How to Merge Your Finances With Your Partner’s

So you and your partner hit all the major relationship milestones – met the families, been plus-ones at weddings, survived a joint trip to IKEA – and you’re ready to take the next step: merging your money. Talking about finances is never easy, even for couples that have been together for decades, and that first comprehensive conversation is even more difficult. But whether you’re tying the knot or simply deepening a serious relationship, handling money with deliberateness and transparency is crucial. Here are six steps to a (relatively) painless money merge.

Frankly discuss your current situation, even the negative parts

According to a National Foundation for Credit Counseling survey, two in three soon-to-be newlyweds had negative attitudes about discussing money with their partner, and 5% saying that such a conversation would derail their marriage. Talking about huge debt burdens, poor credit, a history of maxing out credit cards, or unequal earnings can make people feel vulnerable, defensive, accusatory or just plain uncomfortable – but it still has to be done. Give your partner an honest look at your financial situation, including:

• Any debts you have, including minimum payments and payoff timeline

• Your credit history (this is a good time to check your credit report for inaccuracies)

• Your current budget and spending habits (Mint is a useful app for tracking over time)

• Your financial goals (like saving for retirement, getting debt-free, owning a home, or taking annual vacations)

• Any money concerns you have (like caring for an aging parent, wanting to take a lower-paying job, or feeling like you don’t know enough about investing)

Is it going to be an awkward conversation? You bet. But it’s also better to know now, so you can more accurately plan your life together.

Decide on money philosophies

The three main issues you’ll want to hash out are:

• Who handles the money? Would you rather simply know how much is in your bank account and let your partner do the behind-the-scenes work, or vice versa? You’ll definitely want a point person to ensure that bills are paid on time and so forth, but if one person wants to take a backseat in financial decision-making, that’s up to you both.

• Who pays for what? Chances are, you’re coming into the relationship with different financial situations – debt, net worth, current salary, and future earning potential. How do you want to divvy up your money? One option is for both partners to put their post-retirement contribution paychecks into a common pool that’s used for all expenses. Another is to set up “yours, mine and our” accounts, with part of your salary going into a joint account and part going into one that’s yours alone. You should also decide when to check in before you make a purchase – for example, anything you have to pay for in installments or anything over a certain dollar amount.

• How important is money to you? Your lifetime earnings are tied to your career choice, particularly the ones you make early on. You and your partner will likely face tradeoffs between money and other priorities – work-life balance, job satisfaction, relocation, graduate education, or being a homemaker, to name a few. Given your current financial situation and goals, how much are you willing to sacrifice in order to earn more? How much are you willing to let your partner sacrifice?

• How will you budget? Do you prefer a line-item budget that sets limits for everything from eating out to groceries? Or do you prefer using automatic transfers to take care of the necessities and not worrying about the rest? Decide together what budgeting should look like in your household.

• What are your money priorities and habits? Are you willing to spend a little less money now in order to contribute more to your savings? How do you define “needs” vs. “wants”? Does the idea of putting money in stocks make you uncomfortable? Would you rather save for retirement or pay off debt? Talking about your biases and priorities helps establish a common language and baseline understanding of where you’re coming from.

Talking about and settling on money philosophies will help you answer questions further down the road, whether it’s starting to save for a home or dealing with unexpected expenses.

Set a budget

Now that you know your partner’s approach to money and articulated your own, it’s time to actually make that budget. Start with how much you’re both earning, and account for must-pay expenses like rent, minimum payments on debt, food, and insurance. Then, decide how much you want to contribute towards your retirement (15-20% is a good benchmark) and other saving goals. Make sure your emergency fund is sufficient – if not, add that to your list of goals. Finally, look at the amount left over, and see if it’ll support your current lifestyle. If it doesn’t, where will you cut back? This is also a good time to talk about what happens if the budget doesn’t work. Do you want to set up alerts if your balance falls below a certain account? Do you want to use automatic transfers so that you’ve paid your key expenses before the money hits your bank account? What will you do if one  or both of you aren’t able to stick to the budget?

Make sure you’ve provided for yourself

No one signs up for a joint bank account or lease thinking their relationship will fail – but it happens. Even if you plan to completely combine your finances, make sure that you can take care of yourself for a few months. Set up a bank account and open a credit card in your name alone, and contribute enough from your salary to live for 3-6 months solo. This doesn’t mean you don’t love your partner, or that you don’t believe in your relationship – it’s an acknowledgement that we can’t predict everything that happens to us.

Do the paperwork

Now the fun part. Head over to the bank to open a joint checking account, apply for credit cards together, designate each other as beneficiaries on your 401(k)’s and insurance policies, and update your living wills. If you’re getting married, you’ll have to decide whether to file jointly, and if you’re changing your name, you’ll have to update all of your accounts and documents. Depending on the outcomes of steps 1 through 4, you may also want to set up a money tracker or budgeting app, open separate accounts for savings goals, and open an account in your name that doesn’t have inactivity fees. On the bright side, you’ve now gotten an understanding of your partner’s finances and priorities, made sure you’re self-sufficient, set a budget, and handled all the logistics – in other words, you’ve successfully merged your finances with your partner’s.

Check in every few months

Well, except for one last thing. You may feel quite differently about money allocation, budgets, and goals when they’re no longer theoretical. Reevaluate your joint finances 3-6 months down the line so that you can make course corrections. Not everything works perfectly on the first try, so expect to fine-tune your plans a bit. Merging your money with your partner’s is much more difficult than it sounds. You’re having uncomfortable conversations, possibly changing your lifestyle, and learning how to live with two sets of priorities instead of just one – and that’s before all the logistics. Still, it’s an important step towards building a happy and financially secure life together. Recommended reading:

• Buying a Home: How to Prepare 1, 3, 5 Years in Advance

• 7 Essential Personal Finance Tips for Your 30s

• Why You Need to Invest Aggressively in Your 20s