As a couple, merging your finances can be a difficult process. The ultimate goal is aligning two lifestyles. Different habits and beliefs work harmoniously together.
Money can be a problem even when you are on your own. Throwing two people in the mix can lead to interesting results. Here are some strategies to help you two come together with money. The best things you do as a couple is solving problems together, and finances can be one of them.
Why is money a big deal?
Finances play a strong role in our lives. It is not as simple as numbers exchanged by notes and coin. Money comes with emotions. If treated wrong, money can be the gatekeeper of survival. After all, money pays for shelter and food. For most of us who are fortunate, money can capture us in the loop of wanting never-ending luxury. On the other hand, having a good grasp of finances can leave us free and rewarded.
Free and rewarded – this is where I want you two to be.
Understanding that we all spend money differently is the crucial first step. We also prioritise money differently. If you are reading this, then you might be the one who prioritises finances more than the other. These differences can spark conflict.
Conflict isn’t nice, but I want you to remember these words:
Happiness comes from solving problemsMark Manson
The act of overcoming conflict or problems as a couple will bring your most joy. Not avoiding this conflict, but coming up with a solution together. First, you will need to organise a time to sit down with your partner and look at what expenses are personal and what are shared.
Yours and Theirs Expenses
List down all your shared expenses. This can include:
- power and internet
This won’t include personal expenses, like:
- her/his/their hair appointment
- beers with mates without your partner
- personal fun money
Don’t just stop at the boring stuff, either. Come to an agreement on how much your are willing to spend on enjoyable activities you to do together. For example, put some money away for regular date activities like dinners out or the odd takeaway.
In a previous post about the basics of budgeting, I talked about using a spreadsheet as a foundational step for your finances. We are going to do the same with any expenses that you two share for the week.
In this example, the weekly shared expenses is $595.
After you have done this, you will now have to figure out how much each will contribute routinely to your shared expenses.
Who Contributes How Much?
If you both earn roughly the same, then it is as simple as a 50-50 split.
However, if there is a marked difference in your weekly pay check, then I would consider contributing in proportion to your income. What does that mean? Well, here are some examples using the shared expenses of $595.
If one person is earning double their partner, then this is a 2:1 ratio. We add the numbers of the ratio together (1 + 2 = 3), so there are three ‘parts’ to contribute in total. Each part is a third in this case. The person who is earning more pays two-thirds of the weekly joint expenses and the partner pays the remaining third. Two-thirds of $595 is $397 and one-third is $198.
Another example might involve a partner earning three times their partner. The ratio for this would be 3:1. Adding this together gives us four parts (3 + 1 =4). The higher-earner pays three-quarters or $446 per week, the other pays one-quarter or $149 per week
It gets a bit tricky if one partner earns one and half times the other. The ratio becomes 1.5:1, which we convert to whole numbers by multiplying both sides by two: 3:2. Add these together, we get five parts (3 + 2 = 5). The partner who earns more pays three-fifths and the other pays two-fifths – $357 and $238.
The last example is where is starts to get a bit ridiculous. We are not here to claim every single dollar and cent. We just want to keep things fair but for simplicity’s sake, you might just want to do fifty-fifty in that example.
Why should you proportion you contribution? In a case of a couple with very different incomes, for the lower earner, this is going to be a significant chunk out of their take-home pay to contribute to shared expenses compared to the higher earner. This is why a 50-50 split would not work too well. Both of you are working hard at your job and at home. You are a team at the end of the day, so the higher earner should cover a bit more ground.
The next stage is setting up a joint account.
What is a Joint Account?
A joint bank account is where both you and your significant other have separate access to the money within this account.
This usually involves holding two EFTPOS or direct debit cards with their own pin code.
Most banks will allow you to set up a joint account without any extra fees.
Once the joint account is set up, you will need to link all your expenses for rent, power etc. to this account.
Put the Plan on Autopilot
The final stage is to set up automatic payments.
By now, you will have a good idea of your shared expenses. You’ve also had the brutal conversation of who is going to contribute how much.
Each of you should create an automatic payment on your pay days that goes straight into your joint account. If one of you gets paid fortnightly, then simply double your weekly contribution and set it to go once a fortnight.
Making it automatic avoids you even having to think about it. This allows you to focus on more important aspects of your relationship once the finances have been taken care of.
As time goes on, you may notice that you might have too much money or too little sitting in the joint account. This may mean you two will have to revisit your expenses and adjust your contributions accordingly.
Merging money together is one of the many challenges couple will face. Rather than being challenge-free, the very act of overcoming challenges is the crux of building strong relationships. The strategies here is one of those acts.
This involves sitting down together and listing all your shared expenses. Also, don’t forget to budget in fun things like date nights.
Once you know how much you both need to contribute, split this up according to your incomes. If you two earn close to the same, then fifty/fifty should be enough.
Finally, put it on automatic payment so you can focus on other parts of your relationship.
At the end of the day you are a team and this is a solution to keep you guys working together and not against each other. Once you have sorted out the joint finances, you can go back to focusing on enjoying your relationship.
Good luck and share this out to all those new couples out there!