So you were recently engaged to your significant other – congratulations! You are now on a joint path in life and happiness is shared. This comes with a host of difficult decisions and a lot of uncertainty, especially when finances are considered. Hopefully you’ve talked about your financial situation before, it’s going to make a tremendous difference in your lives.
In this week’s video and post we’re going to go through some of the ways that married couples handle their finances before/after they tie the knot.
If you ask your parents or someone of the prior generation, they’ll likely tell you that your finances should all be joint and your property becomes your partner’s and vice versa. There is merit to this option, but it may not be right for everyone.
I’m going to discuss three separate methods of handling marital financing.
- Finances are completely combined
- This means, no matter if both spouses work or only one does, all that income goes into one shared joint checking account. All of your bills, savings, and investing comes from this account.
- Combined financing often is achieved later in the marriage. For many newly married couples, this is often a very difficult thing to do immediately. It feels like you’re sacrificing a lot of your financial freedom, as you now have another person to think about when you spend your hard earned money.
- Finances are completely separate
- Meaning you behave most likely how you handled your financial situation during your early dating lives with each other. Separate accounts for everything – nothing jointly held.
- Now, this doesn’t mean that your financial lives are completely separate. One spouse may assist the other financially at any time. Sometimes, this ends up being proportionate to income. If one spouse significantly outearns the other, maybe the contribution for that rent payment or mortgage is split 70/30 or something along those lines.
- There’s no right way to do this method. You’ll need to communicate and allocate wisely for shared goals. You’re a team after all!
- Hybrid method
- This method is the one that I’m seeing more and more often with newly married couples. It begins with opening a joint checking account and perhaps a joint credit card. Both spouses still maintain separate checking and savings accounts.
- Each spouse contributes a certain allocation of their income to that joint account to pay shared bills. You’ll use the joint credit card for joint expenses and then pay off the balance using the joint checking account.
- The hybrid method allows for a bit of a time buffer between truly combined finances and entirely separate. Overtime, most married couples share their assets.
- The great part about this hybrid method is that after you’ve allocated to the shared account, you still maintain some degree of financial freedom to spend your remaining surplus on things you might want, but your shared needs are being met.
- Joint savings accounts are great to save for shared goals, as well.
There are a ton of financial decisions you will be faced with as a couple going forward. As you begin this journey together, you’ll need to find a strategy that works for you. Give each of these methods some consideration and determine what’s going to work best. Communication is your first priority, make sure you’re on the same page, and be open about your goals. It will save you time, money, and emotional stress in the long run.
As always, thanks for reading and watching! We’ll see you back next week.