Talking to a significant other about money is hard enough, but merging finances takes it to a whole new level! If you’re thinking about merging your finances with someone else, there are pros and cons with it, and it’s best to enter the conversation with an open mind.
I assume if you’re thinking about merging finances with someone, you share a household and are either in a romantic relationship or excellent friendship. Personally, I would only merge finances with a spouse (in fact, I recommend it), and that is what most of my advice will be centered on – but you can still use it no matter who you’re trying to merge finances with. I will add, if you merge finances with someone you’re not married to, there are likely extra hurdles and steps you may want to take to make sure everyone involved is as safe and secure as possible.
Prepare For The Discussion
Before you actually decide to merge finances, you’ll need to sit down and have a lengthy discussion about it. If there is any question about the longevity or commitment of the relationship, you should avoid merging finances for now. If you’re serious, committed, and planning on marriage (or already married) you’ll be in a better mindset for combining your assets and income.
Each of you should make a list of financial topics and goals that are important to you. Once you both have that, set a time and place to talk – be sure to give yourselves a lot of time to discuss it. Hopefully you can start it off on the right foot, but if an argument breaks out, take the time to cool off and consider each other’s perspectives. If needed, a third party like a financial planner or marriage counselor could get involved depending on what your disagreements are.
Cover Your Key Topics And Goals
Both of you should have fairly lengthy lists to discuss, but if you need help organizing your thoughts about it (or don’t know where to start), here are some important considerations:
- How much do both of you make? Include base pay, bonuses, and any other form of income you receive. Additionally, by honest with the reliability of your income. For example, talk about whether it is a normal job, freelance work, a business you own, or something else entirely.
- What are your total assets? You should be able to present a full list of your assets and at least a rough estimation of their value. This can be things like a house, a car, land, stocks, retirement accounts, and so on. Something else that may be good to discuss is how willing you are to liquidate certain assets – it’s unlikely you’ll want to withdraw from retirement accounts early, but you may be keen on selling property to meet certain goals.
- How much debt do you have? Include everything and specify what it is (including interest rates is helpful), like credit card debt, student loans, and even how much you owe on a house. It’s important for people to know what they’re getting themselves into, and what they may be held liable for. Also, being open and honest about debt makes it easier to work on strategies to eliminate it.
- What are your professional goals? It’s important to focus on how much you’ll work, where you’ll have to live to find employment, and how much money you’ll be able to make. Are you trying to work your way up the ladder, take risks and start a business, or are you content coasting through your career? Another important thing to discuss is who may have to stop working, or work less, if necessary for kids in the future.
- What are your primary financial goals? Do you want financial security, do you want to retire early, or are you more concerned with having a nicer lifestyle and just making ends meet? Whatever your personal goals are, it is important to be honest about them – even if they’re not the best or most responsible.
- What are your biggest financial weaknesses and strengths? I think everyone has different strengths and weaknesses when it comes to personal finance. One person may be good at creating a budgeting and sticking to it, and the other might be great at managing investments. It’s okay to brag a little about what you’re good at, but also be honest about any shortcomings you may have. If you splurge a bit too much, your significant other will find out eventually, so be forthcoming.
- What is your current lifestyle and expectations? If you expect to be able to spend or save a certain amount each month, now is the time to set your expectations. As always within relationships, you should be willing to compromise, but if their expectations or goals are the opposite of yours, that is a huge red flag that should signal to you to proceed with caution or not merge finances at all.
Come To An Agreement On How And What You’re Merging
There are many different opinions and tactics when it comes to actually merging your finances. Depending on the situation it may be wise to completely or partially combine everything. Completely merging your finances would include bank accounts, credit cards, debt, investments, properties, and absolutely anything else you can think of. Many couples enjoy merging completely because it simplifies managing all of it and it effectively makes you one unit. In my opinion, I think that should be the go-to option for most married couples, but it does require a lot of work and compromise. The alternative is picking and choosing what you merge.
Couples Who Partially Merge Finances May Choose To Do One Or More Of The Following
- Open a single, joint checking account to manage bills (which they deposit some of their pay into each month).
- Have a shared credit card for general purchases like groceries and dates.
- Open a joint investment account for part of their portfolio.
- Have multiple separate bank accounts, credit cards, and assets.
- Keep personal budgets and spending managed on their own, to minimize fighting over spending disagreements.
When Is It Usually Ideal To Merge Finances?
In my opinion it is usually best to start merging finances when you get married. In the month or two leading up to your marriage you can get all the information and paperwork you need to do set up, and then you can knock it out rapidly once you get married. Some people may choose to merge finances when they move in together and get serious, and it may work for them, but I personally wouldn’t recommend it – it goes sour too often.
Divide And Conquer
With your finances merged, you can divide and conquer different financial responsibilities according to your strengths. One person may be in charge of monitoring the budget and being frugal with groceries and eating out, while the other may oversee the investments. Remember, you’re a team!
In Order To Keep Things Running Smoothly, Be Sure To Do The Following
- Maintain a budget and stick to it. How you do it is up to you, but budgets are incredibly useful tools.
- Continue to be honest, even when it’s hard. We definitely don’t want anyone feeling bitter because they held something in!
- Recognize and appreciate your different strengths.
- Set aside times to regularly talk about finances. This way it doesn’t creep into random conversations (and surprise or upset someone) and you can stay on the same page with your various financial goals and prioritize what you need to.
Conclusion
At the end of the day, you need to work together to come to an agreement about merging finances, as well as how you’ll reach your financial goals. It’s all about communication, and that will make or break you. Managing your finances is great and can help you achieve a lot of things but remember to not get so caught up in your personal goals you don’t consider the other person’s goals or feelings. Stay honest, communicate, and do your best to come to a solution that both of you can agree on.
For bonus points, if you can live on just one of your salaries and invest the rest you’ll do great! Also, if you’re looking to get engaged, check out my complete guide to buying an engagement ring (and getting the best bang for your buck). If you have any advice you’d like to share, let us know in the comments.
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