The New Year brings with it promises of a better tomorrow, and if you and your significant other have decided on spending your life together, it’s time to pop the question. No, not that question. The one where you ask each other if you should combine your financials accounts now that you’re sharing a household.
There is no one-size-fits-all solution for how couples should manage their finances. Some couples combine everything (savings and checking accounts, loans, investments and more), while others opt to keep their finances separate. We all have our own way of managing money, and the key point for couples is to find a system that works for both of them.
Joint Account Benefits
There are several advantages of combining your financial accounts. First, it simplifies budgeting as well as the bill-paying process. It also makes everything shared and open for both to see. And it solidifies the commitment of unity by taking what is “yours” and “mine” and making it “ours”.
Sharing accounts will allow you to reduce the number of financial accounts needed, making it easier to track your money. This, in turn, can help avoid unnecessary account fees that banks typically charge. It also eliminates the need for split purchases because all of the funds are coming from a single account.
Reasons to Keep Separate Bank Accounts
There are equally good reasons, however, to keep financial accounts separate. These include situations where one partner has a low credit score, entered into the relationship with a lot more financial debt than the other or when one partner is not comfortable with the spending habits of the other. The latter could happen when couples have significantly different financial habits.
For the credit score example, the reason to keep finances separate is because a partner with a low credit score might negatively impact the borrowing power of the other if they apply for a joint loan. This negativity may result in higher interest rates, lower loan limits and possibly make it harder to qualify for a loan.
Advantages of a Hybrid Strategy
For some couples, settling on a hybrid approach for money management works best. Each person maintains a separate account while both establish a new joint account. Each then contributes a mutually agreed-upon amount to the joint account regularly such as each month or each payday.
The joint account is then used to pay shared expenses such as rent or mortgage, utilities and other household bills. Shared accounts work by reducing the confusion surrounding who pays for what and when. If the cost is shared, then it comes from the joint account.
Financial Goal Setting
Once you’ve identified how you will manage your finances as a couple, the next steps are to create financial goals and a spending plan. These are important because they help prepare you for milestones such as buying a home, starting a family, career changes, living debt-free and planning for retirement.
Creating a spending plan is essential because it outlines how you will tackle your expenses and work toward your mutual and individual goals. Remember, the key to a successful financial partnership is communication and compromise. Identify what works best for both of you through open, honest conversation. Together, you can chart your path together toward your financial goals.
When it comes time to borrow money for a mortgage, a home improvement project or another major expense, couples with good credit may be eligible for better interest rates and a larger loan amount because the loan responsibility is spread over two people rather than one.
Let’s Get Started
If you’re wondering how to begin that money conversation with a loved one, read this blog: When to Have That Money Talk with Your Partner. Travis Credit Union also has tools such as our MyInsight goal planner that can help you organize your goals by importance, set goals for specific amounts, assign accounts to your goals and estimate how long it will take you to achieve each goal.
If you and your partner are considering a loan, learn more about how understanding smart borrowing strategies is another key toward financial wellness. Rest assured, Travis has the resources you need to ensure that you know how to borrow better and improve your financial wellness.