Merging Finances

Merging Finances


Picture this: you’re earning $60,000 a year and your partner just received a sizeable promotion and is now earning $150,000 a year. This money may trigger a desire in them to move into a bigger house in a nicer neighbourhood, go on another annual vacation to Europe, or perhaps simply explore fancier restaurants on a more regular basis. This all sounds fabulous and romantic – but when you get down to the logistics of how this is going to work, financially, it gets to be a bit more complicated.

Whether common-law or married, the issue of merging finances is a tricky one to handle. Firstly, with conversations surrounding money remaining relatively taboo in our society, it may be awkward to introduce this topic to your partner. 

Secondly, the answer to HOW you and your partner should handle your finances, both individually and as a unit, is a deeply personal decision that has to take into account your goals and priorities as an individual, your goals and priorities as a couple, the dynamics of your relationship, your earning level, your earning potential, and countless other factors.

This article doesn’t try to answer which strategy is best option for you and your spouse when it comes time to merge finances, but rather aims to outline different strategies that couples use. This way you can have a candid and informed discussion with your partner about what financial strategy suits your circumstance. Here are some commonly used approaches for merging your finances:

The 50/50 Approach 

Fairly intuitive in the title, this approach entails an equal 50/50 split of the expenses. In this strategy, both partners have their own separate accounts as well as one joint account. Their personal income is deposited into their separate accounts. Expenses that are unique to the individual also come out of their separate accounts. This could include things like clothing items or a trip that you are going on without your partner. Every month (or other designated time period) a lump sum of money from both partners’ personal accounts is transferred into the joint account to equally split the shared expenses. This could include joint vacations, utility bills if you live together, car payments if you share a car, etc.   

This approach is suitable for those of you who are earning fairly equal salaries and routinely spending a fairly equal amount.  

The Percentage Approach
This approach is similar to the 50/50 approach, but rather than both partners contributing the same dollar value into the joint account, they contribute an agreed upon % of their income. Both partners still retain their individual accounts for personal expenses, as well.

Take the situation described in the introduction of this article for example. With one partner earning triple the amount than their counterpart, it would be incredibly stressful for the lower-earning partner to keep up with the lifestyle inflation of their higher-earning counterpart. This approach ensures that both partners are still contributing to paying the shared expenses (i.e. mortgages, car payments, insurance, utilities, etc.), but factors in differences in salaries among partners.

The “All or Nothing” Approach 

As you can guess from the name, in this approach, one partner pays all expenses while the other pays nothing. This approach can either be a short term or long term strategy. This may be the case if one spouse is a stay-at-home parent while raising the kids. Another example would be if one partner decides to go back to school and is earning no income. The other spouse may decide to cover all of the expenses in the meantime.

If you are using this approach it is important that you also have a candid discussion about eventualities. Once you get out of school and begin earning an income, is it your responsibility to temporarily pick up a greater portion of the shared expenses, in efforts to make up for the financial burden that was placed on your spouse? Moreover, in the event that you break up, does your partner want to be paid back in part (or full)?

The “Pick Your Bill” approach

This approach works for couples that would like to maintain relatively separate finances but have common expenses. In this circumstance, one partner could pick up the gas bill, while the other covers the car insurance. This is also a suitable approach if the partners’ lifestyles differ slightly. For example, if your partner takes the car to work every day, it might feel fairer if they cover that expense. If you watch more TV than your partner, maybe you should pick up that bill.
This approach allows you to align your personal interests with the bills that you are paying so that you don’t feel as though you are paying for something that you don’t use as often as your partner.

The “What’s Mine is Yours” Approach

This strategy involves you setting up joint accounts where all income is deposited and all expenses are withdrawn from. If you and your partner have similar assets and income levels and entirely open and honest lines of communication and trust, this approach could work for you.

Although all income and expenses are dealt with through your joint account, you can still have two separate chequing account for ‘fun money’. This helps to keep one another accountable when it comes to discretionary spending and ensures that both partners feel as though they are ‘enjoying’ their money as much as the other.
 
The approach you decide to take when merging finances with your partner will depend entirely on the dynamics of your relationship and your personal financial situation. Please don’t hesitate to reach out to any of our team members at the Bongard Wealth Advisory Group if you have any questions concerning family wealth management.