A Guide To Joint Finances – Combined, Separate, Or Somewhere In The Middle?

Traditionally, joint finances were simple. 2 people got married and pooled their money into a joint bank account.

Not anymore. According to a recent study by TD Bank, only 37% of Millennial couples combine everything (i.e., treat money as “our” money). Meanwhile, 31% keep money entirely separate (i.e., “what’s mine is mine and theirs is theirs”) and 32% have a mix separate and combined money.

The shift in how couples approach joint finances stems from changing social dynamics. Millennial couples marry later, earn more dual incomes, and carry more debt. As a result, when they get married, both partners are generally accustomed to managing money on their own. In other words, they have their own spending/saving habits and opinions.

Each of the 3 approaches to joint finances – (1) combine everything, (2) keep everything separate, and (3) combine some, not all – has pluses and minuses. Let’s walk through them.

A Guide To Joint Finances – Combined, Separate, Or Somewhere In The Middle?

Option 1: Combine everything

The traditional approach to couples’ finances – where both partners use a joint bank account for everything – has 3 potential advantages.

  • Simplicity

This approach tends to be the simplest. You don’t need to figure out how to split all of your bills or decide which account to use for every purchase. You just move all of your money into the joint account and pay for every expense with that account.

The simplicity also makes it easier to quickly understand your financial situation. Rather than tracking spending and balances across many accounts, you can just look at the joint account. Likewise, you don’t have to worry about being unable to access funds if your partner becomes ill or injured.

  • Transparency

The traditional approach may also promote transparency about money, since you and your partner can see each other’s transactions. Yes, all of them. Even the daddle you purchased for $43.

According to a recent poll, 1 in 5 people have hidden a purchase of more than $500 from their partner. Perhaps completely combined accounts for all would reduce that number. But transparency can cut both ways. Too much of it and you’re left feeling smothered and pushed into keep financial secrets.

  • Communication

Combined finances may also help you think like a team by encouraging you to communicate about money. Are we eating out too much? Should we start investing our money? Do we really need that inflatable unicorn for the cat?

Research suggests that more communication about money makes for happier couples. In a recent study by TD Bank, couples who discussed money at least once a week reported being happy more often (78% of the time) than those who discussed money less than every few months (50%).

But remember, combining finances doesn’t always lead to more money talk. In fact, it could have the opposite effect. For instance, if your partner loves finances and you despise it, a joint account might lead your partner to handle all things money and you completely to ignore it. #BeCareful

Option 2: Keep everything separate

The second approach – keeping everything separate – might be more work, but the extra effort is worth it for some. We see 3 potential advantages.

  • Independence

While you and your partner are a team, you are also 2 different people with 2 different perspectives on money.

When your perspectives are very different (e.g., you are a spender and your partner is a saver), combined finances may make it hard to resist overly scrutinizing your partner’s purchases. In a 2014 study, for example, 42% of respondents identified themselves as practical when it comes to money and only 28% said the same for their spouses. Likely story, respondents. By maintaining separate finances, you might minimize the urge to unnecessarily criticize your partner’s spending habits.

Additionally, when you and your partner have divergent approaches to money, combined finances can make you feel the need to justify every purchase to your spouse. Your partner’s perceived judgment, whether actual or imagined, can cause unnecessary conflict. #NoFun.

  • Financial literacy

With separate accounts, you and your partner handle your own day-to-day finances. Why’s that a good thing? Fair question. The answer: because each of you is more likely to develop knowledge and skills for managing finances effectively – i.e., you’re more likely be financially literate.

That’s important. If something happens to your partner or your relationship goes south, you need to be able to manage money on your own and avoid major financial mistakes. That’s especially important for women, who tend to have lower levels of financial literacy than men, according to recent studies.

  • Practical benefits

Separate finances also has some practical benefits that you might not realize. For example, if your partner has significant debt, the money in your joint account – including yours – can be garnished by creditors. Keeping separate accounts avoids that issue (assuming it’s not joint debt).

Likewise, it’s less awkward to give your partner a gift with separate accounts, and if you want to treat for dinner, it may feel more meaningful when the money comes from your own account.

Option 3: Combine some, not all

The third option is a hybrid approach – combine some but not all of your finances. About 1/3 of Millennial couples have chosen this option.

There are many flavors of this approach. Some pay for recurring shared expenses, like rent and utilities, with a joint account and then cover the rest with separate accounts. (If you take this hybrid approach, consider contributing the same portion of your income – e.g., 50% – into the joint account, rather than the same dollar amount.) Others put all of their income into a joint account but give themselves “allowances” each month by moving a set amount of money from their joint account to their individual accounts.

These hybrid systems aren’t simple. They require planning and periodic tweaking. But for many, they strike a better balance between transparency and communication on the one hand, and independence and financial literacy on the other.

As you evaluate your options, remember that you’re trying to find a system that helps you and your partner collaborate about money to achieve your joint goals. In other words, you’re a team. So find a system that – based on your personalities and preferences – sets you up to succeed together.

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