Whether you're married, engaged or simply living together in a long-term committed relationship, merging assets is a decision that all couples eventually face. Combining finances with your partner can be a tricky undertaking - mixing money is a big decision, and no one wants to put unnecessary stress on a good relationship.
If your money is important to you, you should proceed with caution. However, there are certain steps couples can take to achieve a successful integration of finances. Here's how you can make the process as smooth as possible:
1. Decide if combining finances is right for you. Every couple is different, so before you pool your hard-earned money in a joint account, you should discuss the benefits and potential drawbacks of joining your finances with your significant other. In some instances, the benefits will outweigh the issues that could arise following the commingling of bank accounts - and in some instances, they won't.
Some of the most common benefits of joining financial accounts include easier bill paying, more streamlined record keeping, building a status that yields better opportunities to grow as a family and minimizing money-based inequality. Additionally, taking joint responsibility of each other's finances can further strengthen companionship and in many cases, improve credit scores to get better deals on loans and other accounts.
However, if you have different attitudes toward spending versus saving, combining finances could put serious strain on your relationship, and if things don't work out, uncombing your finances can be really messy and unpleasant. In a Rent.com survey of 1,000 U.S. renters, 19 percent of those who had broken up while living together said dividing assets was the hardest logistic to deal with during the breakup. In a worst-case scenario, your ex could drain your joint bank account, rack up debt on a joint credit card or even destroy your credit score.
2. Talk strategy, expectations and goals. If you and your partner decide that combining finances is right for you, have an honest conversation about your current financial situation, priorities and goals to make sure you're on the same page. For example, if growing your savings account is important to you, but your significant other prefers to shop with extra cash, you could be in trouble.
It's always a good idea to create and utilize a budget, but when you combine finances with your partner, the importance doubles. Both you and your significant other should start by determining your individual net income - what you end up with after taxes, health insurance, social security, 401(K) deductions and anything else that comes out of your check. Next, take a look at your online bank account and get an idea of how much you're spending. When you're figuring out a budget, you need to take into account everything that you spend money on every month, and it's really important to be honest and realistic with your partner (and yourself, for that matter). Once you've created your budget, determine what expenses you'll share and which you'll keep separate, if any.
3. Test the waters. Before you take the plunge of completely combining your finances, you can test the waters with the "yours, mine and ours" approach. Open a joint account that you both contribute to for shared expenses such as rent, utilities and groceries, while maintaining your personal accounts for discretionary spending, such as personal debt, clothing or hobbies. If you choose this route, you'll need to decide how much each person will contribute: It can be an equal amount or a percentage of income. This approach is a great stepping stone to completely combining your finances, but some couples choose to keep their personal accounts for good.
Lastly, remember, what works for some couples may not be best for you. Only you and your significant other can decide if combining finances is the right decision.
Niccole Schreck is the rental experience expert for Rent.com, a free rental site that helps you find an affordable apartment and gives tips on how to move.
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