So, things are getting serious?
Whether you’ve decided to move in with your boyfriend or girlfriend, planning a wedding, or recently tied the knot, it’s time to talk about money.
Maybe not. But if you don’t figure out a system for managing money together as a couple and splitting expenses with your spouse/partner fairly, then sexy time is going to be the last thing on either of your minds.
Personal finance is personal, and there are few places that’s more apparent than when it comes to how couples split joint expenses.
So know this: There’s no right or wrong way to split expenses with your partner. The key thing is to actually talk about money with your partner (here’s how).
Once you’ve done that, you can choose one of these common scenarios to split expenses (or make your own):
Separate but equal
Most common, unmarried (and many married) couples keep separate bank accounts and credit cards but split the big household expenses, like rent and utilities, equally. One partner may pay out of pocket for everything and then collect a check from the other, or each partner may pay different bills that can be reconciled once a month.
Here’s a useful spreadsheet that can help you track those joint expenses.
The free-for-all (not recommended)
It may be OK if one person pays the rent while the other person pays the electric, cable and water bills…as long as you track how much each partner is contributing and figure out a way to reconcile it.
Too often, one person will pay a big bill like the rent or mortgage while the other is expected to pick up everything else. Depending on how this shakes out, one partner may end up paying a lot more each month. This may be OK—for example, if one of you earns significantly more—as long as you talk about it and are both OK with the arrangement.
Proportional to income
If one partner earns significantly more than the other, you face a difficult decision:
Should the higher earner pay a larger percent of the monthly expenses?
Again, it’s personal, but here’s a suggestion. If your lifestyle together is modest—that is, it doesn’t strain the income of whoever earns less—a more equal approach might be fine. But if the higher earner has more expensive tastes—for example, she wants to live in a bigger home or dine out more often—then it might be time for her to kick in more than a 50% share.
The dos and don’ts of splitting finances before you’re married
Marriage provides certain legal and financial safeguards for both couples. Obviously, however, many couples are managing a joint budget without being married. So here are some things to watch out for.
DON’T share assets
Do not buy anything together. That goes for houses, cars, and furniture, and especially checking accounts. Yes, you love him or her. But if things go sour, each takes their own.
DON’T share debts
As tempting as it often is, I would recommend that you don’t cosign a loan for your partner.
Whether you stay together or not, if he or she defaults, you either pay up or lose your credit. Cosigners should be family members. End of story.
DO share expenses
Avoid the “free-for-all” approach to budgeting that I mentioned above. Before you move in, decide whether you will share expenses fifty-fifty or proportionately based upon salary. You may consider opening a joint checking account just for paying expenses. This should only be for bills and groceries.
DO plan for the worst
Although unlikely, consider the possibility that one of you could die. You’ll need to choose beneficiaries for everything from insurance policies to retirement plans.
What about health care proxies?
Do you want to be the ones to make health care decisions for each other if you should become incapacitated?
Living together can be an exciting step in any relationship, but follow these steps to protect your finances first. If you don’t, without the legal protection of marriage, you’ll be on your own in more ways than one if things don’t work out.
What about when you are married?
With few exceptions, there is no longer “mine and yours,” only ours. This is why wealthy people make their betrothed sign prenuptial agreements; it’s a legal way of saying “some of what’s mine is still mine.”
So whether or not you merge bank accounts or keep them separate, understand that marriage merges your money in the eyes of the law. Many couples still keep their own accounts for making small guilt-free purchases or buying gifts, but the more you think of your marital finances as one instead of two, the less problems you’ll have.
Finances for couples, married or not, need to be discussed. It’s best to have a plan in place. A plan can help keep your relationship happy and healthy and lets you spend your time thinking happy thoughts about your significant other instead of being bitter about your finances.
What about you? How do you split expenses with your partner or spouse?