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Late last year, Laura Kearsley and her fiancé, Brendan, decided to take a big step in their relationship: they opened a joint checking account. Every month, each of them contributed to the account, giving them a common fund for paying rent, utilities and other expenses. "When we go grocery shopping or eat dinner out together, it comes from the joint account, "says Kearsley, 36. "It's a fabulous thing."
There are many benefits to merging finances with your significant other, but it's also a big commitment—and a major relationship hurdle. Opening up about money matters doesn't come easy for many people—often, the topic is more taboo than sex. With that in mind, here are five key tips for merging finances with your significant other.
1. Talk it out – and keep talking
Combining finances requires a great deal of conversation and communication, which makes it a great litmus test for your relationship. After all, if you aren't ready to talk about money, you probably aren't ready to marry your finances.
You can start by discussing how each of you have handled money in the past. Then share your common goals and come up with a plan for achieving them together. "These discussions should be approached in a comfortable, casual setting where it does not feel confrontational," says Leslie Tayne, a financial debt resolution attorney.
Couples need to revisit this topic regularly, both for routine check-ins and more extensive conversations, Tayne says. After all, every new stage will drum up new issues and opportunities that you will need to discuss.
2. Consider all the variables
For Kearsley and her fiancé, merging their money lives was pretty straightforward: neither of them has children, and they both have good credit, very little debt and similar ideas about spending and saving.
Many couples, however, have wildly divergent incomes, credit ratings, and perspectives on spending, which can raise questions on the best way to divvy up expenses. Together, you should come to an agreement that you both consider fair and reasonable. For example, if one of you earns considerably more than the other, you might decide to contribute money to joint expenses based on a percentage of your incomes, rather than splitting them evenly. On the other hand, if your income and expenses are fairly equal, think about depositing equal amounts in your shared account.
Think of your budget as a money map: If you don't know what you have coming in and going out, you won't get very far toward meeting any goals you have, whether they are short-term or long-term.
3. Tread carefully with credit
One of the biggest mistakes couples can make is taking on debt together without thinking through—and discussing—the lasting implications. "Combining credit can be disastrous," Foss says. "If the primary cardholder defaults on his or her debt, the entire burden can be passed onto their partner."
It's vital to come clean about your credit histories, particularly if you decide to borrow money together, such as for a home. When possible, Tayne says, it also helps to keep separate accounts for car loans, credit cards and student debt. "I recommend against couples adding one another's names on their car loans or leases," says Tayne. "If any payments are missed or late, both parties credit scores could be negatively affected."
4. Make a game plan
In an ideal world, you and your significant other could get on the same page about spending and saving, while still maintaining some financial independence. In the real world, the only way to do this consistently is to map out how you plan to spend and save your money. In other words, you need to create a budget.
"Many people hate the 'b' word," says Foss. She recommends thinking of it as a money map, rather than a set of rules: "The point is, if you don't know what you have coming in and going out, you won't get very far toward meeting any goals you have, whether they are short-term or long-term."
5. Take it in stages
Co-mingling finances does not have to be all or nothing. You may find that a better strategy is to take it in stages. Discuss which portions of your finances to combine and which to keep independent as you reach different milestones in your relationship.
A joint checking account for household expenses can be a great place to start if you live together, says Kimberly Foss, founder of Empyrion Wealth Management in Roseville, California. In addition to the practical benefits, it offers a window into your money styles and temperaments without the consequences of combining credit.
As time goes on, you can expand your perspective to look at the big picture. In Kearsley's case, she and her fiancé have started saving for a down payment on a house, but they are also committed to working toward an immediate goal they're both pretty excited about—a honeymoon.