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Combining Finances? Consider This

Whether you’re two singles sharing household expenses or a married couple with separate finances, deciding if or when to merge money can be tough. While each situation is different, PNC Investment’s Cary Guffey offers common strategies for couples to consider.

The number of adults aged 25 to 34 living with a partner has more than doubled from 20 years ago, according to census data, [1] with an estimated 17 percent of women and 15 percent of men now opting to live together before marriage.[2] And that often means that more couples are considering whether or not to co-mingle budgets and bills.

When it comes to couples and finances, deciding which route to take depends on your circumstances. Income, age, assets and debts can, and often do, change during the course of a relationship.

PNC Investment’s Cary Guffey offers a few strategies to help you make the best choice, based on your financial situation.

Keeping Finances Separate

There are certain situations where it makes sense to keep finances separate. One partner may have acquired excessive debt or accumulated significant assets before the relationship. Or perhaps a remarriage will affect a previous widow/widower’s pension benefits or an inheritance for a partner’s children.

“In the case of second marriages or later-in-life marriages, especially those where each partner may have children, it may be easier to keep finances separate to avoid multi-generational relationships being strained,” Guffey says.

On the other end of the spectrum, fictional young newlyweds Jane and Jack are looking to set up a new household, but one has poor credit. For this couple, there may be an advantage to keeping finances separate, especially if there are lending needs, since the partner with the higher credit score may qualify for better interest rates.

Keeping separate accounts also makes sense if one partner is irresponsible with money and isn’t willing to take on more financial responsibility over time.

“The downside to keeping finances separate is that if you’re applying for a loan, you lose the ability to include the other person’s income, which could affect your debt-to-income ratio,” adds Guffey. “So yes, you avoid the bad credit, but you’re standing on the loan by yourself, and that ultimately could reduce your borrowing capacity.”

older couple reviewing financial statements

For couples with similar incomes or net worth, a separate but equal approach might work best. One later-in-life couple, in a second marriage, kept their finances separate, and alternated paying household expenses each month, Guffey recounts. 

“He would pay all the bills in January, she would pay all the bills in February and it worked for them, in part, because there was no disparity between his assets and hers,” Guffey says. “Although, he did joke that any time it was his turn to pay, she’d want to go out, but when it was her turn to pay, she’d say, ‘go pick a tomato off the plant out there, and let’s have a tomato sandwich.’”

Combining your Finances

One of the advantages to combining finances is that it’s generally easier to keep track of your money. “Instead of keeping up with multiple accounts, you might be better served by combining those accounts,” says Guffey. “In some cases, you may have larger account balances once combined, so you could potentially reduce or even avoid fees.”

If you choose to merge your money, you have a few options to consider.

You could consider the proportional method, in which you share expenses based on the percentage of each person’s income contribution. Say one partner earns 60 percent of total household income and the other earns 40 percent. The higher-earning partner could cover 60 percent of shared expenses, while the other covers the remaining 40 percent.

An advantage to this method is that it helps balance joint expenses and also allows each person to keep separate money for themselves.

Another contribution strategy to consider, which is a slight variation of the proportional method, works best when one partner earns significantly more than the other. The person who earns the most contributes exclusively to the couple’s expense and retirement accounts, and the second income funds a joint savings or spending account.

“In this situation, the higher earner’s income covers the daily expenses, while the lower-earning person’s income makes up the ‘mad money’ account for vacations, the emergency fund or gifts for the grandkids,” adds Guffey. “But this strategy only works if you both know the bills and obligations you’re using these different accounts for, and you both agree on how to tackle this together.”

“No matter what approach you take, it always comes back to communication -- sitting down at the kitchen table, laying it all out there and strategically deciding the best way to approach the situation,” says Guffey. “The more you communicate, the better you understand that everyone has different spending priorities. It doesn’t mean you have to agree on what you each want to spend, but it does mean you need to agree on the rules of engagement,’” says Guffey.

Cary Guffey
Cary Guffey is a Certified Financial Planner® with PNC Investments

Rules of Engagement for Combining Finances:

  • Know your earnings and debt
  • Prioritize goals: spending, saving, splurging
  • Consider risks and benefits, including legal considerations, community property, joint debt

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