It is an exciting time of your life – you’ve graduated college, moved out on your own, landed your dream job, and you’ve even been lucky enough to find that special someone. The future is looking bright, but you have questions about money mixing into your love life. This dilemma is no small matter; in fact, a study published by SunTrust Bank discovered that 35% of people experiencing relationship stress blame money as the primary culprit*.

The Basics: Transferring Funds – Platforms to Use With money-transferring apps available at the click of a button, splitting the cost has never been easier. But easy doesn’t mean safe, or effective. If you have never been affected by fraud, then you probably don’t question these apps, but as someone in the financial services industry, I cannot say how important it is to stay protected and be aware of how these apps operate; who can guarantee your funds if something should happen?

Most banks offer a user-friendly mobile app or online site that also simplifies the process of sending/receiving money to/from a significant other. This is a great option, as it provides safety yet still allows you to keep your checking accounts as individuals.

The other suggested platform of use for splitting bills is to open a joint checking account. This option is geared toward those in relationships who have started to completely combine their lives. I say this because each owner in a joint account can withdraw any amount of cash with proper identification, even if they weren’t the ones who funded the account.

Next Steps: What’s Fair? The next step is to determine whether each partner will pay 50/50 or if there will be another arrangement. It is important to have an open and honest conversation with your significant other regarding this decision.

Based on Percent of Total Household Income: This is a simple concept where both partners add up their net income to get a total: Say Partner 1 brings home $5,000/month and Partner 2 brings home $3,200. Their combined household monthly income would be $8,200; therefore, Partner 1 would pay 61% of all household costs ($5,000/$8,200). Partner 2 would pay 39% of all household costs.

Based on Income Levels: This concept is more of an art than an exact formula. Say one partner decided to go back to school. This leaves a question in terms of fairness, as one partner has sacrificed earnings in an effort to have better opportunities in the future. Here, I would suggest deciding on a “fair” amount for both parties to contribute to household expenses. It may even be easiest to have a fixed dollar amount come out of every paycheck that is intended to be used for expenses. For Partner 1, this amount could be $450/month, for Partner 2, it could be $1,500/month, it will vary based upon your lifestyle and what you decide is fair.

The above conversations can be especially difficult to have if partners came from households who had vastly different approaches to finances. That’s okay, it is important to not bring biases into these conversations. Everyone will have an amount or percentage that works for them. Be sure to review from time to time as situations change. You may also find it helpful to keep an active spreadsheet of all payments made. This will help you track how much you spent in a months’ time, where those funds were spent, and also allows you to see the totals each partner paid.

Fun Money vs. Household Money vs. Individual Debt: Fixed expenses stay the same every month (rent/mortgage, car payment, savings), and variable expenses range from month to month (utility bills, groceries, gas, “fun-money”). Together, you will need to discuss which expenses will be split and which ones will stay as individual. Next, you will need to decide a fair way to allocate (above). Combining debt can be tricky because if anything should happen to a relationship you are now both on the hook. If this isn’t a concern, combining debt may be for the better as two people together may get better financing than as two individuals.

You may notice savings was included in the above fixed expenses list, this is an important part of your budget. You should factor in how much you and your partner wish to set aside for goals such as: emergency accounts, vacations, and retirement. Retirement could be decades away now, but starting early is critical and will result in much less stress later in life. Albert Einstein even said, “Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” In a side by side comparison, a person who starts saving $5,000 from 30 to 65, earning 6% rate of return will have $300,000 more than a peer who waits until 40**. At the very least, I always encourage people to contribute what their employer is willing to match, to not do so would be passing up a benefit you have earned.

I like to look at a couple as a team. In a successful team, individuals make sacrifices for the greater good of the whole, and the team flourishes as a result. I encourage you and your partner to discuss your financial goals; agree on what the “team” wants in the future, both short- and long-term. Then, compose a budget that works for you in order to accomplish these goals, sprinkling in the above suggestions wherever you find appropriate. Take the first step by having the conversation, and if that requires having a financial representative present in order to provide insight, please feel free to reach out to one of your trusted Wealth Advisors at Canandaigua National Bank & Trust.

*https://www.cnbc.com/2015/02/04/money-is-the-leading-cause-of-stress-in-relationships.html
** $5,000 annually invested at the end of the year, 6% annualized return. Early investor dollar amount at 65: $595,604.33. Delayed investor dollar amount at 65: $295,781.91.