You've found Mr. or Ms. Right, you've moved in together and you're starting to share your lives. But should you share your bank account? Share credit cards? Open a joint retirement account?
Let's take a look at the pros and cons of co-mingling your money.
Pros of Merging Your Money Together
You and your partner will need to share financial goals. Perhaps you both vow to pay off your mortgage within 10 years. Perhaps you both want to retire together in the year 2035. Or perhaps you simply want to save $5,000 before you have a baby. When you've co-mingled your money, you are more vested in each other's shared success.
Keeping track of two people's money can get messy, especially if you're trying to be ultra-specific. Imagine this conversation with your partner: "You owe me for half the utility bills. You owe me for half the groceries. And I never wanted Fido; the dog food is coming out of your own paycheck."
Tracking expenses becomes a lot easier when you throw your money into one shared pot.
Joining finances can help you and your partner achieve the feeling of "we" rather than "mine" and "yours." It's a symbol that you approach life as a team or unit.
As you go through life, you and your partner will both experience ebbs and flows in your income. At times, you might earn more than your partner does, and at other times, your partner may be the higher breadwinner. Joining your finances prevents you from "keeping score" with one another.
Building a Family
Children are the ultimate joint-venture project. It will feel nearly impossible to divide the money you spend on your child. If your child's health insurance plan comes from your partner's job benefits, does that count as part of their contribution? If your partner normally watches the child, but today they need a babysitter, do they pay, or is that a shared cost?
Your relationship would end up feeling pretty awful if one of you had the funds to fly to Hawaii while the other was struggling to get by. Co-mingling your finances lowers the risk that either partner will feel the pressure to "keep up with" or "budget down to" the level of the other.
Many credit cards offer greater rewards once you spend above a certain minimum limit. If you pay your credit cards in full each month (never carry a balance), you can benefit from sharing a credit card and accelerating your rewards. This may sound like a silly reason — it's certainly not a strong enough reason to decide to share a credit card with someone — but many couples enjoy this privilege.
Cons of Co-Mingling Your Money
Loss of Individual Decision-Making
Someone else will weigh in on all your purchases. While your partner probably won't say anything about necessary expenses, your partner might try to veto your desire to spend $150 at the hair salon or $400 for a new car stereo system.
Come to an Impasse
You and your partner may need to have some touchy conversations before you co-mingle your finances. You'll need to discuss assumptions like: "Does the money that I earned before we met count as just mine, or as ours? Does the debt that I brought into our relationship count as just mine, or as ours?" It's possible you may come to an impasse over these issues.
Different Investing Strategies
Your partner might be a security-seeker who prefers to invest in bonds, CDs, and money market accounts, while you're a risk-taker who prefers to invest in emerging market funds or buy individual stocks. When you join finances, you and your partner will need to agree on an investing strategy, which leads perfectly into the next point.
Your own portfolio might be perfectly balanced relative to your own age and goals, but once you combine finances you may find that you both need to heavily rebalance. Talk to your accountant before you make any major changes, as this rebalancing has the potential to trigger some hefty tax implications.
If both of your names are on the mortgage, credit card, or car loan and one partner walks away from it, the remaining partner will be stuck making all the payments. Otherwise, both of your credit scores will get dinged.