totaling $3,000, which equals $1,000; Sally pays 66% of their monthly bill, which is $2,000.
Advantage: Neither partner feels pressure to keep up with or lower the earning level of the other partner.
Disadvantage: The higher-earning partner may start to feel resentment or may feel punished for earning more.
The couple can also enjoy a middle ground of shared funds. They share household bills but also keep separate money for themselves as individuals.
Cash Contribution Method
Couples using the cash contribution method contribute the same cash value, regardless of how much they earn.
Example: Danny and Kate
Danny earns $3,500 a month. Kate earns $5,000 a month.
Their household bills total $4,000 a month. Each contributes $2,000 and keeps the remaining amount in separate accounts.
Advantages: The higher-earning partner does not feel punished for their success. The lower-earning partner does not feel like they’re receiving a handout.
Disadvantages: Their relationship may experience strain if Kate lives more lavishly than Danny. Some couples also criticize this method, feeling it’s akin to living with a roommate.
Full Pooling
Couples who combine their bank accounts pay from the same pot for all bills, only carry shared credit or debit cards, and collaborate on retirement investments.
Example: Devon and Hillary
Devon earns $3,700 a month, and Hillary earns $2,600. Both salaries are deposited into a joint checking account, which the couple uses to pay all their bills.
The couple also holds shared credit or debit cards, which they use for all their purchases, whether household purchases (like a microwave) or individual purchases (Hillary spends $50 a month on old records, while Devon enjoys collecting baseball cards.)
Advantages: Unity as one entity: “we” instead of “you” and “I.” If one person’s income increases or the other’s decreases, they balance out. Additionally, keeping records becomes easier.
Disadvantage: The higher-earning partner may feel resentment towards the lower-earning partner for spending their earnings. If one person tends to spend while the other tends to save, an imbalance may occur.
Conclusion
There is no one best practice for budgeting couple’s money. The most important thing is to recognize that there are options for your relationship, and you can customize the process to suit your shared needs. Of course, regardless of which method the couple chooses, they need to agree on what to do if one partner’s income drops to zero (i.e., if one partner loses their job).
Once you choose a method, don’t be afraid to adjust or change it. As a team, you need to experiment with different strategies to find the perfect balance between your individual money and your shared money. Evaluate the pros and cons of each strategy together and decide which method feels most natural to both of you.
Questions
Frequently Asked Questions (FAQs)
What should you do when a couple disagrees on how to share finances in marriage?
Some tips for couples who are arguing about money include listening carefully to your partner to ensure you understand their position. You can also focus on large purchases or future expenses that will save years of savings; if you can agree on large purchases or share a plan for the future, it may help avoid small disputes. Above all, make sure you are responsible and honest with your partner.
How can you legally separate finances in marriage?
A prenuptial agreement can outline the legal terms and conditions of the marriage, including how assets or income will be divided in the event of disputes or divorce. Prenuptial agreements can override community property laws, but this depends on state law, so check with a lawyer about how a prenuptial agreement will impact your financial situation. If you are already married, you can use a postnuptial agreement instead of a prenuptial agreement.
Source: https://www.thebalancemoney.com/three-methods-for-co-mingling-a-couple-s-finances-453849
Leave a Reply