If you are reading this article about joint finances and have just gotten married, then first of all – congratulations! Money is a hugely important topic in any relationship, and this article aims to help you approach this subject more clearly to find a solution which works for you.
As professional financial advisers here at WMM, we see many clients with a range of financial arrangements and ways of managing money with their spouse or partner. Here is just a brief snapshot of this diversity:
● In one couple, one person (i.e. the breadwinner) might hold the majority of the couple’s bank accounts (in their own name). There might not even be a shared bank account between the two people. The other person (i.e. the home-maker) might not even have their own account, but simply keep money in a purse/wallet, which they can spend and top up from the other person when they need to. This is arguably a more “traditional” model of managing a couple’s finances, and it works for some people.
● On the other side of the spectrum, there are couples where there is no joint bank account at all. Rather, each person has their own account (or set of accounts) in their own name. If this couple lives together, then quite often the bills will be “split” between them. Perhaps one person pays for the mortgage, for instance, whilst the other covers the food and other household bills. This is often labelled a more “millennial” or “modern” approach to couple’s finances, and again, it works for certain couples.
Other couples adopt a “hybrid” approach. Some choose to set up a joint account when they move in together and then shut down their individual accounts when all of their money is merged. Others open a joint account but keep separate bank accounts. In this case, the former could be used to cover the couple’s household bills, whilst the latter can be used for each person’s leisure spending.
So, which model is best? There isn’t a universal answer to this question, but there are certain advantages and disadvantages to merging your finances which you should be aware of. We’ll be covering some of those below. Please note that this content is for information and inspiration purposes only, and should not be taken as financial advice.
Pros of Merging Finances
● A sense of “togetherness”. Bringing yours and your spouse’s/partner’s money together into one account is arguably a good way to show commitment and trust towards one another. It also can create a stronger sense of “being a team” in life together, using your combined resources to solve joint financial problems.
● Even playing field. If there is a wide income disparity between both of you, then bringing your money together can allow both of you to live more comfortably – rather than one of you struggling to keep up with the other.
● Joint liability management. If you live together, then you will share various expenses to do with household costs (e.g. bills, utilities and mortgage). You might also be jointly responsible for children, which brings other expenses. Managing these costs from a joint bank account can simplify paying for these things.
● Easy access during a tragedy. It isn’t nice to think about, but if one person in the couple were to die then having money in a shared account makes it easier for the surviving partner/spouse to access funds which they might urgently need (e.g. to help cover funeral costs).
Cons of Merging Finances
● Separation. Again, this isn’t a nice scenario to think about – but it’s important. Should you and your partner/spouse one day split up, then having all of your money in one joint account can make things difficult. If you do not have your own bank account, then you will need to open one to eventually move money across into it. In some sad cases, one person has withdrawn all of the money out of spite – leaving the other person in a perilous financial position. These dangers can be mitigated somewhat if both people keep an individual bank account with some backup savings in them. In this case, however, it’s important to consider how you want to approach this topic with your spouse/partner due to its sensitivity.
● Financial vulnerability. If you share money with your spouse/partner, then their financial decisions can sometimes have a greater impact on you. For instance, if one person is a big “spender” and the other a “saver”, then this can create tension or arguments as both people watch the other person’s spending behaviour on the joint account.
● Lost independence. When you share an account, then both of you can see every purchase and withdrawal that each person makes. This can create a sense of “losing control” of your personal spending decisions since you might feel that you have to justify your spending more often to the other person.
On balance, we would argue that for many people it is a good idea to consider opening a joint account once your relationship has reached a high degree of trust and commitment.
It can particularly make sense for lots of couples when they move in together and have to manage shared expenses regularly. In many cases, it can be a good idea for such couples to have a joint account for these purposes, but keep individual accounts for personal and leisure spending.
However, each couple is different in their financial goals and circumstances and it’s important, therefore, to not be too prescriptive. There are indeed cases where it makes little sense for a joint account to be opened, and that’s fine (e.g. certain couples which do not live together).