Getting married or moving in together implies that you're ready to share your life and living space with another person. It also usually means sharing finances.
Merging your income with your partner's is by far one of the fastest ways to upgrade your lifestyle. If you were struggling to make ends meet on your own, you might finally have a chance to get ahead — or at least catch up. But while combining your incomes and sharing finances has its benefits, success is all in how you approach the plan.
Every couple has to come up with a strategy that works for them. There are no hard-and-fast rules, and a system that works well for one couple might not work for another. To give yourself a fighting chance of striking the right balance, here are six things you should never do when sharing finances.
1. Don't Think an Even Split Is Always the Answer
Some people think a 50/50 split is the most reasonable and simplest way to share finances, like when couples open a joint account and then contribute equal amounts toward their shared expenses. Sounds pretty fair, right? Except 50/50 isn't also an equitable solution, and it really depends on how much you earn in comparison to your partner.
An even-split might work if you and your partner earn roughly the same salary. But if one person earns considerably more than the other, an even-split can create an unfair balance, where one has a lot of disposable income, and the other can't keep his or her head above water. Before you can share finances, you have to discuss what's coming in and what's going out (including what each person spends on personal expenses). With everything on the table and all your expenses written down, you might conclude as a couple that a 50/50 split isn't realistic and choose a different approach, perhaps a 60/40 split or another breakdown that works for you.
2. Don't Lie About How Much You Owe
You need to be perfectly honest about how much you owe before sharing finances; this isn't the time to be embarrassed about your credit card debt. Coming up with a system that works requires that both of you are upfront about personal expenses. Sugarcoating your debt and saying you owe less than you actually do can throw off the entire household. And if you're hiding monthly payments, your partner might eventually question where your extra money goes.
Furthermore, lying about debt can destroy the financial trust in the relationship. In my opinion this is something that should be discussed when the relationship gets serious — not just when you've decided to open a joint account. If you're talking engagement, you should also be talking about your financial past — bottom line. Not the most romantic of subjects, granted, but still necessary.
3. Don't Lie About How Much You Earn
Understating how much you earn can also break the financial trust between you and your partner just like lying about how much you owe. If you're splitting expenses based on your incomes, don't lie and say you earn less than you do to avoid paying your fair share of the expenses. You might be able to get away with this lie for a bit, but your partner will most likely uncover the deceit. The truth will eventually come out if you apply for a mortgage together and have to disclose your accurate income, or if you decide to file a joint tax return down the road.
4. Don't Give One Person Control of the Money
It doesn't matter who's better with money, it's important for both of you to have an active role in managing shared finances. Putting one person in complete control of the money is dangerous and can trigger a financial imbalance. If it's easier for one person to write all the checks, fine. Just make sure you both have an accurate picture of the finances, and no one should be left in the dark. Don't wait until your credit score tanks to question whether your partner is making on-time payments. Both of you need access to the checkbooks and online accounts so you always know what's going on with your money.
5. Don't Forget to Leave a Buffer
Dollar signs probably will pop into your head after moving in together and combining your incomes. But just because you now have a combined household income of $70,000 doesn't mean you should spend $70,000 a year. Whether you're paying your own way or sharing expenses, never live at your max. Instead, think about how you can live off half or 3/4 of your combined income and plan to save the rest. This can help you build a sizable cash cushion for yourselves, and you wouldn't have to worry about living paycheck-to-paycheck.
Since money is one of the biggest causes of arguments in a relationship, this strategy can help keep those at bay if both of you are on the same page and committed to your partnership's financial success.
6. Don't Immediately Share Credit Cards
Sharing finances doesn't mean you have to share everything — at least not immediately. You also need to protect yourself financially. So before applying for a credit card together or adding your partner's name to your credit card, seriously consider his or her shopping habits. When you share a credit card with your partner, you're just as responsible for debt he or she incurs. And if you let your partner borrow your credit card, you're ultimately responsible for any and all charges on this account. Sharing a credit card isn't the worst thing in the world, just make sure you're both willing to take responsibility for the balance, regardless of who charges what.