The very first step that Jesse and I took to gain control of our money was to partially combine our finances. According to Dave Ramsey, you should never ever do this until you get married. However, he would also probably say that you shouldn’t live together before marriage. I tend to disagree. So shortly after we started renting a house together in 2012, we opened a joint checking account. We totaled up our rent and monthly bills, and each contributed half of our costs into this account each month. We also chose to keep our separate personal checking accounts (another choice that Dave would disagree with, he says once you’re married, all funds should be combined). Some people have found that combining everything is the best option for them. Some interesting thoughts on that option, here. While I can see the potential benefits to the “what’s mine is yours” philosophy, we’ve found that having personal spending accounts works well for us. This way, we contribute equally to be sure our living expenses are covered, as well as the shared savings funds that we’ve set up. We pay our individual student loans separately out of our personal accounts. Beyond that, we both have our own hard-earned spending money to do with whatever we please. Sometimes I will buy new clothes or get a haircut and color that costs $140, and Jesse may splurge on a video game or upgrade some parts on his bike. I should also say that we communicate very well, so it’s not like we are buying things secretly and avoiding financial transparency. We have just found that it works for us to have personal accounts that we each have control over, we respect each other and don’t have to question the other’s purchases.
For the majority of our money, however, we share accounts and financial goals. Here are some of the things we’ve done with our shared finances that I would recommend for anyone in a long-term relationship:
1. Maintain one joint checking account that will cover your standard monthly housing bills. For us, this includes our mortgage, gas & power bill, water, trash, and tv/internet. We figured an average monthly total, since our gas and electric varies depending on the season. We split the total monthly amount and setup an auto-deposit from each of our accounts into our shared checking that pulls the last week of each month so that the necessary balance is available on the 1st.
2. Join a bank or credit union that allows you to open multiple accounts, deposit and transfer money online. We started our shared accounts with ING Direct, which is now Capital One 360. Their online-only model is extremely handy, as we are able to do everything online, including mobile check deposits. It’s a strange concept when you start to think about the fact that we manage money in a digital world, without ever stepping foot inside an actual brick and mortar bank or physically touching our cash. However, we love that we are able to open as many savings accounts as we want, deposit and transfer money online, and setup automatic savings plans. Which brings us to#3:
3. Create savings accounts for any sinking funds that you have. A sinking fund is savings set aside for a specific purpose. It’s a good idea to set these up for expenses that do not occur monthly, but you have an idea of when you will need the funds and how much you need to plan for the expense. We have created sinking funds for our vehicles, groceries (SAM’s Club), travel, Reagan’s expenses, phones, Christmas gifts, and monthly spending. Here’s a look at what is planned for each:
- Car Account: We both contribute our separate monthly car payment amount. This is one expense that we keep separate; we each pay for our respective cars. In addition to our payments, we each contribute half of our monthly insurance amount. Finally, we contribute a calculated amount each month to cover our yearly registration fees. We based this amount on the cost of auto registration when we both had (almost) new cars. Because registration is based on vehicle value and cars depreciate very quickly, our yearly registration fees have decreased. However, we continue to contribute the same amount we originally figured, so we are effectively over-paying into this account which builds some additional savings. We have been able to use this excess to cover (at least partially) things like new tires or service for either of our vehicles when we need it.
- SAM’s Club: We are a bit type A about organizing our money. Therefore, while it may make us super-nerds, it shouldn’t come as a surprise that we setup a savings account just to cover our groceries. We make a trip to SAM’s about every 3 months. We each contribute $50/month into our SAM’s account, so that we have $300 to spend each trip. NOTE: although we haven’t done it yet, we need to up this to $350 every 3 months. Our bill rings up to around $350, fairly consistently. So we always end up cash-flowing the overage if we don’t have enough in our sinking fund to cover it. Still, it’s a lot less painful to fork over $25 or $30 each to cover a huge stock of groceries, than it is to pay $175 each out of pocket. With our sinking fund in place, we don’t even think about our automatic monthly contributions, so it almost feels like our SAM’s trips are free. Makes these trips a lot more fun and satisfying.
- Travel/Events: Although this expense is a little more sporadic than some, we save a little bit each month to help ourselves cover things like road trips to see friends and family, travel for races, or ski trips. This account usually builds to a couple hundred dollars over a few months, and we always discuss and agree on when we should use the savings to cover things like fuel, hotels, food or spending on trips.
- Reagan (Pet Fund): This started out with the idea of covering dog food and yearly check-ups, primarily. Recently with her anxiety, Reagan has become quite a bit more expensive than she was. We now have more vet expenses and medication to cover, so our sinking fund needs an adjustment.
- Phones: In addition to splitting our monthly cell phone bill, we also use this account to self-insure our phones. Meaning, rather than paying Verizon $20 a month to insure our phones, we pay ourselves that amount into this savings account. Assuming we don’t have to replace a phone prior to our contract running out, we will have $480 saved for new phones when our contracts are up.
- Christmas: This is our newest savings account. Christmas is always a bit of a strain on our personal accounts, and it takes us a month or two to recover. So this year, we estimated a total amount that we wanted to save for gifts, and split it into 12 monthly payments. Come Christmas shopping time, we should be much more at ease knowing that we have pre-saved to cover our gift expenses.
- Monthly Fun Money: This is not exactly a sinking fund, since we use it every month. However, we set it up in order to pre-pay our shared spending for the month. It directly correlates to the spending budgets that we set for ourselves and is used to pay off our credit card each month. We use our credit card for shared spending (gas, fast food, restaurants, alcohol and bars, miscellaneous groceries between SAM’s trips, home shopping, and races or gym membership). This helps us earn credit card points that we use toward flights and hotels, but we also try to stick to our budgets so that we have enough money in our savings each month to cover our bill without ever paying interest.
4. Create savings accounts for long-term goals. We have used savings accounts for our wedding, honeymoon, and are still saving for a second bathroom. Capital One 360 allows you to setup automatic savings plans where you set a goal amount and end date, and it will tell you how much to save if you want to contribute on a monthly, bi-weekly, or weekly basis. Or, you can play around with the amount that you want to contribute, and it will instantly tell you how long it will take to reach your goal.
5. Setup automatic transfers and withdrawal for bills. This is crucial when you have as many accounts as we do (currently we have 12 shared accounts). To be honest, our monthly auto-transfers have gotten a little bit out of control with this many accounts, since we have each individual account contribution coming out of our personal accounts on a monthly basis. So on the 1st of each month, I have 10 auto-transactions going from my personal checking into our various shared accounts. While we will likely maintain the same number of sinking funds and goals, we are planning to re-organize how we do these transfers to minimize transactions. It may be that we total all of our monthly contributions and setup a single monthly transaction from each of our accounts into a shared account, and then we setup automatic savings pulls from there. Our housing bills are all setup to automatically withdraw from our shared checking. As long as we have planned our monthly contributions correctly and make adjustments as necessary, we don’t have to think about being sure those bills are paid on time or having enough money in the account.
As you can see, we have a lot going on when it comes to our shared accounts. Setting these up has been a process, which we periodically re-visit and adjust. Every couple will have unique situations and you will have to decide what works and what doesn’t work for you and your spouse. While our account structure is working for the most part, here are a few things that we’d like to modify in the near future:
-Simplify our auto-transfers to make our monthly expenses more clear and minimize transactions
-Re-visit our shared living and spending budgets and make necessary adjustments
-Create a budget system for our personal spending habits
-Start contributing to an emergency fund
So that’s what is working for us currently, but it’s always a work in progress. I’d love to hear about what works for you, and why you have or have not decided to combine finances with your spouse!