Help a Reader: Consolidating Finances

Here's an email I received recently from a reader:

What should you do if you and your partner decide to combine finances (checking accounts, credit cards, leases, etc.), but you, in the past, have had very different personal finance personalities?  I meticulously keep track of all my expenditures and income in a budget spreadsheet, I save all my receipts to check against my statements, at any given moment I can probably tell you how much money is in my different accounts and how much money I have left to spend in a certain area each month (or for the year for more irregular expenditures).  I have an emergency savings fund, a Roth IRA, and a 401K through my employer.  He basically lives paycheck to paycheck, has no savings, does not keep track of where his money is going, and has very little credit (which can be worse than bad credit!).

What do you recommend?  Is there a way to responsibly consolidate, or perhaps a happy medium?

Ha! Welcome to the world of money and relationships! :-)

I told her I'd let you all give her some advice on what to do. Any suggestions?

Comments

[Susan]

You need to create a his, hers, and ours account. Combine only the things that need to be combined in the "ours" account, but keep everything else seperate.

[Anitra]

If you are serious about combining accounts, then you will probably need to keep track of your partner's spending as well as your own, as he won't be used to doing it for himself. Sit down and talk with him about your misgivings; ask your partner to track his spending for the next month, which will help in creating a budget.

A budget is going to be absolutely necessary for the two of you to live in harmony. And remember, a budget isn't set in stone! If you realize that you are spending more money on entertainment, and less on groceries (for example), that's OK, just modify your budget to allow for this.

In the end, you can only do as much as your partner is comfortable with. If he's not ready to have you monitoring and veto-ing his spending, then you'll want to keep most of your money separated.

[Kevin]

I agree with Susan. But have an alternate scenario. (I was in a similar relationship and things got out of control and I got really frustrated because I was the meticulous one but I never knew how much money we had because my now ex-wife never saved receipts.)

What we ended up doing shortly before splitting up was figure out what each of us were making, figured out our "fixed" expenses every month and allocated those bills out based on each of our take home pay. Then we each had roughly the same amount left after bills to do with what we wanted. For non-fixed expenses like food, clothing, etc we split those up as best we could estimate. We thought this was an easier solution than trying to keep track of 3 bank accounts - a his, hers and ours.

Example: If I made 60% and she made 40% of the total take home pay, I would pay 60% of the bills and she did 40%.

Hope that helps!

[Cherly]

Most of the time couples need to combine accounts due to living expenses (rent, utilities, groceries, etc). If this is the case then I would recommend creating a seperate account. You may call it a "Joint" acount. Most importantly, you each need to have your own separate "personal" bank accounts. This way, you can budget your monthly expenses and have an idea of how much needs to be deposited in the "joint" account for your living expenses and in your "personal" account for your individual expenses and/or savings.

By doing this you will also help educate your partner in the benefits of budgeting. As you progress in your relationship, it will be really important that you both have similar spending and budgeting habits. You need to rely on each other and have a common goal for budgeting and finacial plan.

A wish you the best of lucks!

Cherly

[GeckoGirl]

I disagree with trying to track your partner's spending, at least for now. I think creating "artificial scarcity" is easier. First, sit down and decide on your goals - joint and individual. Automate what you can (i.e. 401k, IRA and savings contributions). Then set up a joint account where you both put money for joint expenditures. Whatever is left in your partner's account after those things is his to spend. He still maintains "control" by not having to account for everything he spends but the goals are met. It will also force him to do some "mental budgeting". If he only has $100 left in his account until payday, then he really can't go out and buy a new iPhone or whatever. (This is assuming he doesn't carry debt since you said he doesn't have much credit).

[Chris]

Online banking and moving to using debit cards for purchases makes tracking all your spending and multiple accounts pretty quick and painless.

I am very meticulous about tracking everything but I wouldn't have time to sit down with a month of receipts and some bank statement that is a week out of date by the time it arrives in my mailbox.

[Brigham]

I hear you. I got married not too long ago, my wife is young and our money habits are definitely different, yet she was (and still is)eager to combine finances, I think deep inside a woman feels it's the ultimate bond of trust. However, I told her about all my shall I say obsessions when it comes to money and asked her that if she was ready for that, I'd be ok. She declined, but instead, she has started to do the things that show responsibility: meticulously tracking her expenses, daily balancing of her money, she always knows how much she has regardless of what the bank says (we all know the bank is always delayed and written checks don't help). So I'd say, ask if she is willing to do the things that matter to you and then have her show you that she can. I still haven't merged our finances, but the way my wife is going, I don't think it'll be too distant in the future.

[plonkee]

I wouldn't combine finances. You need to work with reality, not how you would like things to be. I agree that the mine, yours and ours solution might work well in your situation. Don't be afraid to try something out and ditch if its not working for you.

[brent]

I wouldn't say it's the 'ultimate' bond of trust: I mean, there are some other biggies - like wanting to raise kids together... but it's right up there.

Certainly my wife and I combined our (small) incomes from a year or two before we were married, and I can't imagine an it being any other way.

I'd say that the wife here has to make her expectations clear: she needs (deserves) financial security and has a good plan, he needs to measure up. In her case it might not make so much sense to combine their finances - it sounds like he just spends what's there in his accnt until it's not there: combining their finances would just put more into his accnt and turn him into an unintentional moocher.

It's true, online banking makes it SO much easier to track things: you just log on and look through the last few days of purchases and if there's anything screwy "Honey, what did you spend $85 on at KMart last Thursday" it's easy to keep track of "Ech. Two pairs of shoes for the kinds and a single pair of jeans for me. It was all I could find."

[RMW]

Depending on your partners personality you could do a few things.

I agree that in the best case scenario you can combine everything, set a budget (that you look at for a few months and then adjust), and work from there. It's easier, assuming your partner can work with it, and I think you have a better feeling about how you spend your money.

However, if your partner is not willing to work with this idea keeping accounts split can work. As someone above posted to divide up your total expenses and go from there and each of you pay your portion of those bills based on your pay.

My wife and I struggled at first when we used the joint system (she can be careless with spending) but it is now working much better. I just feel bad because sometimes I catch myself asking about every little purchase (I'm pretty anal about money!). Does anybody else have this happen to them?

[xshanex]

Susan had it right and I'd add Kevin's suggestion with the percentages. Figure out rough hard costs such as rent/mortgage, utilities, and shared food to create a checking account. Save a prebudgeted amount for joint activities such as movies, dinners, and other things if desired or take turns paying ot of personal money. Split that account up by income whether it's a 50/50 or 80/20. Have a separate account for joint savings for home repairs, vacations, and other long term goals. Anything left in each person's check goes toward retirement accounts or whatever their heart desires whether it's speculating in stocks or collecting beanie-babies with no say from the other

The idea of completely sharing finances with someone that has that kind of financial irresponsibility doesn't even make sense and frankly scares me. Once married and there are more legal/financial constraints(protection) in place and the significant other has proven that they are committed to similar financial goals I could see completely joining finances. I know I'm probably jaded but I have seen too many people I know bankrupted or wiped out by their significant others. If a couple had similar financial habits and goals I would see no problems in joining accounts early on

[David]

My wife and have a joint account for bill paying and each our own chequing accounts. Our paychecks get deposited into the joint account and each week an equal amount is transfered from the joint account to each of our own accounts to spend as we wish.

But this money is not just "blow money". Part of it is but it also has to cover all our personal spending on things like clothing, make-up, haircuts. If one of use wants to buy something that is more than what our weekly amount will allow then you have to save money each week until you can afford it.

It works great because it cuts out all the little things that is so tedious to track in monthly budgets and we no longer hassle each other over what the other might see as frivolous spending.

[David]

...I should add that while we have an overdraft on the joint I made sure that our personal accounts did not as it would be too easy run into the red on those accounts. Also, any shared entertainment such as dining out or going to the movies is paid from joint account (actually it goes through the credit card first).

And another important point... neither of us has access to the joint account via debt at the till. All shared purchases like gas, groceries, etc. are made with the credit card and paid off monthly from the joint account.

[Floored]

Wow - not to be critical but I am starting to see why one out of every two marriages in this country end in divorce. Am I the only one who sees something wrong with this attitude of "this is mine, that's yours" in a marriage?!?! But living two seperate financial lives and sharing "joint expenses" is for roommates, not husbands and wives.

I know (from experience) that it is very difficult when one of you likes to keep track and the other doesn't. IDeally, this kind of thing should be discussed and addressed BEFORE marriage. When it's not, then you work out a solution. It takes time, and often several fights, but you eventually come to a middle ground - just like any other issue that causes conflicts in a marriage. Gee, my wife doesn't put her dirty clothes in the hamper and it drives me crazy - maybe we should have seperate bedrooms.

There are a ton of methods to use that don't include living seperate financial lives. David's system (above) of each person having a seperate account for simple blow money is a great system to use.

If you are not willing to work together with something as fundamental as the family finances, then I am not sure what that says about the strength of the marriage.
I especially liked the comment "What we ended up doing shortly before splitting up . . ." Yeah - I'm going to take THAT advice!

Sorry - I realize that this post is really harsh, but this kind of stuff bothers me.