At some point, every couple has the shared finances vs separate bank accounts conversation. But, as with all money-related matters, it’s rarely a straightforward process.
Let’s look at the 3 most common options, to help you choose what kind of finance strategy may work best for you…
1. 100% Shared finances
The ‘traditional’ idea of shared finances involves a couple simply merging all their financial assets. You combine your expenses, savings and sometimes your debt accounts, like credit cards and loans too.
Wages from both partners are transferred into these shared accounts, either as a 50/50 split, or a percentage to suit differences in income levels.
This reduces the level of ‘life admin’ and the fees required to maintain two of everything – the most obvious benefit here is simplicity.
Money disputes are a leading cause of relationship stress. Therefore, eliminating the need to discuss every expense, each time someone buys groceries or fills up the car, can considerably ease couple tension.
However, this 100% shared finance option doesn’t suit everyone. There is sometimes friction when one partner has a large debt and the other has none. Or if one earns a much larger wage, or spends more on personal items.
Pros and cons of shared finances
Shared finances really do lighten the admin involved for staying on top of living and other expenses. It just makes things a lot easier, and can make a couple feel more united, emotionally, too. When everything is shared, money is never referred to as my money or your money, it’s just our money.
Another positive is that it’s great to see how much faster savings accounts grow in a joint account. With both parties regularly putting in cash, you reach saving goals quicker.
There are things to consider, before making the leap into shared finances though. What happens if things go wrong between you? Most types of joint bank accounts give both of you equal responsibility – and that includes debts. What if one of you is more frugal than the other? And what happens if you want to buy your partner a gift? You need to be careful they don’t see where you’ve been shopping, when you both have access to all of your accounts.
It’s definitely a good idea to talk to a financial advisor before your take the shared finances leap, just to make sure you are across all the pros and cons of a 100% shared finance relationship.
2. Separate finances
Separate bank accounts keep all of your finances and debts separate from your partner’s. This is more common than you may think. Recent surveys show that one in four couples have completely separate finances. The trend is more pronounced among younger couples who earn a full-time wage and are used to having financial control over all aspects of their lives.
Often, these couples find it harder to give up their independence and the “freedom” of having their own bank account.
Separate bank accounts may also work better when there is a large difference in income, or when a relationship is quite new. It’s also more common when one person has pre-existing debt, from loans or credit cards. As we noted earlier, this relationship ‘inherited’ debt can be a point of friction for couples with shared finances.
But what happens when you need to top-up essentials, like groceries, when you have separate finances? Who pays for those? And what about nights out?
Every couple is different, with some having much less structured financial arrangements than others. When we spoke to a few people who kept their finances separate, they had quite varied ways of managing their expenses:
- the highest earner picks up the costs of social activities.
- expenses are split, so one pays the rent while the other pays the bills.
- they take turns to pay for things like bills, shopping and entertainment.
- less common are couples who go as far as keeping a diary of expenses to be reimbursed, so they don’t pay more than their share.
It appears that, when it comes to separate finances, some kind of strategy is still needed, so that you both contribute to housing and living expenses reasonably fairly.
Pros and cons of separate finances
Split bank accounts are great for couples who want to keep their financial independence while in a relationship. Like fully shared finances, keeping everything separate has it’s pros and cons – and it’s definitely more suited to those who aren’t too concerned with everything being completely equal.
There is a need for open and honest discussions, and some kind of strategy for expenses. Without this, it’s easy for bills and expenses to be paid twice, or missed completely. It’s also possible for grey areas to creep in around each partner’s financial situation. We spoke to someone whose partner racked up a huge credit card debt without them knowing. It only came to light when they approached a bank for a loan.
Let’s face it, money is a common cause of arguments amongst couples. So, if you’re about to start house hunting with your other half, talk to an expert about it all. They’ll be able to establish which financial structure is best for you both, so all you have to argue about is the colour of the sofa and the size of the TV!
3. Shared Finances AND Separate Bank Accounts
OK, so maybe neither shared finances or completely separate finances appeal to you. There is another option; a combination of the two.
How it works: Each partner continues with their own personal bank account(s), but together set up a joint account to service regular bills, living and housing expenses.
This is a happy medium between 100% shared finances and 100% separate finances. It reduces ‘life admin’, and it allows for automated payments from one joint account (or more if required, down the track). It also let’s both partners retain a degree of financial independence.
Pros and cons of a little bit of both
A mixture of shared and split bank accounts is great for establishing a middle ground. Perfect if you don’t want your other half to know how much your mani/pedi costs – or the extent of your craft beer obsession. But also a great way to keep the financial side of your shared lives less complicated.
However, as with separate finances, there is never a complete understanding of your partner’s financial situation. There is always the chance that they may have debts you’re not privy to, that may cause issues if you plan to get a home or other type of loan together in the future.
Again, we strongly recommend you talk to an advisor about how best to structure your finances together. It’s best to get it right from the start.
How does living together affect your taxes?
If you’re moving in together, remember that this will also affect your taxes. We’ve covered for you too, so have a read through our Tax Guide For Couples.