Managing money can be challenging enough on your own. You should take into consideration the following points before merging finances with your significant other.
Whether you have recently moved in with your significant other or you are a newlywed, you there’s a lot to decide about the best way you should handle your household finances. Figuring out how you will divide grocery shopping, laundry duties and other everyday responsibilities is a no-brainer compared to the momentous question of your finances.
Most people find that dealing with the financial issues that arise as a result of living with their partner can be quite bewildering. Your incomes becomes one and the debts pile together to form what could possibly be a colossal undertaking. In reality, discussing the finances can be one of the most difficult aspects of marriage.
If you are thinking about merging your finances, below you’ll find some of the pros and cons you’ll need to consider.
Pros
Teamwork
If you are on the same page, with your short and long term financial goals synced-up, and financial priorities fully-aligned, there is nothing more fulfilling than knowing that you are in this together through a complete financial union.
By merging all your liabilities and assets, you are both looking beyond your personal needs and wants, and ultimately making the commitment to prosper or fail – together, as a unit.
Simplicity
When you are living together or married, you and your significant other share many expenses together, like mortgage, household items, food, utilities, etc. (especially if you have established a budget). It makes a lot of sense to keep the cash that pays those bills in one account that you both fund. Additionally, merging your loan accounts, like credit cards, can help you secure other loans in the future.
And if you are both making timely, consistent payments, both of your credit scores will improve. If you had kept the credit account separate, only one of you would have the benefit of a higher score that could hurt you later when you apply for additional credit.
Taxes
Without a doubt, filing separate returns might be advantageous in some circumstances. (For instance, if one spouse has high medical bills and is able to meet the deduction threshold by considering only his/her income.)
However, for some couples, merging finances and joint filing will help save time, and can result in substantial savings. This is particularly true in cases where one spouse earns a higher income than the other. Since the joint tax filing brackets are double the married-filing-separately brackets, more of the income of the higher earning spouse will be taxed at a lower-rate. Normally, filing a joint-tax return is advantageous for couples that do not have excessive personal casualty losses, medical expenses or other itemized deductions. Talk to your accountant for more information about how you can minimize the tax bite.
Cons
Attitudes
Some couples might not agree on certain issues, such as creating a saving/spending plan, setting their retirement goals, or even the amount debt they should carry. After all, opposites really do attract, and in most relationships, there’s, in fact, a saver and a spender.
If your financial philosophies do not align, and you are merging your financial life with somebody who has very different habits, systems, expectations, goals and ideals, this can bring challenges and unwanted relationship conflict.
Dependence
If you have been managing your cash on your own for many years and have been to some extent successful in doing so (from selecting your 401K funds to planning a vacation to setting a budget) you might not want to give up your financial autonomy.
Certainly, there might be more book-keeping for you to do if you decide to keep your finances separate, and choose more of a mine/yours/ours account type arrangement (this is commonly referred to as the “three-pot system”), but it might ultimately give you the comfort and independence you desire.
Disentangling
Nobody plans to have an unsuccessful marriage, but life is full of surprises. You may be in la-la land now, but what will happen if the relationship fails in the long run? Bank accounts, joint mortgages and credit cards, can be quite hard to separate, even with a formal court ordered divorce decree.
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