His and Her Finances

14 May, 2013

His And Her Finances

It’s difficult to learn how to manage finances together when you’ve been managing your finances on you own, for better or worse, up until now. But when you become part of a couple, many things change, and your finances are no exception! Some couples take the traditional path of blending all their finances together, however more and more couples are deciding to keep their finances separate. .

What are the benefits of each option? The benefits of consolidating funds into one checking account includes easier record keeping, simplified money management (ideally), and less paperwork when applying for a loan. In addition, the blending of finances can create a “unified front” in that aspect of a relationship that simply can’t be argued with. Obviously, the drawbacks are that both people are actively using the account and that will make it harder to track transactions and monitor your balance when you don’t know what the other is doing.

On the other hand, maintaining separate accounts will allow each person in the relationship more freedom, because they won’t have to run purchases by the other person. In addition, doing so may create fewer complications in the relationship, allow each person to build their own good credit, and quite simply allow them to maintain a sense of independence. The most obvious downfall to a his and her finance arrangement is that it can be disproportionately unfair. If one person makes $60,000 per year, and the other $30,000, the person making the lower salary may not like the arrangement!

If you do decide to keep “his and her” checking or savings accounts, then you’ll need to find a system for paying house bills and handling other joint finances together. One option that has worked great for many couples is to create a third joint checking account and designate it as the “house” fund. You can set up your separate, individual checking accounts to have money automatically withdrawn from them each month at most financial institutions. You will have to sit down together and decide what amount needs to be in the joint account every month in order to cover the “combined” expenses. In a situation like the above—where one person makes significantly more than the other—it is usual for the higher wage earner to pay a larger portion of the expenses.

Another aspect to consider with his and her finances is credit. This can be considerably beneficial or problematic, depending on your individual credit ratings. However, at some point you may want to apply for joint credit with your spouse. You will most likely want to make big purchases together throughout the marriage such as a car, a house, or appliances, and it’s much easier to do that if you have joint credit. With joint credit, you will both be 100% responsible for the debt, even if you co-sign a loan with your spouse or add your name to your spouse’s credit card account. On the other hand, if you decide to maintain separate credit, the general rule is that you are not responsible for each other’s debt. (The exception to this is if the debt is considered a family expense.)

If one person had bad credit prior to getting married, then the person with good credit may want to keep their credit separate. Why? Because if you apply for credit together, the lower credit score will bring down the higher one.

The best advice? Be upfront about your financial weaknesses, and discuss a plan—before the big day—to handle them. Once you have identified the potential pitfalls, it will only take a little planning to overcome them.

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