Combining your finances can be stressful, but having a plan makes it less so.
By combining our finances early, my wife and I were able to focus on long-term goals.
Envelope budgeting can help you reach those long-term goals more easily.
A few months before the wedding, one of my groomsmen asked me if I had thought about how my fiancée and I would combine finances. It sparked an interesting conversation, as he and I then realized we had very different views on the best way to manage money as a couple.
Of course, every relationship is different and there is no silver bullet for reducing money-related stress within a partnership. However, we consider ourselves lucky to have found a system that works well for us early on. After all, a study found that financial problems were cited as a cause for the breakdown of relationships by at least one of the partners in 56% of divorced couples — a sobering statistic to be sure.
In this article, I’ll share some of the personal finance practices that worked well for my wife and me: proactive budgeting, allocating every dollar in our budget to a goal, and speaking openly and often about our financial priorities.
Here’s what worked for us:
We quickly decided to join our finances.
My wife and I met in college. After a few months of dating, we both knew we were in the relationship for the long haul and our approach to finances changed radically. Even before we moved in together, we made it a point to foster a philosophy of “what’s mine is yours.”
One common way couples manage their finances is to set up a joint account from which all bills are paid, and each partner keeps a separate account for “mine” and “your” spending. In contrast, we approached budgeting in almost the exact opposite way— every expense was “ours,” and we also set our budgeting goals together. One month I might have needed a suit for a job interview and another month she might have needed some repairs done to her car. Either way, we considered both of these expenses as shared, and didn’t keep track of who paid for what.
Of course, this approach might have complicated things if our relationship had not turned out as well as it had. If we had broken up a few months into our relationship, one of us may have felt cheated by the fact that more expenses were paid for by their account.
However, I credit our approach to finances as part of the reason why our relationship was so solid in the first place. I don’t think my wife and I have ever had an argument about our finances, and by setting common goals and budgets early on, we were able to avoid one of the largest relationship stressors.
3 Tips For Managing Joint Finances
Our strategy for managing finances has remained mostly the same since our college days. For budgeting, we use the envelope system, which relies on giving all of your cash a purpose. Every cent that flows into one of our accounts is earmarked for a specific need.
One very tedious way of following this technique is to keep all your money in cash, and physically store it inside separately labelled envelopes (hence the name). If the grocery envelope has $100 on it, then that’s your budget for groceries until you have more cash inflow to distribute among your envelopes. Of course, you can simplify this system by having software track your cash digitally.
1. Develop a proactive vs. reactive budget.
First, our budget is proactive rather than reactive. Many popular budgeting apps aggregate your transactions and let you see how much money was already spent on what, but they don’t actually help you plan out your future goals. We use the app YNAB, though a simple spreadsheet could get you most of the way there.
Keeping track of your spending in such detail may sound taxing, but it has many benefits. By giving every dollar a job, we know what our spending will look like ahead of time, and we can focus on saving for the long-term.
2. Adopt the “envelope” system.
Secondly, the envelope system helps you smooth out seasonal spending patterns over time. For example, we have a dedicated category for Christmas gifts to which we allocate a few dollars every month. Though buying holiday gifts may not seem top of mind in February, allocating to that category year round means that once December rolls around, we have a full “digital envelope” of cash solely dedicated to buying gifts.
Though the physical spending may vary month-to-month, the amount we contribute to each category is very steady. I think of this as almost like a self-sponsored credit card, where we have low monthly payments every month, instead of a large payment all at once. Since we keep most of our cash in low-risk investment products such as Smart Saver, it’s actually like a credit card that pays its interest payments to us!
3. Speak openly and frequently about future priorities.
Thirdly, taking a proactive approach to budgeting means that my wife and I regularly have conversations about our hopes and priorities for our finances. A budget that summarizes what you spent last month will do very little to make you think about your future goals, but our budget has categories for things like future vacations, a home-purchase, and school fees for children we don’t even have yet.
Strange as it sounds, I think we’ve had some of the most enriching conversations of our relationship while doing our budgeting.
There is no one-size-fits all solution for how to manage finances as a couple. Indeed, even initiating the conversation about managing money can be daunting. Yet, since communication is key, I remain a firm believer that early, open conversations about what works best for you and your partner are not only critical for the relationship but also an incredible opportunity to work towards your dreams, together.
Whether you choose a proactive budget or a reactive budget, whether you begin merging your finances sooner or later (or at all), and whether you review and adjust your approach often or occasionally, take the fear out of talking money.
More than anything, budgeting together is an opportunity to discuss what is most important to you—a chance to start on a path towards goals for which you are excited to reach together. Some might say those are the very best parts of a relationship.
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