Combining Finances Part One: Creating A Joint Budget

Fiancé and I are in the process of joining our finances. For the sake of my own record-keeping and for the benefit of others maybe going through the same thing, I plan to walk through the steps we are taking to meld our financial lives together.

As a reminder, we’ve decided to structure our accounts in a his-hers-ours fashion:

joint-finances-2018-e1504554198958

To begin the process of bringing our accounts together, I wanted us to start at the very beginning with the most basic building block of a financial plan.

Yes, that’s right: the dreaded budget.

Steps to create a joint budget

  1. Draft list of current recurring expenses to personal credit cards and bank accounts.
  2. Identify which expenses will be considered “joint.”
  3. Outline a basic budget for the household.
  4. Agree on rules for joint non-recurring spending and to add new line items to combined budget.
  5. Check individual credit scores.

Joint versus individual expenses

The first thing we did was lay out all our common expenses and determine whether they would be considered “joint” or “individual.” We agreed that joint expenses would cover those things that are considered “needs” and that are used by us both or pivotal for our general welfare. That means covering the house, the car, health care, groceries, utilities, and basic household and personal care items.

Everything that’s not considered a “need” will be covered by our individual slush funds, which will each get $600/month. This money will not be monitored in our joint Mint account. It’s our own private money that we can do with as we please.

Items that will come out of individual expenses include:

  • Shopping
  • Entertainment (other than Netflix)
  • Takeout/Restaurants
  • Fancy gym memberships
  • Fancy hair cuts, massages
  • Fun individual travel, conferences
  • Excessive amounts of eggs
  • Pokemon
  • Gold-plated waffle iron

The last three items were added by Fiancé. He’s a silly biscuit.

Our household budget

I didn’t realize how much we were spending as a couple until we drafted this combined budget. It was eye-opening and not in a good way.

I’m not going to itemize all our line items, but the below summary by category will give you a good picture of our projected spending. Similar to my monthly updates, this budget does not include mortgage payments or charitable contributions, which are pegged at 10% of our net income.

joint.png

Right now our joint spending is way higher than I’d like it to be. There are a few clear areas of improvement:

  • Once fiancé finds a job that covers his expensive recurring medical costs (which are not being covered by his plan now), we’ll be able to reduce the “Health” category by $400-500.
  • Due to a car accident a couple years ago and his new vehicle, fiancé’s car insurance payments are $285 per month, nearly half our monthly transportation budget. I wager we can shop around and knock off $100.
  • I’ll also be working to combine our cell phone plans and hopefully cut costs by $25.

If we manage to make progress on these three items, we’ll be able to cut our joint non-mortgage spending down to $2250 per month (the number I’m going to focus on for “Barista FI”). That plus $600 each into our individual spending accounts means we’re expecting a monthly non-mortgage outlay of $3450/month or $41,400/year. Which… isn’t great. But it’s a start. Sigh.

Rules for joint spending

Establishing rules for joint spending will help us make sure we’re not silently inflating our expenses and that we feel comfortable with the level of mutual oversight of our joint money.

We’ve decided that we will:

  • Check in with each other when adding new recurring line items, no matter the amount.
  • Check in with each other for one-off purchases other than regular household maintenance items. 

We plan to set most of our recurring expenses on AutoPay and reconcile our budget quarterly-ish. But still there will be a couple dozen times a month we’ll make joint purchases manually. Since it’d be a hassle to text every time we buy anything jointly, the following items won’t require checking in:

  • Auto: Gas, tickets, registration
  • Consumable household items — paper towels, toilet paper, etc.
  • Consumable personal care — shampoo, soap, lotion, etc.
  • Groceries
  • Healthcare expenses: minor

This list probably covers 95% of our manual joint spending. For everything else, we’ll give each other notice and have a brief discussion if needed.

Credit scores

Since the next step to combine our finances involves opening checking accounts and credit cards together, I thought we should make it a habit to check in on our joint credit. Luckily for me, in spite of all my churning, I’m still in the high-700s. Fiancé’s score is nearly identical, so we’re in a pretty good spot credit-wise.

Do you and your partner(s) have joint finances? How do you handle individual versus joint spending accounts?

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Get Married For The Insurance?

Little known quirk about the ACA: you can only sign up for the exchange in the calendar month after your health plan terminates. For instance, if you quit your job January 1st and your employer ends your insurance the same day, you won’t be eligible to sign up for an ACA plan until February 1st (and, no, you cannot backdate). Bonus: If you try to sign up for COBRA to cover the gap, that will invalidate your qualifying event. Which means you’re either stuck with your employer’s $900+/month unsubsidized insurance plan through COBRA or have a gap in insurance for up to 30 days.

Now, don’t get me wrong. I’m grateful for health exchange. Without it, it would be very difficult to get Fiancé health insurance at all due to his preexisting conditions. But this seems like a big policy oversight.

For now, our plan is to let him have a coverage gap and pay his recurring medical expenses in the gap out-of-pocket (which will be expensive, but less so than COBRA). If any emergency comes up, we can enroll him in COBRA which, unlike the ACA plan, can be backdated to his last day of work.

When I brought the issue up with my friend, she suggested to me, jokingly, “Well, you guys could just get married earlier so he can be on your work insurance!”

Which, no. But also maybe yes?

Fiancé and I have been together almost five years, living with each other around three. It’s not like getting married a few months earlier would make much of a difference to our relationship. It’d save us money, not just in health insurance premiums, but also in taxes. People get married all the time for administrative reasons: for health insurance, green cards, lower taxes, etc. Maybe it wouldn’t be so bad an idea?

At the same time, there are some due diligence items I want us to go through as a couple before we get married. Getting a pre-nup in order, for one. Discussing how we’d set up our estate if one of dies, for another. Plus, all the little things from the thousand and two listicles about “What you should ask before you marry your partner?” You know, just in case we’ve missed anything. I’d rather not rush through those steps. Plus, my out-of-state family would probably be a bit dismayed if we got married and they weren’t present, even if there ends up being a wedding later.

After seeing his new health premiums, though, it sure is tempting…

Have you ever made a big relationship decision for financial reasons?

 

Our Plan For Joint Finances

One of the things I’ve been thinking as Fiancé and I get slowly closer to our wedding date is how we’re going to handle finances as a couple. So far, we’ve kept everything separate. But once we get married, especially as we plan to have kids, it would be difficult for us to keep that sort of structure going.

And so after toying around with different models, we’ve settled on a his-hers-ours system for financial management.

Joint Money Map

The following diagram summarizes how we plan to structure our joint finances once we’re married.

Joint Finances - 2018

In this plan we max out all the retirement space available to us, including both our 401k’s and Roth IRA’s. We will each get $600/month as an “allowance” for our personal expenses. All our joint bills will be paid either via our joint checking or credit card. At the end of the month, any remainder we have will be dumped into our joint brokerage account.

Joint Versus Individual Expenses

This structure relies on differentiation between “joint” expenses and “individual” expenses.

Joint expenses are all necessary expenses that are important for us as a family unit. This includes our mortgage, insurance, taxes, car expenses, utilities, insurance, medical, phones, groceries, necessary family travel, and fitness plans. This also includes 10% of our post-tax income going toward charitable contributions like I’ve been doing solo (but instead we get to pick charities together as a family).

Individual expenses are all expenses that are for our individual benefit and fun that are not as high of priorities for us as a family unit. This includes eating out, hobbies, shopping, personal care, and solo vacation travel.

What if we get divorced?

If we get divorced, we’d each get to keep our own his/hers retirement and checking accounts. We would each then “repay” ourselves for the other assets we brought into the marriage and then split the remainder 50/50.

How would/did you structure finances with a domestic partner/spouse?