Money Basics Series #5: Joint Finances

The Beatles might have been convinced that all you need is love, but reality hits a different note. Once you get past the initial romance and excitement, both parties have some choices to make. It starts with deciding whether the relationship has staying power as a strong partnership. Then it comes down to what that partnership will look like. 

Though one might argue that dollar signs have no place in matters of the heart, adult relationships cannot ignore the role of money in day-to-day life. Conversations about combining two lives into one require frank discussions about finances.

Many avoid or put off these crucial talks. Uncomfortable disclosing their financial situation or asking about their partner’s, they put those conversations aside in favor of keeping the peace.

But this approach will backfire if you genuinely want to build a happy life together. From joint accounts to joint budgeting, financial planning, and decision-making, communication about money will play a key role in building and sustaining any happy long-term relationship. 

Charlene’s Story: Red Flags for Dinner

A client of mine felt like she had hit the jackpot. She’d met a Great Guy™ who she really connected with and felt excited about their potential future together. There was just one problem. As she put it: 

He is well-spoken, educated, good-looking, and athletic.  As soon as I met him, sparks were flying. As we are getting to know each other, he has been honest, too. Thus came the disclosure that he is in transition, job-wise. 

Translation? Unemployed.

The thought of getting involved with an unemployed 50-something took my breath away a bit at first, but here is an opportunity to find love and begin an exciting new relationship. Unemployment is a part of life, and I am of the firm belief that when one door closes, another better one, will open.

The situation created some internal conflict for Charlene. Yes, everyone falls on hard times now and then. But Great Guy? His choices about money during this financial hiccup raised more than a few questions.

A Tale of Two Bank Accounts

While unemployed, Great Guy spends his money in ways she finds reckless, which worries her. He lives in an opulent apartment, belongs to an exclusive golf club, and drives a luxury automobile.

Despite being unemployed, Great Guy frequently goes out for costly meals, live performances, social events, and shopping sprees. When he does buy groceries, he goes to ultra-chic, expensive supermarkets and purchases top-label products. 

Charlene, on the other hand, exercises the kind of restraint we’ve already discussed as a critical ingredient in maintaining financial health. She sets and sticks to a reasonable budget. She responsibly manages debt and saves for the future. To her, Great Guy’s money habits are as foreign as they are disconcerting.

Disconnected Dollars and Sense

At this point, the available evidence would lead me to believe that, although her friend is currently out of work, he has likely saved enough to weather this unemployment blip. After all, the money funding his seemingly irresponsible spending didn’t come out of thin air. 

But red flags fly when Charlene discloses that he questions the economics of spending or investing money to improve his employment marketability. Equally disconcerting, he makes cavalier statements about intending to work into his 70s or beyond.

Following a series of lavish dates, Charlene and I have serious reservations about his decision-making and ability to engage in a financially healthy relationship. And whether we like it or not, that can easily (and arguably should) be a dealbreaker when you’re looking for a partner in life instead of a fling.

Talking Individual Finances Before Tackling Joint Finances

Charlene winced when her friend mentioned that the tip paid on a recent night out was not much less than the price of the outrageous blue plate specials at breakfast. It felt like a clear example of very different financial philosophies. 

But the relationship was still relatively new and shiny. And given our societal reticent to speak frankly about money, raising questions about Great Guy’s current financial state and future goals seemed almost rude.

Is it though? Assuming you want a long-term relationship, the early days of a relationship help us gauge compatibility. Our reticence to consider alignment on financial priorities and habits ignores a significant part of everyone’s lives. 

Questions about Great Guy’s finances may also provide context for those pesky red flags. After all, these large expenditures hit differently depending on the number of zeroes in your bank account. Does Great Guy have $2 million in savings or $200,000? $20,000? $2,000? Are those numbers edging closer and closer to $200?

We’re not being shallow here. Charlene was never hunting for a “sugar daddy.” She doesn’t think our paycheck defines us. This point of concern has little to do with actual wealth or spending power. It instead revolves around what kind of future Great Guy wants and what he’s willing and able to do to get there. 

Charlene does herself a disservice if she writes off his money situation as “none of her business.” Though Great Guy might not answer her questions entirely honestly, they’re still worth asking. His answers will help them decide if the relationship has potential or is a waste of time.

Determining Whether Joint Finances Make Sense

They say opposites attract. But diametrically opposed perspectives on money can serve as a dealbreaker. 

Two people who join in life using money as the means to accomplish their goals must have a solid agreement about how they will save and spend their income. That agreement must be established before the money gets mingled in joint accounts or investments.

Before you start signing checks or paperwork, you must address several questions.

Why are you considering joint finances in the first place?

There are plenty of dirty words in the English language, but none so harmful or dangerous as “should.” Our sense of obligation to societal norms often pushes us into decision-making that has more to do with others than ourselves.

Joint finances provide an excellent example of this. Rings and pregnancy tests are no longer prerequisites for establishing joint finances. The US marriage rate has fallen 60% over the past 50 years, with many seeing the formal union as “optional” or altogether unnecessary.  

This isn’t about knocking marriage. It can be a beautiful (and financially beneficial, if we’re being cynical) union when rooted in love and respect. But while the dynamics that used to precede joint finances have shifted, our desire to affirm our commitment to a relationship persists. 

This means we must think carefully about when and how we approach joint finances. The complexities involved are too significant to let social expectations pressure you into a hasty decision. Make sure you’ve got your priorities straight.

Do you need joint finances?

Let’s say your motivations for contemplating joint finances make sense. That still does not necessarily make combining your finances prudent. You need to look at the utility of such a move. Consider:

• Do you share financial responsibility for living expenses like rent, utilities, and groceries?
• Do you already jointly own some bigger ticket items like furniture, electronics, or appliances?
• Do you plan to make more big-ticket purchases together in the future?
• Do you see a future together that will require long-term financial collaboration?

If you’re not sure about the answers to these questions, you might want to press pause on conversations about joint finances. It requires a great deal of confidence and trust to embark on a journey like that. 

Most readers understand that intertwining finances comes with risk. With a joint bank account, for instance, each party has full access to the entire amount on deposit – not just 50%. So, right off the bat, you are giving your partner carte blanche to spend any income you bring to that table. 

We talk a lot about risk management in terms of investing and entrepreneurship. But risk matters in personal financial planning, too. Take time to weigh whether that risk is entirely necessary for your specific relationship.

Are your goals aligned?

Unfortunately, even partners who are madly in love have different ideas about what they are working to accomplish. Some people may not even have clearly defined aims as an individual, let alone as a couple.

If you want to get serious about your relationship, though, alignment on financial philosophies is essential. Even without firm and clearly defined goals, discussions about general hopes can set the stage for productive comparisons, compromises, and conversations.

Think about Charlene. Great Guy’s cavalier attitude about retirement paints a picture of financial goals that don’t match up. Why should she put her hard-earned money on the line when her vision of the future looks so different from his? 

My suggestion is not complicated and doesn’t take an economics degree. It does take honesty, clear thinking, and direct communication. But that effort could save you time, money, and heartache down the road.

How to Have the Tough Talks About Joint Finances

Let’s assume joint finances make sense for you and your partner. You’ve considered all the angles and feel ready to make the jump. 

But that, arguably, is the easy part. The next step involves getting into specifics about what that looks like and what needs to happen to set things up. 

Evaluate Pre-Relationship Finances

Maybe you’ve done a great job of avoiding things like credit card debt or have had the great fortune of not needing to take on necessary debt. You know the importance of tracking expenses, analyzing spending habits, and planning for the future. Can you say the same about your partner?

Both partners need to lay their cards on the table when contemplating joint finances. Talk about income, savings, debt, expenses, and credit. These numbers will likely affirm or call into question the answers you landed on before starting this stage of discussion. They also give you a solid starting point for talking about what the next stage looks like.

Add Everything Up

Get serious about what all of these theoreticals actually look like. Adhering to rules about spending and saving becomes difficult without hard numbers. And when it comes to joint finances, planning offers protection from unnecessary resentments.

Map things out deliberately. You’ll want to look at:

• Housing – Often where the majority of your income goes, whether in the form of purchasing a residence or rental payments. This category also includes related costs like utilities and maintenance.
• Transportation – Planes, trains, and automobiles get us where we need to go. How much we spend on those journeys varies. Calculate the cost of car payments, insurance, gas, maintenance, bus passes, and more. Plan for urgent transportation needs, too, like an occasional Uber.
• Additional Living Expenses – We all gotta eat. We also need things like healthcare, insurance, clothing, toilet paper, etc. Some of these expenses are predictable and recurring. Others are usually periodic and variable. Both require planning.

If you’re at a point in your relationship when joint finances have become a serious conversation, you’ve probably already been sharing in at least some of these expenses. But defining the actual numbers fosters the clarity that facilitates other, more difficult conversations.

Take Stock of Needs, Wants, and Expectations

Contrary to popular belief, relationships are rarely 50/50. Circumstances frequently mean one person picks up some slack when the other struggles. This could include work around the house, coordinating schedules, taking care of your kids or pets, or other divisions of labor. It also necessarily includes money. That’s ok and totally normal.

But outlining what each person should contribute and spend helps make that flexibility possible. It lets us plan for rainy days, predict cash flows, and move closer to our goals – even when things fluctuate.

What does that mean for your spending and saving once you get your finances joined? Needs for essential expenses like electricity or phone bills shouldn’t generate a debate. But things like movie rentals, expensive hobbies, and impulse buys at the register create the need for some rules. Ask how much discretionary spending you can afford together without sacrificing progress toward your financial goals.

But look beyond pocket money and the kinds of elaborate dates Charlene’s Great Guy loved. For example, if you or your partner are coming into the relationship with debt, take account of what that debt represents (credit cards, student loans, auto loans, etc.) and how long it will take to pay it off. Do either of you expect your partner to share in those payments once you join your money? 

You should gauge all of this in terms of capability and willingness. To ask a partner making considerably less to contribute half of the necessary dollar amount to your household budget is often unreasonable, unrealistic, and unsustainable. In some cases, a partner might be uncomfortable with an arrangement that is reasonable but unbalanced. If it’s a function of will, you might need to reconsider the idea of joint finances for now.

The Golden Rule: Pay Yourself First

Whether you’re approaching financial planning individually or in a relationship, you focus on the future. Building the life you want requires preparing for it. That means saving. In joint finances, saving demands a joint commitment.

How much of your income are you going to save? Will your savings stay in a specific bank account? What portion of your savings will go into investments?  How are you going to diversify? Who will manage this piece of the financial puzzle?

Research and develop a joint plan that you can work together to achieve. Watching your money grow is much easier than tearing each other apart when credit card bills for unexpected or unsanctioned expenses arrive.

Sync Up Operations

If you’ve set goals, laid down some rules, and nailed down how much each of you needs to bring to the table, you’re almost there. Make sure you set up a framework that keeps things on track.

What financial institution will you use to store and manage your money? Who will track spending? Will you pay bills individually or set up automatic payments, and from what accounts? Similarly, will one person divert money into savings or investments, or will that be automated too? 

Every couple should make time to have “money dates.” This should be a designated time for reviewing where you’re at, where your money goes, progress toward your goals, and any necessary changes to your budget. This creates a sense of mutual investment, motivating both of you to make smart choices. Communication and a plan, at any time, are the keys to money success and a peaceful home.

Rings and Rights in Joint Finances

People have plenty of reasons for not entering into marriage. None of them are the business of anyone but you and your partner. 

Except the government.

We already know the law treats married couples differently than unmarried ones. From access to medical updates to taxation, marriage affords certain rights, responsibilities, and privileges.

Joint finances, specifically, take on a different flavor. Your debt can legally become their debt and vice versa. Your combined credit matters. In the event of divorce, pre-nuptial agreements and the courts can divide and protect assets. 

Marriage should not be something we enter into for financial reasons alone, but finances are affected by it. This colors conversations about joint finances. If marriage looks likely down the road, it could make sense to start on joint financial planning today and discuss how marriage might change it. On the other hand, couples uninterested in marriage should talk about what steps they can take to protect both joint and individual financial health.

Alternatives to the Joint Account

Now, perhaps Charlene and Great Guy have a productive conversation about money. Perhaps Great Guy “sees the light” regarding his spending habits and the relationship turns out meriting conversations about joint finances.

But one size does not fit all in joint financial planning. Just as not every relationship requires joint finances, not every relationship needs the “joint” part to fit into a specific box. 

This is especially true when talking about joint accounts. If Charlene and Great Guy stay together long enough to make joint finances prudent but aren’t comfortable with a formal joint account, they can do one of three things:

1. Keep separate accounts for the duration of their relationship
2. Link their individual accounts
3. Establish a joint account linked to their individual accounts

These options allow each partner to maintain some autonomy and protect their personal financial well-being while still allowing for collaboration on spending and saving. It can provide each of you with some peace of mind as you take the next step in your relationship by offering a path forward with lower commitments. 

Just because you opt for one of these options does not mean you’re tied to it. If your relationship continues to grow and strengthen, you can always choose to fully join your finances through a joint account later.  

Sentiment and Sensibility in Joint Finances

Conversations about money can quickly turn emotionally charged. Don’t wait for conflict to arise to discuss if and how you and your partner should join your finances. By that point, the resulting damage to your relationship can sink it altogether.

Talking about money might be uncomfortable, but it is absolutely necessary. By having the money conversation early on in your relationship, you can find the best path forward in your financial journey and avoid difficult arguments down the line.

Stay tuned for the next installment in the Money Basics Series for pointers on another important topic:
protecting your assets.

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This is an updated version of an article from 2020. © 2023. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.