Combining Your Finances – Everything You Need to Know

If you haven’t already, when you get engaged, you’ll want to talk about combining your finances.

The dreaded money conversation. At some point in your relationship, you’re going to have it. If you haven’t had the talk during your courtship, your engagement is the time to start thinking about combining your finances. And it doesn’t have to be scary at all. In fact, as long as you are open and honest with your future spouse, combining your finances should be relatively easy.

Full Transparency
Take some time to really lay out any concerns you may have. Talk about any debt or loans that you both currently have. Talk about your credit. Your spending habits. Anything and everything is on the table during this discussion. If you talk about it all from the very beginning, it will hopefully help you navigate the best way to combine your assets and pay off any loans together.

Figure out a budget that works for both of you. Remember to include the obvious things like rent or mortgage, bills (electric, heat, water, cable, etc), groceries, etc. If you know you like to go out to eat or for drinks weekly, make sure to factor that in.

Things to consider: Do you both have a Netflix account? Get rid of one. What about that Spotify account? Get a family plan. All of these things add up in that monthly budget.

Explore Your Accounts
Look at both of your individual bank accounts – checking, savings, money markets, and CDs. Anything where you have money saved. If one of your banks has higher interest rates, consider switching over and combining accounts. Open some joint accounts. Remember, not everything has to be a joint account. It’s OK to have separate accounts, even at separate banks. Just be transparent about that money. If you are planning to have children (or already have children), remember to have some accounts for them. You’ll need to start saving for college (or future weddings).

If you have the means, open a high-interest CD for a year or two to have your money make money. A long-term investment like this will help you save for the immediate future.

If you have separate accounts, it’s a good idea to list each other as the beneficiaries. Keep this in mind with any retirement accounts you have as well.

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Paying the Bills
Once you have your accounts squared away, figure out how the bills will be paid. If you have separate accounts, perhaps a joint account that you both contribute to can be used to pay utilities and other bills. Some couples do consider the amount of income they bring in when splitting up the bills. If one person brings in significantly more, they could consider contributing more to the bills. Once you’re married though, you might just want to consider all incoming money equally. But, you need to do what works best for you as a couple.

If either of you have debt – credit card balances, student loans, car payments or a mortgage – create a plan of how those will be paid. Include the debt in your budget if you plan to pay them off monthly. If you have the means, look into how much it would be to pay off some of your loans in one lump sum, or increase the amount you pay in principal to pay them off sooner.

Emergency Funds
Yes, it’s important to make sure you have enough money in your accounts to pay your monthly bills. But you also need to make sure you have enough money in your savings or money markets for an emergency. It’s important to make sure you always have enough funds to live off of for six to nine months with no income. The way to figure this out is to add up all of your monthly bills – don’t forget about gas, food, etc. – and multiply it by six to nine months. Pad it a little bit for anything else that arises. While we never want to think about losing our income, things can happen and you need to be prepared.

You may think because you’re young, you don’t need to worry about retirement. But the time to start saving is when you’re young. For example, if you start working at 22 and you contribute 10 percent of your income into a company-sponsored retirement account like a 401k, you could have around $250,0000 saved by the time you’re 40. And bonus if your company matches up to a certain percent. If you and your future spouse both contribute to some sort of retirement account when you’re young, you’ll have enough funds to retire and live comfortably.

Obviously, it’s important to contribute what you can now. Not everyone is comfortable with 10 percent, and that’s OK. Some people choose to contribute up to what the company matches. And if your company doesn’t offer a retirement account, consider opening an IRA with an accountant or bank. However you do it, you need to make sure you’re saving for your future retirement.

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Entertainment & Vacations
If you both like to travel, consider opening an account (bonus if it’s high interest) that is specifically for vacations, concerts, etc. Both of you should be contributing to that account – this way, when the time comes to splurge, you’ll have enough to really enjoy yourselves. Remember, this account should be separate from the account you use for monthly bills and day to day expenses.

Planning For the Future
You need to plan for the future, and not just your retirement. If you don’t own a house already, it’s important to start saving for that. If you already own a house but plan to do some home improvements, save for that.

If you are planning to start a family, remember this when opening accounts and making savings plans. Check your health insurance for what is covered as far as hospital stays and doctors visits. Make sure you have enough saved to cover any out-of-pocket costs. Remember to adjust your budget accordingly as you plan for children.

We’re not just talking about health insurance here. We’re talking about all kinds of insurance. Factor in the cost of home insurance, car insurance and life insurance. Those can be monthly or yearly expenses. Oftentimes these insurances go up every year, so consider shopping around for a better rate every few years.

And when it comes to health insurance, definitely look into both yours and your future spouse’s insurance options to see which is more cost efficient. Some couples keep their own, others just bundle it all into one. Usually companies have good family plans to explore.

Credit Cards
Some people can fall into overspending with credit cards. If you know you or your future spouse may do this, maybe skip them. If you are good with your spending, consider opening a card together or adding one another to your cards.

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And we can’t forget to create that account for your wedding! If you’re paying for your wedding yourself, make sure to open a joint account specifically for wedding expenses. When the wedding is over, put all of the gifts into that one account and turn it into your vacation account or future home account.

Ultimately, it’s important to always keep the lines of communication open at all times when it comes to money. Download apps to track your spending together. Ask questions. Adjust your budget as needs arise. Schedule a meeting with a certified financial advisor. There’s no right or wrong way to spend. But as long as you’re honest about your spending habits, you’ll be able to figure out what works best for you as a couple.