Tying the Knot in a Meaningful and Memorable Way (Without Losing Our Savings or Sanity)

Monday, November 17, 2008

Q &A: Combining Finances

Reader Question: My fiance and I are in the process of attempting to combine finances to limit hassle while still maintaining independence. We are trying to figure out if you have separate savings accounts for all your "funds" or if you keep them in the same savings account but keep track some other way? Any other details you have would be great. We have been wrestling with this stuff for a couple weeks now.

In the system above (which is explained in more detail here), we literally have seven different accounts. The savings accounts are in blue, while the checking accounts are in orange. Our accounts are at three different banks: the dark purple = Bank of America, the green = Well's Fargo, and the light purple = ING Direct.

Matt and I have found that the savings accounts are the easiest ones to set up. Our online bank, ING Direct, lets us start as many as we want for free. The checking accounts are limited to one per person, so my name is on Account #1 up above, and Matt's name is on Account #2.

We also have one more category for savings--Retirement. This money, however, goes into our Roth IRA at Vanguard and Matt's 401k through work.

One of the things that works best for us about this system is the separate savings accounts. ING Direct lets us set up monthly transfers. Matt and I have a budget breakdown for the month. Here are our categories:

Savings: Car
Savings: Home Improvement
Cell Phones
Gas (Home)
Water and Trash
Home Insurance
Car Insurance
Personal Hygiene
Health Insurance
Security System
Car Wash
Eating Out
Sara's Allowance
Dog Costs
Matt's Car Gas
Matt's Allowance
Sara's Car Gas
Savings: Travel
Social Justice Donations

So, Matt's paychecks go in on November 5 (my paychecks are on a less-regular schedule because I'm an educational consultant). On November 6, we have a set amount go into vacation, car savings, and home savings (based on our pre-planned budget). We don't even have to think about savings.

Because we have very tight personal allowances ($70/month), we are able to put a significant amount of money into our vacation fund every month ($320). We started this system in August and have already saved more than $1000 to go toward our upcoming vacations (Thanksgiving in Indiana, Christmas in Florida and Indiana, our two-week May honeymoon in Kaua'i).

This kind of system looks complicated (and it is a little tricky to set up all the pieces), but once it's in place, it basically runs itself because everything is automatically transferred to the right place.

Right now we have separate check cards for Accounts #2, #3, and #4. That way, if I'm paying for something out of my personal account, I use card #3. If Matt is paying for something personal out of his allowance, he uses card #4. If we're buying something for both of us (movie tickets, groceries, etc.), then we use card #2.

That piece of it might get a little revised because I think it's better to use a Discover card for the bulk of our purchases rather than debit cards (as long as the card has no annual fee and we are super-diligent about paying off the card each month and never spending more than we have in our budget). With Discover cards, we are earning back some of our money (plus we are earning interest on the money that is withdrawn from our account only once a month to pay our credit card bill as opposed to it being taken out in increments throughout the month).

One piece that's missing from our model that you'll find in financial books is an emergency fund. For us, all of our other savings accounts (car, home, and vacation) count as our emergency fund. Our car fund, for example, is a savings account for the next car we need to buy. Since we have recently paid off my car after four long years, we now have no car payments. Instead, we pay ourselves each month. Our goal is to be able to buy our next car in cash if at all possible, so we can avoid wasting so much money on interest payments.

However, if we had an emergency and we weren't able to work for some reason, then we would tap into that fund (as well as our home savings fund and our vacation fund, since those categories are important but not-urgent).

I hope I've answered your question! If I've raised any new ones, please let me know...

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DCKate said...

Since we're combining households next month, we started having this conversation over the weekend. Your post is very enlightening! Our system in the end is going to look similar. I do have two questions for you though - Do you maintain a balance in the ING account, or is that just used as a pass-through? Also, for the car, home and vacation savings, do you actually have three separate savings accounts? We were thinking two savings accounts - one as an emergency fund and one for other savings - so home, vacation, etc. would all be together. Did you consider combining those? If so, what made you decide against it?


Hanna said...

I like this system a lot. My partner and I are planning to do something similar, but one of the questions we're running into is what goes into our personal allowances. If you go out to dinner with your friends (and not with Matt), is that under personal allowances, or does that count toward the general shared pot? Is personal hygiene under personal allowances or the shared expenditures? How about clothes or shoes? Thanks for your advice!!

Unknown said...

I really like your system. It is along the ideas that I was thinking about, but you have it set out so nice and clear (I love the visual). My fiance and I aren't combining finances yet, but it's something that we will be doing before too long, I will have to show him this post.

Sara E. Cotner said...

@ dckate:

We do have three separate savings accounts for future cars, home improvement, and travel because the separate buckets help us save different amounts for each thing. If it were all in one big bucket, for example, we might be tempted to spend it all on our honeymoon. But because it's separated out, we know exactly how much we have saved for our trips versus our future cars (and how much more we still need to save!).

Because it was free for us to open all those separate accounts and set up the transfers to happen each month, we just went ahead and did it that way.

To your second question: In general, we don't maintain a big balance in the main ING account (Account #1). There is a little padding because we never want to overdraft on anything, but the goal is to have most of our money transferred into the right buckets right away.

@ hanna: This part is tricky! In general, anything we do or buy separately comes out of our personal allowances. So, if Matt runs a marathon, the registration fees come out of his allowance. When we ran the Human Race together, the registration fees came out of our joint allowance account because we considered it "Entertainment."

Dinner, on the other hand, would come out of our joint allowance (even if we eat separately) because we consider meals to be covered under our joint expenses. However, trips to Starbucks for morning drinks or mid-day snacks come out of our personal allowances (because those tend to be wants rather than needs).

There's definitely a lot of conversation that happens about the gray areas, even though the system is in place. In general, we pay for our needs out of our joint accounts, as well as our joint wants (like vacations and home improvements). We pay for our individual wants out of our personal allowances.

There's still some gray area here, as well. For example, I get my legs and bikini waxed once a month because a) it's way easier to me than shaving all the time and b) when I shave, my hair grows back very coarsely and it's uncomfortable. Matt and I have decided that I don't have to pay for this out of my individual allowance. Similarly, we decided that he doesn't have to pay for his running shoes out of his personal allowance.

We try to pay for our clothes/shoes/books out of our personal allowances, but if we really need something (e.g., more professional clothes for a new job), then we just talk to each other about it.

The underlying principles that guide all our decisions are:

1. We want to minimize frivolous spending on passing wants (hence our very tight personal allowance budgets) and maximize our savings so we can purchase more lasting wants (like furniture and vacations).
2. We want to be equal partners. Even though we make different amounts of money, we want to be on level ground in our relationship.
3. We want to minimize potential bickering and don't want to always ask for permission to buy little stuff.

Phew! That was a very long response. I hope I answered both your questions!

Brandi@ Flights of Whimsy said...

I think this is a great way to divide things up. I've read a lot of articles from both financial and relationship experts and they say having your own allowances is very important. We'll be doing something similar but I'm not quite sure exactly how we'll handle it. He has a lot of student loan debt that he would like to keep seperate and I have a lot of investment/savings accounts that I've had for a few years. Any advice on handling that kind of thing would be helpful! Thanks for the post, most people never get down to the nitty gritty in wedding blogs!

Unknown said...

This is fantastic! I hope people keep asking questions and responding! I feel like it's really hard to get people to talk honestly about money.

We're looking at a very similar system. It's important to both of us to feel a sense of autonomy at the same time as working hard toward the same goals.

But then when we layed it all out, I was like, "Do people really do this?"

I'm glad to know that, yes, people really do. Keep up the posting!

Jess said...

Hi Sara,
I've been reading your blog for some time now and thought I should comment on this one! My fiancee and I live together and had a lot of accounts before we combined even more so I understand the graph! I just found this website yesterday that I think would help you a lot: http://www.smartypig.com/
It is specifically to save for goals but it is at a bank (FDIC insured) but online!

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