The Art of Merging Finances

Matt Blocki with EWA. Jamison Smith with EWA. Today’s Video we are talking about how to best merge finances if you’re getting married or in a serious relationship and wish to combine accounts into one, or just have systems in place to best manage finances in the context of a relationship.

Jameson first of all, what are some discussions that you would recommend for someone considering doing so? Sure. So main discussion would be around whether you want to merge everything or keep things separate.

It’s really just up to your discretion. But specifically, people always ask us what accounts can be merged, what can’t? IRAs, 401, KS are specific to the individual retirement account. Those will always stay separate.

Anything that’s outside of a retirement account that could be jointly owned. So savings accounts, checking accounts, individual investment account, joint investment account. Those would kind of be around the conversation and a house, as well as what do we keep things separate or do we want to merge them and treat everything as one?

Jameson for someone getting married or merging finances, what are some best practices, discussions that should take place beforehand, some considerations. If there’s going to be a prenup, or if you want to have a prenup, merging bank accounts, how to structure budget and then general philosophies around spending.

Versus saving, what systems have we found most effective? Ewa advising clients that are merging finances, or what general recommendations do we give? Obviously, there’s some very specific individualized based upon people’s philosophies, but if you were to give some general principles in place, what would those be?

Yeah, so one strategy that we have found very helpful is reverse budgeting. It’s having one fixed account between both spouses that will act to pay monthly bills and fixed savings every month to eliminate the decision fatigue.

And bills and savings are now automated every month, and then each spouse having their own. Spending account. That’s just a once per year discussion on hey, how much are we going to spend outside of our expenses and savings to totally eliminate decision fatigue.

And then that way there’s no discussion around who’s spending how much money. Awesome. That’s a good point. A lot of times when we talk to a potential client as a couple, one of the biggest stresses is spending.

And sometimes there’s some things that can come across critical. If everything’s coming one account, it seems like all this money’s here and every decision is being made out of the account. By the time the mortgage and student loans and other things have come out of the account, then it’s kind of a he said, she said on spending the rest of the money.

But that’s automated. As Jameson said, there’s no future discussions from that fixed account. It goes in, it goes out and then the discussion can be once a year, once a quarter as you said in the variable.

But know your account, spend it till you can’t anymore and then it gets refilled with the next paycheck. I think that definitely fixes the problem. It could be a day to day disagreement to more of like a family state of the union meeting once a year.

That’s a great tidbit. So tell us what else are best practices? Let’s say that there’s income differential, one high income earning, one lower income earning spouse. What are some best practices in that case?

Yeah, so reverse budgeting again will help in this situation. The lower income spouse, we can make sure they’re maxing out their employer retirement plan and then with everything conjoined, the fixed expenses are still automated and the higher income earning spouse can fill the other spouse’s spending account because majority of their paycheck is going to retirement savings.

What some other just basic checklist items again for someone getting married or combining finances, things they should look at or consider. Yeah. So I’ll be making sure all beneficiaries align generally.

An assumption maybe of your parents as. The beneficiary before now you get married and the beneficiary on your IRA, you would want to be your spouse. Second thing would be review insurance planning. Generally, once you get married now a life insurance need arises, so making sure you have the proper coverage in place.

And the third one would be generally an estate planning discussion becomes now instead of it just being you, you have two spouses and there needs to be a plan in place if, God forbid, something were to happen.

Thank you for watching. We welcome any questions.