Combining Finances With Your Partner
Finances are complicated, and combining finances with a partner may seem like an intimidating process. But it’s a valuable step toward building a life together, which means it needs to be thoughtfully done. From navigating decisions about debt and savings to purchasing financial protection like life insurance, there’s much to consider. As you merge finances after getting married or establishing a domestic partnership, consider the following steps to make it as simple as possible.
Step 1: Review All of Your Financial Details
Reviewing your financial details is a crucial part of planning for the future and combining finances with a partner. The process is made much easier by having all the information you need ready to go before you start. You’ll want to begin by gathering all relevant documents, including:
Bank statements, like checking and savings accounts
Monthly bills, like utilities, cell phone bills, and rent or mortgage payments
Credit card statements
Any loan or debt agreements you may have, like car payments, student loans, etc.
Investment accounts, like brokerage accounts
Retirement accounts, like 401(k), pension, and Roth IRA accounts
Once you have gathered all of this information, it’s time to take stock of your total income and expenses.
Start by adding all your monthly income from wages, investments, pensions, and other sources. Then total up all your monthly expenses, including rent, bills, and loan payments. Make sure to account for automatic subscriptions that come out of your account each month, as these can quickly add up.
Now you have a clear picture of how much money is coming in and going out each month—essential information when it comes to budgeting for the future.
Step 2: Create a Budget
Creating a monthly or yearly budget is an important step in the process of combining accounts and setting financial goals. It will help you track your income and expenses, monitor your spending habits, and make sure that any money you have left over after paying your bills is leveraged to reach your financial goals.
The first step in creating a budget is to use the information you gathered about your income and expenses to get a general sense of money coming in and money going out. Next, you’ll want to:
Layer additional expenses on top: think money needed for groceries, buying house supplies, shopping, dining out, etc.
Factor in any one-time payments such as taxes, yearly HOA dues, or holiday gifts that you may need to save up for each year.
You can then use this information to create a spreadsheet with an estimate of how much money you earn each month and how much you spend. It helps to set realistic goals that are achievable within the length of your budgeting cycle. These goals could include saving up for a major purchase, like a home, or building an emergency fund.
By creating a budget and sticking to it, you can help ensure that any leftover money is being put toward any short- and long-term financial goals rather than being spent on non-essentials. A budget also offers accountability for both you and your partner by keeping track of exactly where your money is going, so there are fewer chances of overspending or impulse purchases.
Step 3: Get Out of Debt
Getting out of debt can be an intimidating task, but it is possible with a few simple steps and a bit of dedication. There are two strategies commonly used to pay down debt: the snowball method and the avalanche method.
The snowball method addresses debt from smallest to largest by starting with the account that carries the smallest balance first. You work to pay that off while only paying the minimum payment on all other accounts. When that small account is paid in full, you roll that payment toward the account with the next smallest balance, working your way up to the largest balance. The payment amount “snowballs” as you roll the money used from the smallest balance to the next, growing larger and increasing the rate of the debt that is reduced.
The avalanche method involves focusing on the account with the highest interest rate first. You pay as much as you can toward that high-interest rate account while paying just the minimum monthly payment on other accounts. Once it’s paid off, you put that money toward the account with the next highest interest rate, and so on. This method resolves the most expensive loans first (the loans that cost you the most money in terms of interest accrued).
Next, consider whether there are any ways to increase your income or reduce your expenses in order to free up more resources for repaying what you owe. This could involve taking on extra hours at work or cutting back on certain luxuries such as dining out or non-essential subscription services. Make sure that whatever you decide, it doesn’t leave you feeling strapped for cash each month, as this will only make matters worse in the long run.
Finally, create a realistic timeline for paying off all debts and stick to it! There may be times throughout your repayment process when extra funds become available unexpectedly, like through tax returns, bonuses, or other forms of windfall. If this happens, put these towards paying down what you owe rather than splurging them away!
When it comes to what happens to debt when someone dies, it depends on who was responsible for them and what type of debt they owed. Generally speaking, unpaid debts are not passed down through inheritance, so if someone dies without enough assets to cover their liabilities, then those liabilities will typically remain with their estate until creditors have been paid from leftover assets (or potentially family members in some cases).
Step 4: Save for Retirement
Saving for retirement is an important part of planning for the future and combining finances with your partner. It helps ensure you have enough money to live comfortably in your later years and gives you one less thing to worry about in your later life. Make sure you’re taking advantage if your employer offers a 401(k) match or other retirement benefits. You can explore additional retirement options, such as a Roth IRA, a diversified investment portfolio, or even a simple savings account.
One way to save for retirement is through life insurance retirement plans (also known as LIRPs). These plans allow you to save a specific amount each month with minimal risk, while also providing protection in the event of death or illness.
Life insurance retirement plans also come with added benefits such as tax deductions on contributions, flexibility with withdrawals, and potential bonuses depending on how long you stay enrolled in the plan. You also have penalty-free access to the cash value (if borrowing) that can supplement income without impacting your tax bracket. This makes life insurance retirement plans an attractive option for those looking to maximize their savings while minimizing risk.
Step 5: Buy Life Insurance
Buying life insurance is an important part of long-term financial planning and can help provide much-needed peace of mind when it comes to protecting your loved ones. Life insurance policies are designed to provide your beneficiaries with a financial payout when you pass away, meaning that you can rest assured your loved ones will be taken care of regardless of what the future holds.
When it comes to combining finances, life insurance provides an additional layer of protection against any potential losses or debts that may arise in the future. For example, if one partner passes away, their spouse may be left with a significant amount of debt they would otherwise not be able to cover on their own. With life insurance, this financial burden could be alleviated, as the policy could provide enough funds to cover these expenses. Overall, buying life insurance is an easy way to ensure long-term financial security for both you and your partner.
Step 6: Act on Your Findings
Reviewing your finances, setting a budget, and paying down debt are key steps when combining finances with a partner. Once you have those milestones completed, it’s time to actually combine finances. This means you’ll need to decide on the following:
Where and what kind of bank accounts to open if opening new accounts, or adding the other partner’s name to existing accounts
Who to buy car insurance from
Which person gets to change cell phone carriers
Enlisting the help of a financial planner to help evaluate future needs based on your combined finances
Find the Right Life Insurance with SelectQuote’s Help
SelectQuote may not be able to help with the cell phone plans, but we can help finish the process of combining finances by helping you shop for life insurance. Our team of licensed insurance agents can help you find the right kind of policy to meet your needs in just minutes. Whether you want financial protection for your new family or an additional tool to save for retirement, let us do the shopping on your behalf to compare plans from dozens of highly trusted carriers.
