3 Methods for Combining Finances as a Couple
Merging finances with another person is a significant, delicate transition, but it isn't an all-or-nothing proposal. Some couples combine every account, from simple checking to retirement funds, credit cards, and the household budget. Others keep separate funds while also sharing one or two accounts for paying bills or taking an annual vacation.
In any case, there's no wrong way to customize your banking and bill paying, so long as it's fair, transparent, and sustainable for all parties. Below are three examples of how couples can share money each month:
The Proportional Method
Couples who use the proportional method to combine their finances each contribute into the household bills at a rate that's proportional to their income.
Example: John and Sally
John earns $2,000 per month, which is 33% of the total household income; Sally earns $4,000 per month, or 66% of the total household income.
The couple spends $3,000 per month on their bills, including their mortgage, utilities, and groceries, with one-twelfth of their annual expenses going toward property taxes.
John pays 33% of their $3,000 monthly bills which equals $1,000; Sally pays 66% of their monthly bill, which equals $2,000.
Pros: The main advantage is that neither partner feels the pressure to "keep up with" or "budget down to" the earnings of the other partner. In other words, their income disparity doesn't cause a lifestyle clash.
The couple also enjoys a middle-ground stage of combined finances. They share household bills, but they also keep separate money for themselves as individuals.
Cons: The main disadvantage is that the higher-earning partner might start to feel resentful, or might start to feel like they're being penalized for earning more.
The Raw Contribution Method
Couples who use the raw contribution method each chip in the same raw number, regardless of how much they make.
Example: Danny and Kate
Danny earns $3,500 a month. Kate earns $5,000 a month.
Their household bills come to $4,000 per month. They each chip in $2,000 and keep the remainder of their money in separate accounts.
Pros: The higher-earning partner doesn't feel penalized for their success, and the lower-earning partner doesn't feel subsidized.
Cons: They need an agreement about what to do if one partner's income drops to zero (i.e. if one partner loses their job). Their relationship could become strained if Kate lives a more glamorous lifestyle than Danny because she has more "fun" money left over after paying the bills. Some couples also criticize this method as feeling too "roommate-like."
Couples who completely combine their bank accounts pay all bills from the same fund, carry only joint credit or debit cards, and cooperate on retirement investments.
Example: Devon and Hilary
Devon earns $3,700 a month; Hilary earns $2,600. Both paychecks get direct deposited into a joint checking account, which the couple uses to pay all their bills.
The couple also carries joint credit or debit cards, which they use to pay for all of their purchases, regardless of whether it's a household purchase (like a microwave) or an individual purchase (Hilary spends $50 a month on vintage records, while Devon likes to collect baseball cards).
Pros: They unite as a single unit: "we" rather than "you" and "me." Neither partner keeps score. If one person's income rises or the other person's income falls, they'll balance each other out. Record-keeping also becomes easier.
Cons: The higher-earning partner can resent the lower-earning partner for spending his/her earnings, especially if one person tends to be a spender while the other tends to be frugal.
There's no single best practice for budgeting a couple's money. The most important thing is to realize there are options for your relationship and you can customize the process to fit your collective needs.
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.