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What to Consider When Combining Finances with Your Significant Other
Updated: February 18, 2022 |
Taylor Kovar, CFP

What You Need to Think About Before Combining Finances in a Relationship

Combining finances with your significant other is no small decision. Finances include financial goals, credit, debt, and large money moves like buying a house or having children. This also includes your retirement plans, which revolve largely around how you both handle and plan for your money. It’s no simple mission to pull off, but doing your research and communicating with your partner will make it easier and set you both up for monetary success. Read on to explore what you need to consider and then how to ultimately merge money with your partner. 

Do you have debt or poor credit?

When combining finances, you’ll need to consider both parties’ credit and debt. This is crucial when getting married and co-signing financial documents. While each of you will have your own credit score, one party can still be affected by the other party’s credit, especially if it’s poor. This can, in turn, affect your ability to get approved for loans or apartment applications as a couple. If you eventually wish to become homeowners, you’ll need a good credit score to buy a house. Debt, too, usually is tied to the person that incurs it. You and your partner should discuss whether the joint household budget will be used to repay that debt. Read our tips on the five step approach to pay off debt.

Do your financial goals align?

Before merging your money, you and your significant other should have similar goals in life. This will make your combined personal finances much easier to manage. Depending on where you and your partner are in your relationship, you’ll need to consider whether you want to get married (and when!), if you want children (and how many!), and where you want to live. Finances for married people versus unmarried are going to be a bit different, especially for couples with children and those without. Your preferences for where you decide to live will determine your finances as well. City living versus suburban or country living comes with vastly different costs to consider. 

Speaking of living, you may or may not have lived with your partner yet. This is another milestone in your relationship, as well as a first step toward combining finances and lives. When living together, couples will share many responsibilities. This is also a test to see if you and your partner can navigate the challenges and responsibilities of cohabitating. 

Are you considering marriage?

Are you and your significant other planning on getting married? Marriage may be the next step in your relationship, or one in the distant future. Either way, you’ll want to determine the costs for this as well as ways to finance it. The actual act of getting married, such as getting a marriage license, could be anywhere from $40 to $100 dollars, depending on the state. Now, if you want a wedding, that will usually be a lot more expensive. You’ll need to rent a venue, book a caterer, hire a DJ, etc. Marriage offers certain tax advantages and can be useful for other financial aspects down the road. If one partner earns less income than the other, your total tax payment will be lower, and spouses are free of gift tax when giving gifts of cash or property to each other, in addition to only needing to file one joint tax return instead of two. 

Will you buy a house?

An major goal for most people is settling down somewhere and purchasing a house. And, perhaps, starting a family. But we’ll get to that next! Now, becoming homeowners is no easy feat—it requires good financial planning and cooperation. You and your significant other need to discuss your goals around buying a house and where you want to live. You will both need to explore how to get preapproved for a mortgage, which determines how expensive of a house you can afford. Your preapproval can influence the location of your home as well as the size. Purchasing a house will require a down payment and many years of mortgage payments. So you and your partner will need to have a plan in place to accommodate these costs. 

Do you want kids?

One of the biggest conversations couples face revolves around having children. If this is something you and your partner want to do, you’ll need to consider all of your options. The top choice of many is to have biological children, but for some couples, that may not be possible, or you may be interested in alternative methods such as adopting, fostering, or surrogacy. Whichever path you choose, having children is a long-term commitment and cost that you and your significant other will need to prepare for.

If you do plan on having children, another inevitable topic of discussion is going to be college. Not every person will end up attending higher education after high school, but it is a path that many choose to take. If you intend to help your child out financially, you will need to think about saving for college sooner rather than later. Opening a 529 account when your child is young will allow you to save money over time to later use for educational purposes, and it offers tax benefits as well. 

The total cost of raising a child to adulthood in America is a little under $300,000, excluding higher education costs. This number primarily represents the cost of housing, food, and childcare. This of course varies depending on where you live, as well as a plethora of additional factors. But it’s still nothing to brush off. So if you do want a child (or multiple children), take these costs into consideration. Plan how you and your significant other are going to account for these finances. 

How are you retiring?

You will need to discuss one of the longest-term life goals: retirement. As with most long-term financial moves, you’ll want to start investing as early as you can. Explore what you should plan now so that you build yourselves a better future. Enrolling in 401(k) plans with your employers is a standard way of putting away money for the future, but the more aggressively you contribute (taking 15% or 20% of your paycheck for retirement, or utilizing additional long-term accounts), the more money you’ll have once you exit the workforce. 

Which method will you use?

Now, how exactly will you and your significant other combine finances? There are a few different ways, and you’ll have to determine which method works best for your relationship. The first option is actually keeping them separate. Each party maintains their own financial accounts and bills, and will individually pay for their own expenses. Joint bills would be split equally. The benefits of this come into play when each party has different spending habits or if one partner has debt or poor credit history. This way, each person is responsible for their own finances without affecting the other. 

If you’re not ready to commit to combining totally but want to get a feel, you can try some in-between methods. Start merging your finances by allocating different bills while keeping everything else separate. One person can pay for groceries while the other pays for Internet and subscriptions, for example. Every relationship is going to be different, so it’s up to you and your partner to communicate and decide how much you want to split financial responsibility. 

Another method is creating a joint bank account for all shared costs.

Each party can keep their own money but allocate some of it to a household account. This can be used to pay rent, mortgage, groceries, and large shared purchases. These hybrid options allow for flexibility in both sharing and keeping private accounts. Both parties contribute to shared expenses while also maintaining some financial independence. 

Lastly, there is the option of combining all finances.

One person can be the designated bookkeeper, or you can share the responsibility. The benefits here are the absence of multiple accounts and everything is shared, which may be easier in general. Each bill will be covered together, simple as that. 

A great way to get on the same page financially is to set standards and budget towards those goals. Having a clear outlook on each other’s finances can help clear up any confusion that might hinder your end goal. If you want an alternative to the typical excel sheet budget, check out using a budgeting app that you both have access to. Check out these 10 budgeting apps and find out which one fits best to your needs.

In the end, combining finances with your partner will be a unique experience that should be tailored to your relationship. You should discuss each of your financial habits and which methods may work best for you as a couple. If one method doesn’t work, you can always try another, or figure out a blend that caters to both parties. By being open and communicative, and working together, you and your partner will set yourself up for financial success!


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