Getting engaged is a terrifying and exciting moment in life and we’ve already talked about the importance of being open with your partner during the lead up to the BIG proposal. Undoubtedly, once engaged, you’re about to face a flurry of challenging and exciting conversations that require open and honest communication. A big topic that we are in the process of figuring out is our approach to commingling our finances.
What Is Commingling Finances?
Commingling is when two or more people combine their current and future assets into one or multiple shared accounts. This can be done across all types of asset classes, whether it be savings, checking, estates or investments.
Why Is Commingling Finances Such A Big Deal?
Ever since I can remember, especially since becoming financially independent, every waking thought revolved around how I can improve my personal financial situation. Every decision I have made up to this point has been made with this goal in mind. Moving for a new job, going to grad school, even eating eggs for dinner; my internal calculation always involved whether this would forward my financial situation and set me up for success in the future.
Fast forward to the moment I got on one knee and asked her to marry me, everything turned upside down. Now, all of a sudden, all of my decisions impact both of us and an immediate shift in perspective is required. Now, my decisions need to improve our combined future and help set us up to achieve our combined goals as a couple.
If it isn’t already painfully clear, commingling your future is a big deal and commingling your finances is a huge part of setting the foundation for this future.
What Is Our Approach To Commingling Our Finances?
Let’s start this with two disclaimers. 1) We previously began commingling our finances, but have not yet fully commingled. So, you’re along this ride with us and we will update this post as we go through this process. 2) Every couple’s personal finances are different. We will share why we took our specific approach but be sure to have open conversations with your significant other and determine the best approach for yourselves.
Start With An Open and Honest Conversation
The first, and most critical step in commingling our finances was to lay it all out on the table. The good, the bad, and the ugly. It is rare that two people, at potentially different stages of life with a unique life journey, will have the exact same financial situation. One person may be a super-saver and is sitting on a nice chunk of hard-earned money while their significant other may be buried under $100,000 in student loan debt. One person may be further in their career and already has a well-developed 401K while the other may have never worked for a company that offered one. Regardless of your personal financial situation, it is just a part of your whole and not a complete reflection on your character, intelligence or drive.
Grab a piece of paper, a pencil and a tall glass of wine. Now layout each of your assets, investments, debt and known future expenses and share with your partner. This is a very scary thing to do because you are making yourself vulnerable. You are hoping that when your financial underbelly is laid out for your partner to see, they will still accept you. While frightening, it is also extremely gratifying to share this genuine moment with your partner and usually leads to a deeper bond. While it may sound corny, true love will help conquer any financial challenges you may be bringing to the relationship.
Looking ahead, we currently both plan to keep working even when we start a family. This is a personal decision for us, but we hope this will help us achieve our future financial goals quicker. Given two income streams, it is important to determine how much (if not all) of our income should be commingled. Note: this is an important conversation to have even if there is only one income stream in the relationship.
Setup High-Yield Savings Accounts
The second step we’ve taken in commingling our finances is to set up high-yield savings accounts to save for our wedding. As we mentioned in our budget hacks for brides and tips to save on wedding decorations lessons, weddings are expensive! That is why our first action was to set our wedding budget and begin saving (together) to put on the type of wedding we’ve dreamt of. We chose to save our money in a high-yield savings account to ensure we are putting our money to work by gaining 2.1% interest, but still being readily accessible to pay vendors and contracts as needed.
Agree On A Commingling Approach For The Future
There are an unlimited number of ways to commingle your finances depending on your preferences. For simplicity’s sake, we broke it down to the three scenarios that we considered.
Separate, But Equal Approach
The way we currently structure our finances as a couple is separate, but equal. Other than a joint high-yield savings account, we maintain our own personal accounts and split the burden of our monthly costs. We take turns picking up the check across everyday expenditures and then will Venmo or Zelle each other money to split the costs.
For some couples, this may be their comfort zone and downright work. So why change what isn’t broken. Personally, we think this would be challenging to keep up for the rest of our lives and could potentially require more headaches than benefits. Additionally, a high level of communication will be required to ensure each other have a complete picture of overall finances.
All-In Approach
Another approach to commingling finances is the All-In Approach. In this scenario, a couple will contribute all of their finances to single or multiple joint accounts, where each will have equal access to the funds. For us, this approach posed two main challenges: 1) it could make budgeting more difficult if we don’t have specific accounts strategically applied to certain goals or expenses and 2) we worried that resentment could build if we wanted to spend money on personal purchases, especially if one of us contributes a larger portion of the combined funds.
Ratios Approach
We are in the camp that the majority of our income should be commingled to support our costs, investments, and savings. This leaves a smaller portion to be available for each of us to keep as discretionary spending for the personal things we want. After all, we each work hard and should have the autonomy to make purchases that we want, when we want.
We broke down the ratios of how we will break up our take home funds as shown below:
Fixed and Variable Costs (Commingled) – 50%
This will cover all fixed costs such as housing, car, and insurance payments. Variable costs will cover food and beverage, entertainment, family-related costs, etc. Dependent on your lifestyle and owned assets, this will vary widely for each couple. Work as a couple to decrease your costs as low as possible so you can bolster the other categories.
Investments (Commingled) – 20%
With our goal to #Retire50, we want to bolster our retirement savings as much as possible. As we look at the investment vehicles available to us (401K, IRAs, Stock Market, etc.), we need to look at our take-home income holistically to ensure we are maximizing our long-term investments.
Ideally, we will separate our stock market investments into two camps: 1) investments that we agree on and 2) investments that we differ on. Our thinking here is that we will bolster the investments that we are both comfortable with and set some money aside for us to invest in strategies that more align to our personal comfort in risk. We want to do this because we have very different levels of risk aversion and it will help diversify our investment portfolio.
Goal Savings (Commingled) – 15%
This will cover any short-term goals that are important to our overall happiness. This can be saving for our first home, an international trip, or a new car. Set specific and attainable goals, then determine how to best save for those goals.
Personal (Not Commingled) – 15%
It is important to maintain some autonomy as an individual, even if the majority of our focus is on a combined future. It is disorienting to go from an individualistic to a symbiotic mindset and this portion of our income helps make that transition easier. Plus, sometimes we just want a new watch or dress.
Key Takeaways
This is a monumental moment in your relationship and potentially a challenging conversation to have.
Here are the key takeaways to remember:
- Have an open and honest conversation about finances
- Don’t judge your significant other on their personal finances
- Determine the best approach for commingling your finances (if at all)
- Speak to a tax accountant to better understand the tax implications of commingling your finances
In a study of 1,000 married couples, 65% of couples who pooled their bank accounts and financial resources were reportedly happier in their relationship.1 Stats aside, still unsure if you and your significant other want to commingle your finances? Here is a useful article laying out the pros and cons of commingling finances.
Check out additional topics to make personal finance SLIGHTLY EDUCATIONAL on our Personal Finance page.
Keep tabs on all of our wedding challenges and learnings as we near our October 2020 wedding at our Getting Married course page.
1. Phys.org. “Joint bank accounts make for happier couples.” Accessed Jan. 27, 2020.
