When making the decision about whether you should move in with a significant other, you need to have a conversation about the finances of it all together and before you both go all-in. I know talking about money isn’t sexy, and sometimes it’s incredibly stressful, but these conversations will help you navigate this new stage in your relationship. There are several schools of thought about finances and your significant other, and we’ll list them as follows:
- What’s mine is yours and what’s yours is mine approach.
- What’s mine is mine and what’s yours is yours approach.
- What’s mine is ours and what’s yours is ours approach.
Obviously, I am not just talking about a relationship where you are married to the person you are with before moving in. I’m talking about the couples who are moving in together to take that next big step in the relationship and who are striving to work together and love one another more every day. Here are the approaches, and what’s best is that you have those financial questions and conversations with each other.
What’s mine is yours and what’s yours is mine approach.
In this approach, you view all monthly income as one pot of money for everything related to your household and as individuals. Your salary and your partner’s salaries are irrelevant for this purpose because you use the same accounts for everything. From paying the household bills to paying down individual debts, from buying groceries for the house or carryout for yourself, and anytime you spend an extra dollar or twenty, your partner will know about it. There are no financial secrets whatsoever. This can be good for the sake of transparency, for building trust with one another, and for holding each other accountable. On the other hand, this can be not-so-good when one partner isn’t great with their money, or for securing your financial future as an individual, and in the event of a breakup—managing those joint-finances just gets really messy.
I know, I know, you shouldn’t move in with someone unless you can see yourself spending a future together; couples who have been married for decades split and long-term relationships can go sour. Not maintaining at least some sense of financial independence puts yourself in danger in a worst case scenario situation. You could be in a world of hurt if your partner and you split and they decide to take everything and freeze your access (especially if they’re the primary owners on the accounts). Protect yourself from worst case scenario and maintain at least one separate savings account, and you both should have your own. From a historical perspective, this has overwhelmingly had an impact on women, so to my fellow women…protect yourselves.
What’s mine is mine and what’s yours is yours approach.
In this approach, you have your own savings and checking accounts, and your partner has their own. Your salary only matters to you and your partner’s salary only matters to them. That doesn’t mean you don’t care about your partner’s income, it means that you only have to worry about paying your portion of the bills–not theirs. This method means that you and your significant other are splitting your expenses 50/50. If you’ve ever lived with a non-significant other, this is how you’ve probably handled your living expenses—and that’s totally fair. The only time a roommate has probably paid a little more in the monthly expenses (namely rent) is if they’ve had the bigger bedroom. What makes living with a partner different from a roommate is that you’re sharing that larger room.
From a financial perspective, splitting the costs down the middle may not be super efficient. For example, say that your partner makes $3k per month and you make $2k per month. When your household living expenses are $3,000 per month, each person pays $1,500. Your partner now has $1,500 remaining for the month and you only have $500. We’ll pretend there aren’t any personal expenses, even though you and your partner likely have your own set of bills like student loan payments and car insurance to pay.
This approach is more likely to put a strain on the relationship because the lower income earner doesn’t exactly have the same resources as the higher income earner to do things as a couple. The high income earner has 3 times the amount of money after expenses to save, invest, and spend, and that doesn’t leave the low-earner money to split their remaining income among multiple financial priorities. The low income earner may feel like they have to live above their means to keep up with the lifestyle of their partner–effectively spending more money than they have and landing themselves (and your household) in debt.
What’s mine is ours and what’s yours is ours approach.
This one is my go-to approach personally. With this approach, you and your partner both maintain your own checking and savings accounts. You may have a shared account where you place your share of the bills so that whomever is responsible for ensuring the payments arrive on time has the ability to pay for stuff. With this approach, you’re not nickel and diming each other for every purchase, sometimes they will get all the groceries, and sometimes you will. With those expected living expenses, like rent and utilities–you pay based on a percentage of your income. Here, you divide the lower income earner’s total monthly take home pay by the total monthly take home pay. In our example above, you’d do $2,000 / $5,000 = 0.40%. When you divide the higher income earner’s income by the total monthly income (3,000 / 5,000) you’d get 60%, so that’s roughly how you’d split the expenses.
Paying based on percentage of income earned means that both parties are paying the same amount in a way that’s equitable, not equal. If you’re the higher income earner in your partnership, it may seem like a raw deal to you to pay more…however, splitting expenses in this way means that you won’t have to cover all the discretionary spending you do as a couple because your partner maxed out on their money like you both would using the 50/50 approach. This also gives both of you the opportunity to invest in multiple financial goals like emergency funds, debt payoff, and investing for retirement…and do it together.
What should you do?
First thing’s first–if you aren’t reading this with your significant other, go ahead and send them this blog post. Then, you need to sit down with them and have a conversation about how you plan to handle your finances going into the future, whether you’re just moving in together or whether you’ve lived together for years…talking to one another about this topic is important. Maybe you’re in a trusting relationship and the joint accounts makes sense for you. Maybe you’ve been splitting everything 50/50 and you now realize this method hasn’t really made sense since you both bring in unequal amounts of money each month. Maybe paying bills based on percentage of income is too confusing and doesn’t work for you. Maybe it will do a world of wonder.
The TL;DR answer to this question is to have a conversation with your partner and decide how you should handle your finances moving forward…together.