February means that valentine’s day is right around the corner, and finances are an important part of being a couple. After all, money is the leading cause of stress in relationships.
In a study by Kansas State University, researchers found that arguing about money is “by far” the top predictor of whether a couple will stay together or not. Those arguments tend to take longer to recover from and are more intense, researchers said.
Managing money as a couple can be tricky to sort out with two incomes and two financial situations merging. While you’re trying to manage money jointly, there could be major differences in income especially when one partner is the clear breadwinner, or the other half is shouldering steep credit card or student debts.
So, whether you’re just moving to the financial part of your relationship or you’ve been trying to figure it out for a while, here are a few different ways you can approach money and avoid financial stress.
1. Combine all your finances
In this scenario, both of your incomes are deposited into a joint checking account and both people are using the account and sticking to an agreed-upon budget. All the money goes into one pot and comes out of one pot.
To make this work, your need to sit down with your partner, tally up your joint income, and then carve out and agree on a budget that covers all shared expenses, from housing to groceries and bills. With this scenario, you have complete transparency with finances. This means you also need to agree upon discretionary spending. With your finances so intertwined, you need to be accepting and on the same page with your spending. You are on the same team working towards the same goals.
In this case, it doesn’t matter if one person makes twice as much money as their partner because this budget is balanced with your pooled income. If one person’s income rises or the other person’s income falls, they’ll balance each other out. There is no distinction between what’s mine and what’s yours because all funds and expenses are deposited and withdrawn from this same account.
2. Combine finances, but each partner gets fun money
In this method, both your paychecks get deposited to a single account. All payments and savings are made from that account, but you each have a separate checking account to which you receive some fun money every month.
You get the benefits of combining your finances (complete transparency), but your fun money allows you the freedom to buy whatever you want. It is important to figure out how much ‘fun’ money each partner will get. Will it be equal amounts? Or, proportional to income? Or, expenses? And, you also need to figure out what expenses will fall under the fun expenses category. For instance, will eating out as a couple be a shared expense or a fun expense?
3. Keep your finances completely separate
Your money doesn’t intermingle. You have separate bank accounts, budgets, and bills.
Each of you is in control of your own money. You don’t have to financially rely on your significant other, and they aren’t relying on you. If your partner isn’t great with budgeting, it won’t affect your finances.
In some ways, this way is easy: you only have to worry about YOU, and your bank accounts, retirement accounts, investments. But in many ways it’s hard: you may still worry about your partner’s finances (even though it’s separate from yours), it’s nearly impossible to have no shared expenses so that may get confusing to deal with.
A lot of couples who’ve been together for years still keep their finances separate. This is something for you and your partner to talk about as you may handle money better if it’s kept separately. In such cases, couples will have to agree upon who will take care of specific bills and make arrangements to pay them on their own.
4. Split shared bills 50/50
Every expense is split two ways. You both contribute the same amount of money towards all bills to be used for any agreed-upon shared expenses like housing, utilities, vacation, date nights, etc.
You have control over your own money, but have an easy way to share expenses with your partner.
Splitting bills equally sounds fair, but if one person makes significantly more or less than the other this could put more of a strain on one person than the other. Splitting bills equally will also affect big future purchases (like houses) because you will have to make sure each person can afford the expense.
In this scenario, you should have one joint account that you each contribute your half of the bills to such as housing, groceries, utilities. Decide what should happen when a new expense comes along – will you have a discussion on whether it’s a shared expense or not? What will you do if you disagree?
5. Split shared bills by a percentage of each person’s income
A percentage of each person’s paycheck goes towards joint bills. The person that makes more money pays a larger percentage of the bills; the person that makes less pays less money. If you earn 65% of the income, you will pay 65% of the shared bills.
You should keep all of your accounts separate, and then open one joint account under both of your names, making sure that you both have equal privileges. Find out how much you and your partner make and then calculate each person’s income percentage. Add up the cost of all these shared bills, and then multiply that number by your respective income percentages. This is the amount each person must contribute. Decide if you want to contribute to the shared account weekly, biweekly, or monthly.
6. Split responsibility for certain bills.
Each person takes complete responsibility for certain bills. For example, one person may be in charge of housing, utilities, and cable – they pay 100% of these bills. The other person may be in charge of groceries, clothing, and kids stuff – they pay 100% of these bills. Bills can be split in many different ways larger bills can go to the person making more money; grocery bills can go to the person who does the grocery shopping.
7. Live off one income
It’s like pretending that you only had one income. All of your expenses are paid from one partner’s paycheck and then you save 100% of the other partner’s paycheck.
This method ensures you are always saving money and you will continue to find clever and frugal ways to save money since you are only living off of one person’s paycheck. All expenses and savings contributions are made from this single income, more likely the higher-income among the two partners. The lower or the irregular income is completely put into short-term and long-term savings.
Not every couple can live on only one income though especially if their expenses are high, they are trying to pay off debt, or they simply don’t make enough money. This is best if you’re really determined to save money.
There’s no single best practice for budgeting a couple’s money. You and your partner might not fit into a perfect cookie-cutter way to manage your money. That’s okay. Personalize a method, combine two methods, ditch it all and come up with your own way to manage money. Once you choose a method, don’t be afraid to tweak 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. Weigh the pros and cons of each strategy together and decide which method feels most natural.
If you can get on the same page as your spouse/partner with finances, you are setting yourself up for a successful relationship.
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