When you get married or are in a long-term relationship eventually you will have to discuss if/how you will merge finances. I’ll share with you the methodology my wife and I have been using for the past several years. This is not the perfect system, but it is what has been working for us. We all have hidden financial biases developed in our youth that influences how we think and act in regards to money. I once read a good book on the topic but I can no longer remember or locate the title. While I don’t know what our personal biases exactly are this process no doubt takes them in to consideration. You will have to adapt your plan to do the same.
Before I dive into the details, I’ll caveat our system is bases on a couple of simple assumptions we have established over the years.
- Alignment. We have talked through and agreed upon our financial life goals. Generically we are working towards financial independence.
- Spending process. We are allowed to spend money as we see fit. We generally ask ourselves these questions with each purchase:
- Is this a want or a need?
- Is this the optimal way to fill this want or need financially (Can I wait for a sale, borrow it, find it used, etc.)?
- Is this purchase worth more to me than the time value of the money (would I be willing to work XX more hours/days/years for this?).
- Trust. We trust each other to stick to the above principles and openly share any thoughts or concerns.
Currently, we both work normal W2 jobs and live “normal” lives without anything unusual going on financially (except for extended military tours but we’ll ignore those for now). We are also fortunate enough to be in a place where the monthly expenses of our chosen living style is far less than what we earn allowing us to put excess money in to all of our savings buckets.
Alright, let’s talk through the flow sheet of our money. I handle the majority of the finance logistics in the relationship since I actually enjoy it and am pretty nerdy about it. That being said I like to maintain a “minimum effective dose” when it comes managing our finances. I prefer to put in just enough time each month to ensure all money is coming and going as it should. I’m certainly leaving some money on the table when it comes to how quickly I move money into savings to earn more interest and other minutia but I apply the 80/20 principle here and assume any gains I’m missing out on would be outweighed by the time I spend making them happen.
I work a normal job and additionally am in the Air Force Reserve. Both paychecks are direct deposited into my checking account. I use USAA and highly recommend if you are eligible.
Contributions to my 401k are made directly to my employer sponsored account. It’s averaged across the year to max it out. Most plans will automatically stop when you hit the max so you don’t go over. Being in the reserves complicates things as I also contribute to my Thrift Savings Plan (government version of 401k that is excellent with lowest fees anywhere). The variability of my military duty complicates things so I have to rough estimate at the beginning of the year and adjust towards the end of year. I’m still figuring out how to optimize contributions to each so I’ll follow up on that another day.
All of our bills are auto drafted from my checking account (except wife’s personal credit card). I keep enough in my checking to cover the next 30 days of expenses. I use personal capital (Use this referral link if you want, I’m not in this for the money but I’m not dumb enough to say no to free money) to get a quick snapshot of what outstanding balances we have on credit cards and mentally add up rent and utilities to know how much to keep in there. I keep about 1 months of expenses in a standard savings account also in my USAA.
We have one joint credit card (currently Barclay Arrival + which is fine -we are not optimizing card rotation here in exchange for simplicity). We use this for joint expenses such as groceries, trips to target for necessities, joint dining out, travel expenses, any and all utilities that can be put on a credit card, and joint hobby stuff such as Netflix.
We each have a personal credit card (or a few depending on what points we’re working on getting – you can read more about credit card hacking on the internet). We use these for independent purchases such as our hobbies and any dining out we do on our own. We also put our gas on our personal credit cards. This one is arbitrary (most expense division is financially speaking – it’s for emotional reasons). I drive a lot for work and get reimbursed for some of my mileage so we decided to split it out.
While we in theory can both view each other’s credit card statements, we don’t. I don’t put her credit card on the personal capital (not optimal for planning purposes but worth the sacrifice in happiness purposes). While we abide by our principles discussed earlier to think about our purchases, the subconscious thought of having your discretionary spending viewed and judged by another can create some anxiety around spending. I enjoy playing the card game magic the gathering but the amount of money one can spend on small pieces of cardboard is absurd. It’s hard for me to fathom, let alone someone who doesn’t play the game. Conversely, I would find my self wondering how many pairs of dance shoes one person could need. We trust that each other is spending in accordance with our goals.
Since the joint bills are all paid out of my checking, once a month my wife transfers me enough money to cover half of the joint bills from her checking to my checking. I have a simple google spreadsheet where I put in the monthly bills and it calculates the difference- mostly divide by ½ but this allows for exceptions where my wife pays something jointly (I suppose I could figure out how to make a blank version and share it here, maybe I’ll do that someday but for now you can practice making your own spreadsheet).
We’ve always just done a 50/50 split but it would be reasonable to do a different ratio, perhaps based on income. For example, if combined we earned 100,000 but my salary was 40,000 and my wife’s was 60,000 we could do a 40/60 split. In our case since all excess money gets spilled over into the same bucket it’s arbitrary and would be strictly emotional.
At any time during the month when I’m doing finance stuff and there’s more money in my checking than needed to cover the next month’s bills, I transfer it to my Roth IRA (my wife also does this action). My Roth is in USAA just because that’s where I first opened one and my wife’s is in Vanguard. Any excess money beyond that goes into a low-cost index fund through Vanguard (VTSAX). I have mixed feelings on being all in on stocks and may diversify more in the future. Speak to your financial professional about your investing strategy.
Rinse and repeat as needed. There you have it, our effectively simple method for handling our joint finances.
What would/do you do differently?