When you transition to living together with someone for the first time figuring out how to structure finances can be challenging. It’s important to talk and decide as a couple together how to best handle finances.
The first thing to do is to figure out who pays for what and how much. From there you can figure out how to structure the bank accounts. You’ll have to talk with your partner to decide which option is best for you.
With the below examples we’ll assume the couple has a mortgage bill of $1,000 and a power bill of $100 for a total of $1,100. In the Money Flow section below there’s account setup diagrams, and each bill sharing scenario will be labeled with Account Setup options that make sense for it.
50/50 (Account Setup 1 or 2)
With an equal split of the bills each partner contributes 50% of the bills. In this example each person would contribute $1,100 / 2 = $550.
Proportional to Income (Account Setup 1 or 2)
With income proportional bill paying, the bills would be paid according to income. For example, if Person A made $70k and Person B made $30k, Person A would pay 70% of the bills and Person B would pay 30% of the bills. With the numbers above Person A would pay $1,100 * .7 = $770 and Person B would pay $1,100 * .3 = $330. This option can be better when there’s a large income disparity and the couple wants to keep accounts separate.
One person pays all bills (Account setup 1 or 2)
When one person earns substantially more than the other they may want to pay all the bills. One person would pay $1,100 for the bills and the other would pay $0. This option could make sense if one person brings in most of the income or one partner contributes more non-financially to the relationship.
Each person pays different bills (Account setup 1 or 2)
Sometimes couples like to split different bills. For example, one person might pay the $1,000 mortgage and the other would pay the $100 power bill. This can make it easier to split since instead of transferring money between accounts each person simply has a responsibility to pay certain bills.
Joint account pays all bills (Account setup 3 or 4)
For couples that have a shared joint account, all bills can be paid through the joint account. The couples can then decide if they want to put both of their income into the joint account or if they want to put it in a personal account and make regular transfers to the joint account. With these bills the couple would pay their $1,100 in bills out of the joint account.
Once you’ve figured out how you’ll pay for things, it’s important to write out a couples budget with your income and expenses. It makes it easier to write out a budget if you start tracking your expenses first.
Budgeting Fun Money
When budgeting instead of itemizing fun expenses, e.g. clothes, cosmetics, gadgets, tools, etc. one way to simplify this is to have a discretionary budget for each person. For example, if the discretionary budget is $300/mo each then each person is allocated $300/mo to spend on whatever they like without seeking approval from the other partner. Money Flow Account Setup 4 above shows an example of this.
Tracking expenses lets you know what you spend your money on. There’s many popular apps/websites to do this and you should really try a few to see what works best for you. A few common options are:
Here’s 4 possible options for different ways that accounts can be shared as a couple.
Account Setup 1: Personal Accounts Only (Income into Personal)
The opposite of setup 1, account setup 2 has complete separation between accounts. Each person can have their own checking account and credit card. Bills can either be paid directly by each person, or one person can pay the bills and have the other person reimburse them for some of the bills.
Account Setup 2: Shared and Personal Accounts (Income into Personal)
This is a combination approach where the couple has joint and personal accounts. This makes it easier to contribute equal amounts and pay the bills out of a joint account. Each person receives their income in their personal accounts and then the common bills are paid out of the joint.
Account Setup 3: Shared Bank Account and Credit Card (Income into Joint)
For complete sharing, you can open a Joint Checking account and share a credit card linked to it. This allows both people to deposit their income into a single account and bills to be paid out of the same account. For the credit card you can either have one person set up the account with an additional authorized user or have a joint credit card.
This is best for married couples, requires a high degree of trust, and budgeting/expense tracking is key here.
Account Setup 4: Shared and Personal Accounts (Income into Joint)
This option is for couples that want to share everything equally but still have the independence of having their own accounts. Common bills are paid out of the joint account but each person receives a regular “allowance” that can be set up to be automated and recurring. This allows each person to have fun money.
Layering on Savings/Investments
Investments/savings can be layered on to any of the account setup options. Here’s an example of Account Setup 4 Savings and Investment accounts. As you can see things can get complicated pretty quickly so you’ll have to decide how much complexity you want to accomplish your goals as a couple.
Once you decide how to structure your accounts, diagramming them out like above will help you know exactly how everything is set up.
Automation is Key
Once you’ve figured out your bills, automating everything streamlines your finances and reduces the amount of work you have to do to manage them. Here’s a few things that can be automated:
- Auto depositing paychecks into checking account
- Setting up automated recurring transfers between accounts
- Paying bills (internet, subscriptions, etc) via credit card
- Paying mortgage via checking account linking
- Auto investing through a company 401k or HSA plan from your paycheck
- Automatically transferring money from checking to savings/investment accounts
- Automatically investing money in mutual funds once it lands in an investment account